Months ahead of the implementation of the ASEAN Economic Community (AEC), the Financial Services Authority (OJK) says the county's stock market still faces a number of challenges that need to be addressed before entering the integrated regional economy, which include difficulty in allowing cross-border listing as it contravenes a prevailing law.
OJK commissioner for capital market supervision Nurhaida told reporters on the sidelines of the Indonesia Stock Exchange's (IDX) 37th anniversary celebration on Thursday that the financial authority and the stock market had worked hard in preparing infrastructure for the upcoming regional economic integration.
Nurhaida said that some issues, however, took more time and effort to fix to prepare the stock market to join the regional financial market as it was not in line with the law.
The biggest challenge, Nurhaida said, was to open Indonesia's stock market to foreign companies for listing.
'Once the AEC commences next year, foreign companies should be able to offer their shares on the IDX and to be listed on the bourse. Unfortunately, we don't have a supporting regulation for the plan,' she said.
Nurhaida explained that the prevailing 1995 Stock Market Law did not have a stipulation enabling foreign firms to be listed on the country's bourse, and in fact barred cross-border offerings.
'A stipulation in the law says that in order for a company to offer shares on the bourse, its prospectus must be audited by an auditing commission recognized by Indonesia's financial authority. This is the main hurdle blocking foreign firms from entering our bourse,' she explained.
'The problem is, it is stipulated in our law. A change in the clause has to involve the House of Representatives, which means it is a political matter that might take more effort and time to address,' she went on.
While the stipulation hinders Indonesia from joining the integrated capital market, Nurhaida emphasized that many other ASEAN countries had yet to have such a supporting clause and to join the ASEAN Trading Link, which allows investors and companies to freely trade securities in any market at competitive prices.
So far, only three countries ' Thailand, Singapore and Malaysia ' have joined the trading community.
Indonesia still doubts the market-integration plan, arguing that it is not on par with the rest of the region.
IDX director Ito Warsito said that for the time being, the stock market would focus on enhancing domestic competitiveness in preparation to enter the integrated market.
Among the plans, he said, is to roll out Extensible Business Reporting Language (XBRL)-based financial reporting at the beginning of 2015, which is an electronic communication language universally used for business information exchanges and transmissions.
He said that the IDX and the OJK were mulling an electronic registration system, which would enable firms to apply online for an initial public offering (IPO), a procedure that is expected to cut costs and simplify the application process so that more firms could join the capital market.
The IDX previously modified its lot and tick sizes for traded shares in an attempt to boost market liquidity.
The Jakarta Composite Index (JCI) ' the main barometer for the country's bourse ' and the bourse's market capitalization have risen 19.43 percent and 24.8 percent year-to-date, respectively, the third-highest growth in the region after Thailand's SET and India's Sensex,
The bourse has set a target to have 30 firms listed this year, with 18 firms having registered their shares on the IDX to date.