Lecture Notes Indonesian Capital Markets Universitas Trisakti Program MAKSI

Function of Capital market Capital market Investors/ Funds holders Companies /borrowers Investments alternatives:: Buying securities Source of funds: Go Public (Stocks, bonds)

Investment characteristics Capital market is a highly regulated industry Expected return – calculated risk Return : Dividen, bonus, capital gain Risk : capital loss, liquidated Information is critically important in investment decision process

Indonesian Capital Markets Equity (stock) market -Jakarta Stock Exchange (JSX) Bond market -Surabaya Stock Exchange (SSX) -Over the counter (OTC) – HIMDASUN Since November 2007, both JSX and SSX have merged and become Indonesian Stock Exchange (IDX) Regulator – Capital Market Supervisory Agency or BAPEPAM (Badan Pengawas Pasar Modal) -Act No. 8/1995 on Capital market -Government decree No. 45/1995 on the Business Conduct in the Capital market

Indonesian Stock Exchange (See Website IDX) Stock Indexes -IHSG – all stocks listed in IDX -Index LQ the most liquid stocks -Sectoral Index - all stocks in each economic sector -Individual Index – each stock -Jakarta Islamic Index (JII) -Kompas Index stocks selected by daily newspaper Kompas Index calculation IHSG = Σ p /d * 100 where, p = closing price at reguler market * number of shares d = base value, calculated based on market value of all shares at base year 10 August 1982 after adjustment for changes in issuers capital, and additional issuers.

Capital market structure Regulator - (Bapepam-LK) Stock Exchange, KSEI, KPEI Securities companies Underwriter -Brokerage -Investment management Supporting agencies -Securities Adminstration Bureau -Custodian -Trustee -Rating Agency Professionals Public Accountant Legal consultant Appraisal Notary Investors Domestic Foreign

Instruments -Stocks: certificate of ownership -Rights : shareholders’ option to buy new issues prior to public offering -Warrant : shareholders’ option to buy stocks at predetermined price during certain period ( after 6 month to 5 years) -Government bonds -Corporate bonds -Convertible bonds: bonds that can be converted into stocks after certain period All instruments are scripless (paperless)

Issuance requirements Prior to issuance, issuers must: -Comply with listing requirements -Full disclosure -Submit proposal to IDX -Approved by Bapepam Post issuance, issuers must: -Report to the public - Conduct Good Corporate Governance (GCG) -Any corporate action comply with rules -Sanction

GO PUBLIC Professionals Supporting entities B A P E P A M IDX Secondary market Public offering  Professionalsi & Supporting entities assist issuer in preparing necessary documents  Issuer proposes preliminary contract  Signing preliminary contract between issuer and IDX  Issuer submits statement of registration to Bapepam  Bapepam releases effective statement  Issuer and Supporting entities conducts public offering  Issuer submits listing proposal to IDX  Approval for listing and announcement to the Bourse  Trading effectively at the IDX (Secondary market) 1

Trading Procedures Trading through Securities Exchange -Trading process Exchange and Members of Exchange (Securities companies) -Clearing and Settlement KPEI, KSEI -Investor (Buy/Sell) Remote trading

Trading Procedures How an investor buy securities? -Through a securities company being a member of bourse -Open a securities account at and sign a contract with a member of bourse Requirement for member of the bourse: -Meet criteria for a securities company – BAPEPAM regulation -Meet requirements for IDX member -Meet other criteria: capital (MKBD), trading limit,etc. Today there are 119 securities companies being active members of the bourse

Trading mechanism – at members Staf PJPP Data entry into trading system JATS. If alllocated, send confirmation to PJPP. Confirmatio n Confirmaton Customers Sales Oder buy/sell Submit orders Dealers/ PJPP Verification Contracting At end day, receive recapitulation from dealers, then send confirmation to customers at T+1

Trading mechanism – at Bourse Trading system (JATS) Buyers Member of bourse Member of bourse Seller Member of bourse Member of bourse PJPP KPEI/KSEI Gurantee, Clearing & Settlement KPEI/KSEI Gurantee, Clearing & Settlement Funds transfer B A E Securities Transfer Trading Process Settlement process

Remote Trading Data processing (bourse members transactions) Back-end System Submit orders PJ PP Settlement JATS Entry orders to JATS Confirmation Front-end System Customer Orders sell/buy Sales Risk Management Verification/Validation

Continuous auction, price & time priority Trading is conducted through a continuous auction market. Bargaining (bid and ask) and allocations is transmitted/ conducted through JATS, considering price and time priority Price detemined through this mechanism used for calculation of index in the regular market (composite, sektoral, and individual )

Pre-opening mechanism

Tradings hours Pre-Opening: 09: :25 Monday – Thursday -Session 1 : Session 2 : Friday -Session I : Session II :