1. Lecture Notes Indonesian Capital Markets Universitas Trisakti Program MAKSI

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

3. 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

4. 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

5. Indonesian Stock Exchange (See Website IDX) Stock Indexes -IHSG – all stocks listed in IDX -Index LQ45 - 45 the most liquid stocks -Sectoral Index - all stocks in each economic sector -Individual Index – each stock -Jakarta Islamic Index (JII) -Kompas Index 100 - 100 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.

6. 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

7. 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)

8. 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

9. GO PUBLIC Professionals Supporting entities B A P E P A M IDX Secondary market Public offering 4 5 2 3 7 8 6 9  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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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 )

16. Pre-opening mechanism

17. Tradings hours Pre-Opening: 09:10 - 09:25 Monday – Thursday -Session 1 : 09.30 - 12.00 -Session 2 : 13.30 - 16.00 Friday -Session I : 09.30 - 11.30 -Session II : 14.00 - 16.00