herwidayatmo chairman indonesian capital market supervisory agency http: 25 august 2003 securities...
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HerwidayatmoChairman
Indonesian Capital Market Supervisory Agencyhttp:www.bapepam.go.id
25 August 2003
SECURITIES MARKET REFORM:The Indonesia Experience
AGENDA
Do we need a reform …? Fundamental problems
encountered … How to deal with … The new regulatory regime in
the Indonesian financial services industry …
1987 to 1992 Reforms
Allowing foreign investors to own 49% maximum of listed shares, removing fluctuation trading limit, and introducing Parallel Bourse to allow medium-scale companies (Dec. 87)
Moving towards a disclosured-based regime with the establishment of SSX in 1989 and privatization of the JSX in 1992
Market infrastructure was simultaneously modernized
As a result …
25
67
132145
162181
231248
9
50464334
242322
0
50
100
150
200
250
300
88 89 90 91 92 93 94 95
Nu
mb
ers
of
Issu
ers
Stock Issuers Bond Issuers
The Effectiveness of Capital Market Law in January 1996 brought significant
changes in the Indonesian securities industry
BAPEPAM becomes more independent in regulating and supervising the market
BAPEPAM has more enforcement powers More stringent sanctions for serious
violations such as market manipulation and insider trading
Open-end Investment Fund is introduced and allow to operate
The Exchange, Clearing Guarantee Corporation, and Central Securities Depository has stronger legal grounds as the SROs
267
306 309 321347
379401
55
1009491
767070
0
50
100
150
200
250
300
350
400
450
96 97 98 99 2000 2001 2002
Nu
mb
ers
of
Issu
ers
Stock Issuers Bond Issuers
But the growth of the issuers remained slow as 1997 monetary crisis gave its disastrous impacts to the market and to the Indonesian economy as a whole …
268,8
160
215
239,3
175,7
451,8
259,6
100 150 200 250 300 350 400 450 500
1996
1997
1998
1999
2000
2001
2002
Market Cap in Rp Currency
The JSX Market Capitalization(in Rp Trillion)
30,07
34,39
90,23
22,99
21,89
64,04
26,81
10 20 30 40 50 60 70 80 90 100
1996
1997
1998
1999
2000
2001
2002
Market Cap in USD Currency
The JSX Market Capitalization(in billion US Dollar)
492,9513,7
598,7
403,6 396,4
304
489,4
200
300
400
500
600
700
1996 1997 1998 1999 2000 2001 2002
Average Daily Transaction
Average Daily Trading Value1996 – 2002
(in Rp. billion)
66,9
49,157
50,29
38,11
127,6
105,24
0
20
40
60
80
100
120
1996 1997 1998 1999 2000 2001 2002
Average Daily Transaction
Average Daily Trading Value1996 – 2002(in USD million)
Volume 1999 2000 2001
The JSX
The SSX
Exchange Members
178,5 billion
7,03 billion
184
134,5 billion
6,57 billion
192
148,4 billion
8,72 billion
189
Average Rp.1,01 b/year Rp.0,7 b/year Rp.0,8 b/year
Average transaction value of exchange members was below Rp. 1 billion (USD 111.7 billion) annually for each member, or
below Rp. 90 million (USD 10,141 million) monthly
Extreme Low Liquidity
68
43
78
48
54
25
0 10 20 30 40 50 60 70 80 90 100
1999
2000
2001
Operating Loss Net Loss
Securities Companies with Losses(in percentage, out of total numbers of securities
companies)1999 – 2001
74,53
48
54,22
37,18
40,75
15,32
0 10 20 30 40 50 60 70 80 90 100
1999
2000
2001
JSX SSX
Transaction-related Income of Stock Exchanges1999 – 2001
(in percentage)
Where we are …
The JSX Market Cap accounted only 0,13% of the Global Market
CapThe JSX trading value accounted only 0,04% of the global trading
value
Source: 2002 Annual Repot of the World Federation Exchanges
Numbers of Investors
Total Population
Singapore
Malaysia
Indonesia
+ 1 m
+ 3 m
+ 70,000
+ 3,5 m
+ 18 m
+ 220 m
Switzerland + 1,3 m+ 7,3 m
Domestic Investors
Low competitiveness of the Indonesian securities industry
JSX Market Cap only 0,13% of total global market cap
JSX Trading Value only 0,04% of total global trading value (in USD)
Slow growth of the number of issuers
The Need to Reform the Industry
Sluggish growth of the investors
Big opportunities, but small “efforts”, lowering its competitiveness: market cap trading value number of investors
Weak supervision lowering confidence in the market
Capital market instrument is limited
Fundamental Problems
We do need the 3rd Reform
2 Main Recommendations
Improving securities firms soundness through newly entry requirements, for exchange members in particular
Improving the Indonesian SROs capacities by means of exchange demutualization
Task Force on Exchange
Demutualization
Task Force on Securities Firms Enhancement
REVITALIZING the Securities Firms and the
Exchanges
Task Force on BAPEPAM Organizational Structure
Restructuring The new structure of BAPEPAM will have
more focus on market supervision and enforcement: Enhance supervision to issuers, market
intermediaries and mutual fund industry A new unit to establish more effective
enforcement cordination with other enforcement agencies offshore and onshore
Certain bureaus will have “market intelligence” back up
Research and a newly Product Development Unit will be more proactive to give a birth to newly instruments in the market
Enhancing supervision and boosting up enforcement activities carried out by
BAPEPAM
JSX Market Cap 2001 – August 15, 2003(in Rp. Trillion)
239,3
268,8
238,6250,9 251,6
284,3
320,7
339,7345,7 349,5
200
220240
260280
300
320340
360
2001 2002 Jan Feb Mar Apr May June July Aug15
JSX Market Cap
JSX Composite Price Index (CPI)2001 – August 15, 2003
424,94
516,6507,98510,5
467,9
450,9
398
399,2
388,4392,03
300
350
400
450
500
550
2001 2002 Jan Feb Mar Apr May June July Aug15
JSX Composite Price Index
8
46,651
54 58 6165,3
68,5
-5
5
15
25
35
45
55
65
75
2001 2002 Jan Feb Mar Apr May June
Net Asset Value
The Growth of NAV of Mutual Funds(in Rp. Trillion)
2001 – August 15, 2003
About to launch
INVESTMENT PRODUCTS
In the marketAsset-Backed Securities
Indonesian Depository Receipts
Single Stock Options
Stocks
Corporate Bonds
Government Bonds
Rights
Warrants
Mutual Funds
Index Futures LQ45
The Enactment of Law Number 15 Year 2002 concerning Anti-Money Laundering
To support the Implementation of AML Law, Bapepam revised Rule Number V.D.10 on Know Your Client Principles that became effective on 15 July 2003
A month before its effectiveness, BAPEPAM did sudden inspection to all securities companies offices to see the compliance level of each sec. Company to the new rule
The result was positive, most sec. companies (almost 80%) were ready to implement the rule
Bapepam and Indonesian Center for Financial Transaction Analysis and Examination (the Indonesian FIU) will sign MOU this year
BAPEPAM FULLY SUPPORTS THE IMPLEMENTATION OF ANTI-MONEY
LAUNDERING REGIME
MOVING TOWARDSA SINGLE SUPERVISORY AGENCY
Rapid change in the world’s financial market industry characterized by growing convergence of financial
services and blurring distinctions between financial
services sectors
The Existing Regulatory Structures
Bank Indonesia Ministry of Finance
Directorate General of Financial Institution
Capital Market Supervisory Agency
Insurance
Pension Funds
Finance
Venture Capital
Others Financial Services
Stock Exchanges
Issuers / Public Companies
Securities Firms
Investment Funds
Others Capital Market Supporting Institutions
Banks
Consistency between the FSA Law andFinancial Services Sector Laws &
RegulationBanking
Law 23/1999
Insurance Business
Law 2/1992
Pension Funds
Law 11/1992
Securities Markets
Law 8/1995
Plus regulation for finance companies and venture capital – and other relevant laws in specific cases such as
Bankruptcy Law and the Company Law
Law 7/1992 as amended byLaw 10/1998
Gov’t Regulation
Implementing
Regulation
Gov’t Regulation
Ministerial Decrees
Gov’t Regulation
Ministerial Decrees
Gov’t Regulation
Ministerial Decrees
Implementing
Regulation
Implementing
Regulation
Implementing
Regulation
Accelerating the process of restoring international confidence
in Indonesia’s financial system
Fostering the development of financial services sector in
Indonesia that is efficient, safe, stable and fair, thereby
contributing to the welfare of the people of Indonesia by supporting the economic growth and stability
of the Indonesian economy
SHORT-TERM OBJECTIVE
LONG-TERM OBJECTIVE
CAPITAL MARKET BLUE PRINT2000 – 2004
VISIONTo develop a strong and globally competitive market to support the Indonesian economy
MISSION Enhancing commitment to develop a more robust capital
market; Providing more access to medium-sized enteprizes and
credit union (cooperatives) to use capital market as their alternative source of financing;
Supporting regional/local government to raise fund through the capital market;
Strengthening domestic-based investors and encouraging them to participate actively in the capital market;
Improving the quality of market infrastructure that meet international standards and to cope with global challenges
