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View all search resultsAnalysis: IDX, OJK to restore investor confidence ahead of MSCI review
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Red alert: An electronic display board inside the main hall of the Indonesia Stock Exchange (IDX) in South Jakarta shows an overall downward movement across most stocks during the lunch break on Jan. 29, 2026, when the IDX Composite index fell 6.3 percent after global investment firm MSCI raised concerns about free float and trading transparency. (TJP/Deni Ghifari)
T
he Indonesia Stock Exchange (IDX) enacted a new provision setting the minimum free float requirement at 15 percent for both listed companies and prospective issuers, doubling the previous threshold of 7.5 percent. This change was made in response to concerns raised by MSCI regarding the low free float levels of Indonesian equities, which led the index to freeze Indonesia’s inclusion in its indices in February and March. These measures are being implemented to demonstrate regulatory compliance ahead of MSCI’s May index 2026 review.
The higher free float requirement is only one element of a wider market reform package. The Financial Service Authority’s (OJK) capital market supervision chief Hasan Fawzi has acknowledged that reforms of such large scale will need to be implemented in phases in order to assess the readiness of issuers and the market’s capacity to absorb the additional supply. The government has also pledged reforms beyond MSCI’s specific concerns, including plans to demutualise the bourse to modernise market governance.
The root of MSCI’s concerns is the ease at which stock prices in Indonesia can be manipulated. The issue stems from the gap between the shares reported as publicly available and those that are actually traded in the market. Historically, Indonesia’s estimated free float levels have often been overstated, creating the impression deeper market liquidity than truly exists. In reality, a significant portion of these shares remained tightly held by controlling shareholders or affiliated parties, leaving a much smaller pool available for active trading. As a result, relatively small buy or sell orders could move prices sharply, while still appearing “normal” due to the inflated perception of market depth.
This overstatement has largely been driven by limited transparency in share ownership. Shares held through nominee accounts, or other parties closely linked to the major shareholders, have frequently been classified as part of the public float. Without clear visibility into ultimate beneficial ownership, it was difficult for all non-controlling shareholders, whether retail investors or foreign institutional investors, to distinguish between stock price movements being driven by genuine market demand and those influenced by coordinated trading activity.
Given that the core issue lies in the opacity of share ownership, the bundle of capital market reforms needs to include more than just increasing the free-float rate. The OJK has introduced a regulation that broadens classification of shareholder types to 27 from just 9, alongside stricter disclosure requirements for shareholders with at least a 1 percent share, down from the previous minimum threshold of 5 percent. This aims to improve transparency and reduce the scope for coordinated trading practices.
The key question now is how quickly the market can adjust to these changes and absorb the expected increase in equity supply. As more shares are released into the market to meet the higher free float requirements, there would be a short-term price pressure if demand does not keep pace. From the perspective of issuers, controlling shareholders may be reluctant to dilute their stakes, as doing so may weaken control over corporate decisions. As a result, while the reforms are necessary to improve market credibility, their success will ultimately depend on how smoothly both issuers and investors can navigate this transition period.
