Indonesia Unveils Capital Market Governance Reforms
Indonesia’s Financial Services Authority (OJK) has announced that it will raise the minimum public shareholding requirement for listed companies to 15%. The move follows concerns raised by MSCI, who warned that Indonesia may be downgraded to a “frontier” market, triggering an $80 billion market selloff in late January. The draft proposals, currently slated for publication in March, will require companies with pre-listing market capitalizations of more than 50 trillion rupiah ($2.98 billion) to have a minimum free float of 15% of total shares at IPO, up from the existing 7.5%.
More broadly, the OJK is also set to establish a Capital Market Integrity Reform Task Force. The task force will be tasked with enacting these free float requirements in addition to several other aligned policies, including the demutualization of the Indonesia Stock Exchange (IDX). To this end, Indonesia’s sovereign wealth fund, Danantara, is looking to acquire a stake in IDX, although its exact ownership portion has not yet been agreed upon.
IDX is also set to reevaluate its Full Call Auction (FCA) mechanism. This mechanism collects buy and sell orders over a set period and executes them at a predetermined time, which the exchange may replace with continuous trading functions. Taken together, these proposed requirements and anticipated reforms could enhance market liquidity and transparency over time, which may improve Indonesia’s attractiveness to global institutional investors.
