NICKY HOGAN

Indonesia

Indonesia Stock Exchange: “Sailing North”

ndonesia has the potential to be the With the privatization of ny’s four-year strategic planning term to biggest market in the region. In 2017, Stock Exchange in 1992, and the consoli- 2020, called “Sailing North”. The compa- I Indonesia has a total population of dation of and Sura- ny’s main goal is to become a fair, order- nearly 262 million people, the largest in baya Stock Exchange to become Indonesia ly, and efficient capital market with the Southeast Asia and the fourth in the world. Stock Exchange (IDX) in 2007, the Indone- biggest trading value in ASEAN. There are It is also the largest economy in Southeast sian market is set to achieve a more bril- four strategic goals in this master plan: in- Asia in terms of GDP, which reached USD liant performance (Figure 1). creasing the number of active investors, in- 1,000 billion. In 2016, IDX launched their compa- creasing the number of listed companies,

Figure 1: Jakarta Composite Index and IDX Transformations

6,500 19-Jan-2018 7-Dec-2012 Highest Index 6,000 Establishment 6,490.896 2-Mar-2009 of SIPF 5,500 23-Jul-1997 JATS Next G 4,290.796 Financial Crisis 6-Oct-2004 1,256.109 718.189 Launching of Stock Option 2-Jan-2012 4,500 856.060 Establishment 6-Aug-1996 8-Oct-2008 of OJK Founding of KPEI 9-Sep-2002 Suspend Trading 3,809.140 4,000 554.790 T+4 to T+3 Settlement 1,451.669 430.271 24-Jul-1995 30-Nov-2007 3,500 Consolidation of Merging of SSX into 28-Mar-2002 the SSX into JSX 2-May-2016 Bursa Paralel Implementation of to become Adjustment 3,000 Indonesia Remote Trading the IDX to Tick Size 509.532 481.775 2,688.332 4,808.319 2,500 22-May-1995 21-Jul-2000 Automated Scripless 2-Jan-2013 6-Feb-2017 Trading ( JATS) Margin Trading 2,000 Trading Extending 461.389 512.617 Trading Hours Regulation Easing 4,254.816 5,395.995 1,500 13-Jul-1992 Privatization of 23-Dec-1997 Founding of Jakarta Stock 6-Jan-2014 KSEI 1,000 Exchange Adjustment to 397.031 321.544 Lot Size & Tick Price 500 28-Oct-2008 4,202.809 Lowest Index in 2008 1,111.390 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: IDX

Indonesia Stock Exchange: “Sailing North” | 9 INDONESIA

strengthening exchange members, and Papua – the eastern-most province, takes learn about capital markets, open a secu- strengthening the resilience of capital mar- approximately seven hours, almost equal rities account to become an investor, and ket industry. to the flight duration from Jakarta to To- start investing or trading. In the last two To execute the master plan, IDX and kyo. Indonesia consists of more than 16,000 years, the number of investment galleries other Self-Regulatory Organizations (SRO) small islands, grouped into seven major is- has doubled to more than 300 all over In- that consist of Indonesia Clearing and lands which are Sumatra, Java, Kalimantan, donesia. Guarantee Corporation (KPEI) and Indo- Bali & Nusa Tenggara, Sulawesi, Maluku Another strategy to expand IDX’s net- nesia Central Securities Depository (KSEI) and Papua. To reach all potential investors work is providing accurate capital markets work together to develop the Indonesian across Indonesia, IDX must choose the most information to all stakeholders through capital market industry. KPEI provides effective method for market development. social media and establishing a capital proper and efficient clearing and settle- On 12 November 2015, IDX initiated market TV station called IDX Channel. ment guarantee services as well as other the “Yuk Nabung Saham (stock saving)” This station broadcasts news related to the services under the terms stipulated by the campaign. This campaign aims to change economy, business, and capital market, es- Financial Services Authority of Indonesia mindsets and saving habits into an invest- pecially news related to the activities of list- (OJK). On the other side, KSEI functions ing society. Public perception has been ed companies such as annual shareholder as Depository and Settlement Institution wrong about stock investments. Most peo- meetings and public exposure for all inves- (LPP) in the Capital Market by providing a ple will say that they are expensive, unaf- tors throughout Indonesia. fair, orderly, and efficient securities central fordable for certain communities, risky, The use of technology has been very depository and securities settlement ser- and speculative. These perceptions have helpful in increasing the number of inves- vices. IDX, KPEI, and KSEI are part of SRO caused people to hesitate investing in stock tors. By the conversion of physical paper in Indonesian Capital Markets. SRO has the and other capital market instruments. shares into electronic holdings in 2000, the authority to make technical regulations for In this campaign, IDX partners with change from floor trading to remote trad- their members. many other private institutions and orga- ing in 2002, and the application of internet nizations to promote stock investment. and mobile trading, the capital market in- Among others, IDX collaborates with listed dustry has become more efficient and at- companies to organize a capital market ed- tracted more people participants. ucational program for their employees so The minimum size of initial depos- they gain insight into how to invest in the its, which used to be around USD 1,000, Increasing the Number capital market and may then open a secu- has now gradually been reduced to under rities account for their investments. USD 100 – even just USD 10 for academ- of Active Investor Exchange members also help to in- ics – hence enabling anybody to become a crease public awareness through massive stock investor. To engage individual retail campaigns, either “above the line,” such investors, the IDX reduced the number of as through television commercials, radio, shares in a trading lot from 500 shares to cinema, billboards, commuter line, news- 100 shares in 2014. Therefore, it is not sur- Based on a survey conducted by the OJK in paper, and electronic media, or “below the prising that the number of retail investors 2013 to 8,000 respondents in 20 provinc- line,” through seminars, workshops, inves- continue to grow and that they are coming es, Indonesia’s financial services literacy tor forums, and regularly scheduled capi- from different backgrounds, ranging from index (how well people understand about tal market school. students, factory workers, even farmers financial services) was only 21.84 percent, Equal distribution of accurate infor- from rural areas. After the Yuk Nabung while the inclusion index (level of utiliza- mation to the entire public is an important Saham campaign was released, IDX start- tion of financial services) reached 59.74 factor to attract regional investors. There- ed a program called Desa Nabung Saham percent. Furthermore, literacy and usage fore, expanding IDX’s network throughout (stock saving village) that educates villag- rates in the area of capital markets, which Indonesia is a must. IDX aims to bring the ers about investment options, warns them stood at 3.79 and 0.11 percent respective- capital market closer to regional commu- about false investment schemes, and pro- ly, are the lowest compared to the other nities, and one way of doing that is by es- motes capital market investment. financial services industries. This means tablishing representative offices in every The number of capital market inves- that among all of , fewer than province of Indonesia. tors has increased to more than 40 percent 10 million people understand about capi- For the last two years, IDX has been over the last two years. Based on the data tal markets and could be seen either as a intensively opening additional represen- at the end of October 2017, there are more drawback or, instead, as a huge potential tative offices throughout the country. Cur- than 600,000 stock investors in Indonesia. market. rently, IDX has 28 representative offices In addition, there are more than 500,000 An increase in the number of active with a target of 34. These representative of- mutual fund investors. Therefore, togeth- investors in IDX will directly boost the val- fices serve as educational centers that pro- er there are more than a million investors ue of stock trading. Hence, IDX promotes mote capital market investments to public. in Indonesia, based on their unique Single investor development activities through IDX also provides a place for securi- Investor Identity. This number is of course collaboration with the SRO, IDX members, ties companies to expand their business to still very small compared to Indonesia’s listed companies and other supporting in- other regions. Through cooperation with population of 262 million people. Howev- stitutions. the securities companies and universities er, this suggests that there is a huge poten- The main challenge for Indonesia is throughout Indonesia, IDX opens invest- tial to increase of the number of Indone- how to attract investors is the vast area of ment galleries on many campuses where sian investors in the future. the country. A flight between Aceh – the not only students and academics but also Investors nowadays are becoming western-most province in Indonesia, and the people in the surrounding areas can more aware of the benefit of investing on

10 | NOMURA JOURNAL OF ASIAN CAPITAL MARKETS | Spring 2018 Vol.2/No.2 regular basis and over a long term period, panies has increased 15.7 percent, a sig- and “go public” workshops are held regu- as voiced through Yuk Nabung Saham cam- nificant growth compared to other ASEAN larly, in collaboration with the Chamber of paign. The number of active investors per countries (Figure 2). Commerce and Industry, the Association of month (who trade at least once) reached As with the number of investors, Young Entrepreneurs, bankis, accounting 100,000 investors in 2017, an increase of there is also great potential for listing do- firms, and existing associations. 25 percent compared to 2016. Additional- mestic companies as public companies. In "To Persuade" is an effort to provide ly, these new investors have contributed this strategic objective, IDX seeks to expand an efficient, easy and attractive fund-rais- 50 percent to the growth of daily average its role as a source of financing outside the ing mechanism. Targeted companies are trading value this year and 20 percent of banking industry by expanding public state-owned enterprises (SOEs) and their that comes from new retail investors. capital access for companies across Indo- subsidiaries as well as start-up companies, nesia, start-up companies, small and me- SMEs, and innovative industries. IDX and dium-sized enterprises (SMEs) and inno- underwriters have given intensive go pub- vative industries. To achieve this, there are lic socialization through 1-on-1 meetings four tactical plans: "To Ease", "To Educate", with SOEs and their subsidiaries. As a re- "To Persuade" and "To Enforce". sult, the SOE Ministry has committed to list Increasing the Number "To Ease" focuses on improving 14 SOE subsidiaries on IDX within the next companies’ ease of access to funding from two years. In addition, the Government of of Listed Companies the capital markets. Since 2016, IDX has Indonesia has begun to utilize the capital established six Go Public Information Cen- market to finance Jokowi-JK's infrastruc- ters (PIGP) in five major cities in Indonesia ture projects, starting with the issuance (Jakarta, Bandung, , , of two EBAs by PT Jasa Marga (Persero) and Medan). Through the establishment of and PT PLN (Persero). IDX also launched As one of the most attractive sources of PIGP, local companies that are interested to IDX Incubator in March 2017 to facilitate funding for companies, the capital market know more about the benefits and process the development of start-up companies in is still less appealing to business players. At of going public can obtain information di- Indonesia, including pitching to venture 563, the total number of listed companies rectly in their cities without having to go to capitalists. in Indonesia is relatively small compared the IDX’s head office in Jakarta. In July 2017, the OJK issued rules to that in some neighboring countries. “To Educate" focuses on increasing to encourage SMEs to list on the stock ex- However, with the growing economy and the awareness and giving socialization to change. The capital and financial report improving investor confidence, more and prospective listed companies as well as criteria were simplified, especially for the more domestic firms are interested in rais- providing them with ongoing education. small enterprise category. IDX also further ing funds from the capital market. In the The tagline of this program is "No day with- encourages SMEs to join the capital market last five years, the number of listed com- out meeting the issuer". Public seminars by providing a development board that al-

Figure 2: Number of Listed Companies in ASEAN Countries

2013 2014 2015 2016 Oct-17

910 905 902 903 901

776 775 769 757 749

672 656 -0.1% 639 613 584 559 521 537 -3.5% 506 483

15.1% 340 320 15.7% 301 305 307 268 257 263 265 265

13.0% 4.3%

Malaysia Thailand Indonesia Vietnam Philippines

Note: (1) Data is as of October 2017 (2) Vietnam includes the companies listed on the Hochiminh Stock Exchange only. Source: World Federation of Exchanges

Indonesia Stock Exchange: “Sailing North” | 11 INDONESIA

lows small companies with minimum Net and 10-year Government Securities. Look- of investor protection mechanisms, Tangible Assets of IDR 5 billion to go pub- ing ahead, IDX will continue to develop improvement of corporate governance lic. Even when their financial statements derivative products for institutional inves- and risk management, and development show a loss, such firms can still be listed tors, especially for hedging. The improve- of services and capital market product as long as they can provide positive projec- ment of infrastructure for AB will include distribution. The existence of support- tions and future prospects. the development of General Clearing Mem- ing infrastructure such as technology "To Enforce" is to use the law to ber, the acceleration of transaction settle- and a qualified data center is crucial to encourage companies to list in Indonesia. ment from T-3 to T-2, and development support exchange activities and trading Two types of companies are targeted: for- of information technology for AB through system renewal. eign companies with 50 percent of their the establishment of IDX’s subsidiary in the The last tactical step for realizing assets and revenues derived from Indone- field of information technology. effective operational development and sia and companies that owe a minimum of The total number of WPPE working competent human resources is by devel- IDR 1 trillion (USD 74 million) in bank debt. in AB is currently only 3,000 people and oping securities financing and strength- The Indonesian people should be able to has been stagnant over the last five years. ening the functions of IDX’s subsidiaries. enjoy the growth of foreign companies This stagnation leads to the limited number Other steps include organizing a Capital through the issuance of their shares in IDX. of daily active investors due to the limited Market Professional Development Pro- In addition, since companies that owe a capacity of WPPE in serving its customers. gram and improving the quality and lot to banks are indebted to the public and IDX's tactical step to improve WPPE is by quantity of certified capital market pro- society, it is fitting that these public com- expanding the region and number of subsi- fessionals. panies should be monitored by the public. dized WPPE training and exams for public The best form of supervision is through the throughout Indonesia. capital market. There are approximately 124 companies with a minimum debt of IDR 1 trillion to Indonesian banks. Strengthening the Resilience of Sharia Capital Market Indonesia’s Capital Strengthening of Market Industry Exchange Members As many as 87 percent of Indonesians are Muslim, and among them 64 percent, All development strategies must be or about to 145.4 million people, are of accompanied by strengthening the re- working age. Indonesia’s population of silience of the capital market to gain working age Muslim people is larger Exchange members (AB) have an enor- the confidence of market participants, than that in the world’s main sukuk-is- mous role to play in increasing the number especially investors and listed compa- suing countries such as Turkey, the UK of active investors; they are even the spear- nies. Strengthening resilience can be and Saudi Arabia. Hence, the largest po- head of investor development. To support achieved by giving good quality and con- tential sharia market in the world is in this role, IDX embarks on a so-called AB sistent services to stakeholders, provid- Indonesia. strengthening strategy consisting of capi- ing competitive capital market products, For the last five years, the Sharia tal enhancement and business expansion providing exchange-related facilities capital market in Indonesia has grown of exchange members. The increase in and services, managing support infra- by 3,000 percent in terms of investors AB capital is achieved through relaxation structure for exchange activities, giving and by more than 50 percent in terms of margin rules by capital classification as effective support and operational devel- of sharia securities. To continue to im- well as the development of market-maker opment, and finally, preparing good and prove and to work on the potential of the functions. In February 2017, IDX expand- competent human resources. Shariah capital market in Indonesia, IDX ed its margin shares*1 from the previously IDX continuously improves mar- is currently developing a Sharia Stock restriction of only LQ45 shares to 180-200 ket surveillance and the consistency Exchange with the vision to become the shares. An AB that can provide margin fa- of law enforcement as a form of giving center of excellence, the center of devel- cilities to its customers is limited to those good quality and consistent services to opment and Islamic capital market hub with capital of more than IDR 250 billion stakeholders. In addition, IDX is current- in Indonesia and in the global Sharia (USD 19 billion). ly in talks with Financial Market, capital market industry. AB expands business through ad- and to Unlike the capital market in gen- dition of products, improvement of infra- develop a Sharia Capital Market through eral, the Sharia capital market bases its structure and increasing the number of the establishment of Sharia Securities trading mechanism on Islamic law and Broker-Dealer Representatives (WPPE). In Exchange in Indonesia. regulation. The Sharia capital market April 2017, IDX launched a bond trading IDX provides exchange-related fa- has lower market risk than the general platform on the stock exchange. Further- cilities and services by providing condu- capital markets. Sharia securities must more, in May 2017, IDX launched a deriva- cive exchange regulations, optimization have real assets as their underlying tive product, called Indonesia Government of exchange-related information, im- assets. Sharia effect cannot be used as Bond Futures, based on the underlying 5- provement of IDX website, improvement leverage and transactions must be on a

12 | NOMURA JOURNAL OF ASIAN CAPITAL MARKETS | Spring 2018 Vol.2/No.2 cash basis. To conduct a capital market Notes on Sharia principles, Indonesia has es- tablished related capital market infra- *1 LQ 45 is a stock index comprising 45 stocks structure including fatwa, regulation, that meet some criteria such as market cap- account opening processes, and book italization and transaction value. transfer of Sharia securities accounts. Closing A Sharia online trading system has been developed by 12 exchange members in Indonesia. The online sha- NICKY HOGAN ria trading system aims to help increase the number of Sharia investors and the value of Islamic securities transactions, As a major tropical tourism destination, Director of Business Development, Indonesia as well as to facilitate investors in con- Indonesia continuously records high eco- Stock Exchange ducting Islamic stock transactions that nomic growth. The confidence of domestic comply with the principles of sharia and foreign investors in Indonesia’s Capital Nicky Hogan serves as Director of Business and to increase the liquidity of sharia Market can be seen in the Investment grade Development of Indonesia Stock Exchange shares on IDX. Indonesia’s capital mar- rating it received from three global rating since 2015, in charge of the Regional Devel- ket offers many kinds of sharia-compli- agencies (S&P Global Rating, Moody’s, and opment, Investor Development, Prospective Issuers development and Research Divi- ant investment instruments, e.g., 343 Fitch) and the significant annual growth sions. He has been working in the capital sharia stocks, 160 sharia mutual funds, of JCI. In addition, IDX has demonstrated market industry since 1998, serving in var- a sharia ETF, 68 corporate sukuk, and 29 strong growth compared to other major ious positions in the operations and mar- government sukuk. Sharia stock trading stock exchanges. The exchange increased keting area for several prominent securities contributes about 57 percent of the total more than 200 percent over the last ten companies in Indonesia. He is a regular value of trading on IDX. Sharia stocks years and its 15.32 percent increase in contributor of capital markets articles in a dominate the number of stocks traded 2016 was the second highest rate of growth number of press media and the author of Yuk on IDX. Sixty-two percent of the shares in the Asia Pacific region. With all of these Nabung Saham, a book about stock invest- listed on IDX are Sharia shares. factors, combined with the "resurgence" ment published in 2017. For these developments of sharia of domestic investors, Indonesia has huge capital market in Indonesia, IDX was potential to become one of the top five eco- Nicky Hogan obtained his bachelor degree recognized by Global Islamic Finance nomic powers in the world by 2030. in Economics from Tarumanagara Universi- Awards as Best Supporting Institution ty, Jakarta, Indonesia, and actively involved for Islamic Finance for the years 2016 in national and international capital market and 2017. activities.

Indonesia Stock Exchange: “Sailing North” | 13