The Indonesian government is actively drafting a crucial government regulation (RPP) concerning the demutualization of the stock exchange. This initiative is mandated by Law Number 4 of 2023 on the Development and Strengthening of the Financial Sector (P2SK Law), signifying a pivotal step in enhancing the nation’s financial landscape.
Masyita Crystallin, the Director-General of Stability and Financial Sector Development at the Ministry of Finance, elaborated that this demutualization policy will fundamentally transform the institutional structure of the Indonesia Stock Exchange (IDX). Specifically, demutualization aims to broaden the ownership of the IDX beyond just securities firms, effectively separating membership rights from ownership stakes.
“This is a strategic move designed to mitigate potential conflicts of interest, bolster corporate governance, elevate professionalism, and significantly boost the global competitiveness of Indonesia’s capital market,” Masyita stated in Jakarta on Saturday.
She further clarified that demutualization is far from a novel concept in global capital market development. Currently, the IDX remains one of the few stock exchanges worldwide operating under a mutual structure, while many other nations, including Singapore, Malaysia, and India, have already successfully undergone this transformative process.
Such a model is instrumental in fostering more professional, adaptive, and responsive exchange governance, particularly crucial in navigating dynamic global financial landscapes. This new structure is also expected to catalyze innovation in financial products and services. This includes the development of sophisticated derivative instruments, exchange-traded funds (ETFs), and new instruments for infrastructure financing and energy transition projects, all of which will serve to deepen and enhance market liquidity.
“Through demutualization, we are committed to ensuring that the IDX’s governance aligns with international best practices, while rigorously safeguarding public interest and maintaining market integrity,” Masyita affirmed.
Nevertheless, the demutualization policy is not a standalone solution. Its success hinges on robust support from broader capital market development strategies, addressing both the supply and demand sides of the market.
Revisiting the Free Float Policy
On the supply side, a persistent challenge is the relatively low free float, which often impedes active trading and prevents stock prices from optimally reflecting true market conditions. Given that Indonesia’s market liquidity still lags behind comparable countries, increasing the free float becomes a critical agenda that must proceed in parallel with the demutualization efforts.
“The demutualization policy for the stock exchange must be accompanied by a strengthening of the entire capital market ecosystem, including a significant increase in free float, to ensure its optimal impact on market depth and liquidity,” Masyita emphasized.
Turning to the demand side, fostering increased participation from both institutional and retail domestic investors is paramount. The government is actively formulating supportive policies for domestic institutional investors, including sui generis pension fund managers, through the regulation of a robust cut-loss mechanism.
“This cut-loss policy is intended to provide greater certainty for pension fund managers when investing in the capital market, enabling them to play a more active role and act as vital anchor investors, thereby driving capital market deepening,” Masyita explained.
She added that the formulation of Indonesia’s capital market development strategy is also drawing valuable insights from the experiences of other nations, particularly India.
Over the past decade, India’s capital market growth has been significantly accelerated by several key factors: strengthened governance, increased domestic investor participation through systematic investment plans (SIPs), a rise in the number and quality of issuers, and technology-driven efficiencies.
Illustrating this success, India’s market capitalization surged from US$1.56 trillion (72.86 percent of GDP) in 2014 to an impressive US$5.17 trillion (133.5 percent of GDP) by 2024.
This Indian experience underscores that a strong ecosystem, a large and active domestic investor base, and inclusive technology are fundamental pillars for successful capital market reform.
The RPP for stock exchange demutualization is being meticulously developed through in-depth technical studies and extensive consultations with a wide array of stakeholders. These include regulators, self-regulatory organizations (SROs) such as the IDX, industry players, and the Parliament.
“We are ensuring that the RPP drafting process is conducted carefully, transparently, and inclusively. The strategic objective is clear: to fortify the capital market as a reliable source of long-term financing, thereby driving Indonesia’s economic transformation towards becoming a developed nation,” Masyita concluded.
Summary
The Indonesian government is actively drafting a regulation for the demutualization of the Indonesia Stock Exchange (IDX), mandated by Law Number 4 of 2023. This strategic initiative aims to transform IDX’s institutional structure by broadening ownership beyond securities firms and separating membership rights from ownership stakes. Such a move is intended to mitigate potential conflicts of interest, bolster corporate governance, elevate professionalism, and significantly boost the global competitiveness of Indonesia’s capital market.
However, the success of this demutualization policy depends on robust support from broader capital market development strategies, particularly addressing supply and demand. A persistent challenge on the supply side is the relatively low free float, which must be increased in parallel with demutualization to enhance liquidity. On the demand side, policies are being formulated to foster greater participation from domestic institutional and retail investors, drawing insights from nations like India to strengthen the capital market ecosystem.
