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OJK, IDX to educate, protect retail investors
On its 43rd anniversary commemoration on Monday, the IDX launched several initiatives, such as virtual trading to educate new investors before they make the jump into the actual stock market, and electronic initial public offering (e-IPO), that gives retail investors wider access to participate in the primary market of an IPO.
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he Financial Services Authority (OJK) and the Indonesia Stock Exchange (IDX) have unveiled new initiatives to help educate and improve protections for the country’s growing number of retail investors during the pandemic.
On its 43rd anniversary commemoration on Monday, the IDX launched several initiatives, such as virtual trading to educate new investors before they make the jump into the actual stock market, and electronic initial public offering (e-IPO), that gives retail investors wider access to participate in the primary market of an IPO.
Meanwhile, the OJK also plans to launch disgorgement funds, first floated last year, to cushion investors losses resulting from criminal acts, instead of investment failure. Disgorgement is the legally mandated repayment of gains received through ill-means imposed by the courts on wrongdoers.
“The [disgorgement] fund [proposal] is currently going through a public hearing. We hope we can launch it by the end of the year or the first quarter of 2021 at the latest,” OJK stock market supervision executive head Hoesen said during a virtual presser on Monday.
Such a protection scheme for investors had been implemented by the Securities and Exchange Commission (SEC) in the United States. The OJK, however, did not go into detail on whether the fund would be managed by a special institution such as the Securities Investor Protection Fund (SIPF) or by the authority itself.
Amid the ongoing global health crisis that has forced people stay home, the number of investors in Indonesia has jumped 21.7 percent to 3.02 million investors as of July 31, from 2.48 million investors by the end of 2019, according to Indonesian Central Securities Depository (KSEI) data.
Of the total investors, 99 percent are retail investors, and around 42 percent are exclusively stock market investors.
Given the rapid growth in investors, Hoesen said the OJK was committed to improving its supervisory function while also strengthening its coordination with other institutions to ensure better enforcement in the capital market.
“This pandemic is surely a blessing in disguise for us because the stay-at-home orders seem to have encouraged people to learn more about investing in the capital market,” he said.
“We didn’t expect the number of investors to grow this fast,” he added.
The number of investors is expected to jump up to 3.3 million by year end, according to Hoesen.
Domestic investors have grown in dominance in the Indonesian stock market, accounting for Rp 723.8 trillion (US$49.3 billion) in transactions, or 63 percent of the trading value since the beginning of the year, IDX data show. They also accounted for 79 percent of Monday’s trading, totaling Rp 5.7 trillion.
However, a 2019 OJK survey on financial literacy found that the country still only scored 38.03 percent on the financial literacy index, albeit increasing from 29.7 percent in 2016.
The initiatives announcement also comes amid ongoing investigations into several troubling cases, including into financial advisory firm PT Jouska Financial Indonesia, which faces allegations of illegal stock brokerage and investment mismanagement, and state-owned insurer PT Asuransi Jiwasraya, which has also been accused of fund mismanagement and corruption, including in its investments in pump-and-dump stocks.
Meanwhile, IDX president director Inarno Djajadi said the bourse also expected to launch a so-called watch list board this year, which would display stocks of companies with decreasing performance, governance problems or that are in the middle of legal proceedings.
Although the board will consist of lower quality stocks, the bourse will still allow them to be traded on the market but with a different trading mechanism from the regular market.
For the lower-quality stocks, the IDX will pool the offering price of a stock from investors, and once the system finds a match on the price, the stock will then be traded on at the said price, allowing penny stocks with prices of Rp 50 to be more liquid.
“We will impose a periodic call auction trading mechanism for the stocks instead of the usual continuous trading,” Inarno said.
Inarno also said the bourse would appoint market makers to boost the liquidity of stocks on the watch list board.
University of Indonesia (UI) capital market expert Budi Frensidy welcomed the planned watch list board, saying it would help to inform investors about lower quality stocks of companies that have persisting problems that have not been resolved.
He also lauded the bourse’s plan to utilize a different trading mechanism for stocks on the board.
“This will help create a more transparent negotiation market and can help to attract more investors to participate in it,” said Budi, adding that the mechanism could also help investors to sell their penny stocks more easily.
He also advised the OJK to strengthen its enforcement against market manipulation to further show its commitment to protecting investors from unscrupulous players in the stock market.
