Stock-market regulator Bapepam on Thursday said small brokerage companies needed to merge to create a healthier industry with less players but of better quality.
There are currently 117 securities companies active in the local stock market, with only 10 of them considered big brokerage firms.
Bapepam chairman Fuad Rahmany said the Indonesian market had too many securities firms, with less than one million investors currently listed in the system.
"Small brokers ... You must enlarge your business scope. If not, please merge with others," Fuad said on the second day of the "Investor Summit and Capital Market Expo", on Thursday.
Besides aiming to create a more competitive industry, Fuad said merging would improve the quality of brokerage firms and risk-management systems, which have been blamed for a high prevalence of fraud in the industry.
"From our observations, we realize *fraud* cases are mostly from small brokerages with poor risk management," Fuad said.
Similar calls for consolidation were made after Indonesia was pounded during the 1997-1998 financial crisis, which saw the economy tumble.
The crisis forced regulators to consider limiting the number of securities companies to 10.
However, it is impossible now to cap the number of securities companies as Fuad said that his office preferred imposing a new regulation comprising of more stringent regulation aimed at increasing the quality of the existing securities houses and the new ones.
The new regulation will include tougher capital requirements and the improvement of corporate governance and risk-management systems in back and front offices.
At present, each securities firm is required to have a minimum capital of Rp 25 billion (US$2.65 million).
Commenting on the plan, Edwin Sinaga, the president director of medium-sized securities firm PT Financorpindo Nusa, warned Bapepam to make sure that the new regulation would not hamper growth in the local stock market industry.
"Tighter regulations will create difficult conditions for industry players to develop their businesses."
