June 24, 2009 5:27 pm

Indonesian exchange ready to modernise

Repairing the Indonesian Stock Exchange’s battered reputation and facilitating a near-tenfold increase in the number of investors within three years will be the main priorities of the bourse, according to its new chief executive, who was elected on Wednesday.

Market participants said Ito Warsito’s goals should also include demutualising the exchange, increasing transparency, improving its technology, expanding the products offered and tightening brokers’ standards.

The Indonesian exchange is one of Asia’s smallest when compared with the size of its population, with some 300,000 registered investors out of 235m and just 400 listed companies.

Daily volumes rarely exceed $300m and it is also unsophisticated, with futures and options trading stuck on the drawing board for years.

Its image – particularly among foreign traders – is of poor corporate governance with stock manipulation a regular accusation and punishments being so light as to be meaningless.

But with south-east Asia’s largest economy proving to be one of the most resilient amid the global financial crisis, it is also proving attractive to investors.

The composite index is up 47 per cent this year after falling 51 per cent in 2008. “We will try to convince [the investment community] that investing on this stock market always has a positive impact on investors, that the rise and fall of prices is legitimate in a capital market where shares always rise and fall,” Mr Ito said after yesterday’s election of his seven-director team. “People have to look at it in the long term because investment is really for the long term.”

Increasing the number of investors to 2.4m by 2012 should not be a challenge if the image of the bourse can be repaired, Mr Ito said, although he stressed that brokers and other financial institutions would also have to play their part.

Roland Haas, of HB Capital Partners, said privatising the exchange should be the directors’ main goal. If matters arose that needed probing, “the stock exchange would no longer be investigating its own shareholders” he said.

“The financial industry is always ahead of the regulators in terms of financial engineering and even more so here but that’s no reason not to try [to improve transparency],” he added.

Mr Ito said he was keen for the exchange to list but said it would require the 1995 capital market law to be amended. “But we should prepare ourselves and the brokers so when the law is changed, we won’t have to wait,” he said.

The head of another brokerage, who asked not to be named, said tens of millions of dollars were needed to upgrade technology. “The Jakarta Automated Trading System is cumbersome and slow,” he said. “They’ve got the money, so there’s no reason not to act.”

The IDX made a profit of Rp238bn ($23m) last year.

Some traders doubted whether Mr Ito’s team would have the will to implement change, considering four of the seven previously worked for the exchange.

“One wonders if certain habits are too ingrained,” Mr Haas said. “But it’s worth giving them the benefit of the doubt.”

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