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Lecture Notes Indonesian Capital Markets

Lecture Notes Indonesian Capital Markets. Universitas Trisakti Program MAKSI. F unction of Capital market. Investments alternatives: : Buying securities. I nvestors / Funds holders. Capital market. S ource of funds: Go Public (S tocks, bonds). Companies/borrowers.

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Lecture Notes Indonesian Capital Markets

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  1. Lecture Notes Indonesian Capital Markets Universitas Trisakti Program MAKSI

  2. Function of Capital market Investments alternatives:: Buying securities Investors/ Funds holders Capital market Source of funds: Go Public (Stocks, bonds) Companies/borrowers

  3. Capital market is a highly regulated industry Expected return – calculated risk Return : Dividen, bonus, capital gain Risk : capital loss, liquidated Information is critically important in investment decision process Investment characteristics

  4. Equity (stock) market Jakarta Stock Exchange (JSX) Bond market Surabaya Stock Exchange (SSX) Over the counter (OTC) – HIMDASUN Since November 2007, both JSX and SSX have merged and become Indonesian Stock Exchange (IDX) Regulator – Capital Market Supervisory Agency or BAPEPAM (Badan Pengawas Pasar Modal) Act No. 8/1995 on Capital market Government decree No. 45/1995 on the Business Conduct in the Capital market Indonesian Capital Markets

  5. Stock Indexes IHSG – all stocks listed in IDX Index LQ45 - 45 the most liquid stocks Sectoral Index - all stocks in each economic sector Individual Index – each stock Jakarta Islamic Index (JII) Kompas Index 100 - 100 stocks selected by daily newspaper Kompas Index calculation IHSG = Σ p /d * 100 where, p = closing price at reguler market * number of shares d = base value,calculated based on market value of all shares at base year 10 August1982 after adjustment for changes in issuers capital, and additional issuers. Indonesian Stock Exchange (See Website IDX)

  6. Regulator - (Bapepam-LK) Stock Exchange, KSEI, KPEI Securities companies Underwriter Brokerage Investment management Supporting agencies Securities Adminstration Bureau Custodian Trustee Rating Agency Capital market structure • Professionals • Public Accountant • Legal consultant • Appraisal • Notary • Investors • Domestic • Foreign

  7. Stocks: certificate of ownership Rights : shareholders’ option to buy new issues prior to public offering Warrant : shareholders’ option to buy stocks at predetermined price during certain period ( after 6 month to 5 years) Government bonds Corporate bonds Convertible bonds: bonds that can be converted into stocks after certain period Instruments All instruments are scripless (paperless)

  8. Prior to issuance, issuers must: Comply with listing requirements Full disclosure Submit proposal to IDX Approved by Bapepam Post issuance, issuers must: Report to the public Conduct Good Corporate Governance (GCG) Any corporate action comply with rules Sanction Issuance requirements

  9. GO PUBLIC • Professionalsi& Supporting entities assist issuer in preparing necessary documents • Issuer proposes preliminary contract • Signing preliminary contract between issuer and IDX • Issuer submits statement of registration to Bapepam • Bapepam releases effective statement • Issuer and Supporting entities conducts public offering • Issuer submits listing proposal to IDX • Approval for listing and announcement to the Bourse • Trading effectively at the IDX (Secondary market) Professionals B A P E P A M 4 1 5 2 Supporting entities 3 Issuer 7 8 6 Public offering IDX Secondary market 9

  10. Trading through Securities Exchange Trading process Exchange and Members of Exchange (Securities companies) Clearing and Settlement KPEI, KSEI Investor (Buy/Sell) Remote trading Trading Procedures

  11. How an investor buy securities? Through a securities company being a member of bourse Open a securities account at and sign a contract with a member of bourse Requirement for member of the bourse: Meet criteria for a securities company – BAPEPAM regulation Meet requirements for IDX member Meet other criteria: capital (MKBD), trading limit,etc. Trading Procedures Today there are 119 securities companies being active members of the bourse

  12. Sales Submit orders Oder buy/sell Dealers/ PJPP Staf PJPP Confirmaton Confirmation Verification Customers At end day, receive recapitulation from dealers, then send confirmation to customers at T+1 Data entry into trading system JATS. If alllocated , send confirmation to PJPP. Contracting Trading mechanism – at members

  13. Buyers Seller Member of bourse Member of bourse PJPP PJPP Trading system (JATS) Settlement process KPEI/KSEI Gurantee, Clearing & Settlement Securities Transfer Funds transfer B A E Trading mechanism – at Bourse Trading Process

  14. Front-end System Sales PJPP Submit orders Orders sell/buy Confirmation Customer Risk Management Verification/Validation Entry orders to JATS Confirmation Data processing (bourse members transactions) Settlement Back-end System JATS Remote Trading

  15. Trading is conducted through a continuous auction market. Bargaining (bid and ask) and allocations is transmitted/ conducted through JATS, considering price and time priority Price detemined through this mechanism used for calculation of index in the regular market (composite, sektoral, and individual) Continuous auction, price & time priority

  16. Pre-opening mechanism

  17. Pre-Opening: 09:10 - 09:25 Monday – Thursday Session 1 : 09.30 - 12.00 Session 2 : 13.30 - 16.00 Friday Session I : 09.30 - 11.30 Session II : 14.00 - 16.00 Tradings hours

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