The merger of Indonesia’s two stock exchanges has moved a step closer after shareholders of the Surabaya Stock Exchange (SSX) this week approved a planned tie-up with the Jakarta Stock Exchange (JSX).
Bapepam, the capital market regulator, proposed the merger in March to increase the Indonesian capital market’s attractiveness domestically and internationally.
The JSX quickly backed the move but the SSX initially rejected it, pending a feasibility study. That study, published in October, supported the merger.
The JSX has been soaring to repeated new highs. The composite index is up 53 per cent this year, helped by strong macroeconomic fundamentals that have enabled the central bank to cut interest rates by 300 basis points to 9.75 per cent.
“Through the merger we hope to attract more investors and the number of listed companies should also increase because the bourse will become more efficient,” said T Guntur Pasaribu, an SSX director.
The terms of the merger will be thrashed out by the two exchanges. “We hope it will be finalised by June,” said Mr Guntur.
Initial efficiencies will focus on slashing IT costs and combining education and marketing efforts.
“We’ll have to see about fees,” Mr Guntur said. “We will initially concentrate on making the services that we already give to the public as efficient as possible.”
New products will focus on the illiquid secondary market, which is limited to a handful of stocks.
“We especially want to increase the number of products for hedging,” Mr Guntur said.
The JSX is worth about $38.25m with a total market cap of about Rp1,000,000bn ($110bn). The SSX is worth about $4m while the capitalisation of its fixed instruments and equities are each about Rp400,000bn.
Mr Guntur forecast that the number of domestic retail investors would soar from about 500,000 currently.
“There is great potential out there,” he said. “We just need to disseminate better what we’re doing.”
Roland Haas, of HP Capital Partners in Jakarta, said the merger, which was first mooted in the late 1990s after the Asian financial crisis, “should have been done a long time ago”.
“Both are fairly small markets on an international basis so their overheads and fees are higher than they need to be,” he said.
“It can only be good for Indonesia.”