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BUSINESS LAW REVIEW: VOLUME ONE
DEMUTUALIZATION OF INDONESIA STOCK EXCHANGE
AS A STRATEGIC MEASURE AND A MEANS TO IMPROVE
EFFICIENT TRADING
Created by: Achmad Ragil
Dion Kusuma
Abstract
The purpose of establishment of Indonesia Stock Exchange is to run the securities
trading which orderly, fair and efficient. The demand for the implementation of
good corporate governance is one of the issues to attract the interest of potential
investor on capital market in a state. Driven from article 8 of law number 8 of 1995
that the member of Indonesia Stock Exchange is also the shareholder of the stock
exchange. By that, many possibilities of problems may occur such as crime in the
form of fraud, manipulation of market, and insider trading. The problem statements
are: Has the structure of Indonesia Stock Exchange nowadays implemented the
Good Corporate Governance principles in order to create orderly, fair and efficient
trading exchange?; Why is demutualization necessary by Indonesia Stock Exchange
to create orderly, fair and efficient trading exchange?. The result of this research
shows that the implementation of good corporate governance principle is not well
implemented yet due to the conflict of interest between existing structure owners
and the legal status of Indonesia Stock Exchange is not in accordance with the Law
Number 40 of 2007 about Indonesia Limited Liability Company Law. And
demutualization is considered as a solution to increase the quality of corporate
governance, for instance, in the issue of conflict of interest by separating the
ownership from the membership and trading rights so that it can lead into proper
running of the stock exchanges which is orderly, fair and efficient trading. This
research recommends the amendment of article 8 of Law Number 8 of 1995, and
conducting the demutualization in the form of establishing a holding company.
Keywords: Demutualization, Indonesia Stock Exchange, orderly fair and efficient trading.
A. Background markets consist mainly equity and
The capital market1 plays debt instrument, it provides an avenue
significant role in the national for raising the financial needs of
economy. It mobilizes funds from business through equity and long-
people for further investments in the term debt by attracting investors with
productive channels of economy, kinds of investments3.
activating idle monetary resources
and put them in proper investments2.
Capital market unites the fund
suppliers with the fund users in the
purpose of middle-term investment
and long-term investment. Capital
1 2
According to Rosenberg: Capital Market is http://www.finance.gov.pk/survey/chapter_
“the place through which the buying and 12/06-CapitalMarkets.pdf page 81 accessed
selling of stock for the purpose of profit for on 22nd October 2015 at 10.23pm.
both buyers and sellers of the security take 3 Supra note at 2, p. 81.
place”.
61
Stock exchanges are pillars of a as promissory notes, commercial
4 5
nation’s economy . Stock exchange paper, shares, bonds, evidences of
have been viewed as an important indebtedness, mutual fund of
catalyst of economic growth. They collective investment contracts,
provide an organized market for the futures contracts related to securities
trading of securities to individuals and and all derivatives10 of securities11.
organizations which intend to invest The structure of Indonesia Stock
their saving or excess funds through Exchange12 is different from the most
the purchase of securities. This of structure of Stock Exchange in the
market is regulated by established world, for example, London Stock
rules that promote and maintain fair, Exchange, Hong Kong Stock
efficient, secure and transparent Exchange and New York Stock
market and facilitate the orderly Exchange whereas a process of
development of the stock exchange6. continuing an organization from its
A fair and efficient performance of a mutual ownership structure to a share
stock exchange is a substantial benefit ownership structure which is known
to the public. as Demutualization13. The members
In Indonesia, the capital of mutually owned exchanges that
market7 also play a significant role are, Broker-Dealer dealers with
along with banking institution, this is “seats” on the exchange are also its
due to the contribution of capital owners, with all the voting rights
markets which contribute to conferred by ownership14. In contrast,
Indonesian economy as one of the a demutualized exchange is a limited
financing in business and investment liability company owned by its
area8. The capital which is traded in shareholders. Trading rights and
capital market is in the form of ownership can be separated;
commercial paper or in the financial shareholders provide capital to the
terminology is known as securities9. exchange and receive profits, but they
The term of securities can be defined need not conduct trading on the
3
Subhashish Saha, Stock Exchange p. 1
Demutualization and Self-Regulation, 8 M Paulus Situmorang, Pengantar Pasar
Securities and Exchange Board of India Modal, Mitra Wacana Media, Jakarta, 2008,
Mumbai, Preliminary Draft, September 5, p. 4.
2015, page 2. 9 “Derivatives” refers to rights that are
4
According to Rosenberg: Stock Exchange is derived from either debt or equity Securities,
“the organization that provides a market for such as Options or Warrants.”
the trading of stocks and bonds”. 10 Article 1 poin 5 of Law Number 8 of 1995
5
Arwa M. Morsy, The Impact of about Indonesian Capital Market.
Demutualization on the Performance of Stock 11 The structure of Indonesia Stock Exchange
Exchanges, Maastricht School of is non-profit mutual organization.
Management, 2007, p. 7. 12 Arwa M. Morsy, Op.Cit., p. 8.
6 13
Based on Indonesian Law Number 8 of 1995 For more discussion on ownership issue,
specifically on article 1 point 13, Capital see, for example, Report of the Technical
Market is “the activity of trading and offering Committee of the International Organization
securities to the public, the activity of a public of Securities Commissions, “Issues Paper on
company with respect to securities issued, Exchange Demutualization.” 2001 and
and the activities of securities-related Jennifer Elliot, “Demutualization of
institutions and professions”. Exchanges – The Regulatory Perspective.”
7
C.S.T. Kansil, Pokok-Pokok Hukum Pasar 2000, International Monetary Fund Technical
Modal, Jakarta, Pustaka Sinar Harapan, 2004, Note.
62
BUSINESS LAW REVIEW: VOLUME ONE
exchange. And as discussed later, accurately, on time and transparently
although demutualized exchanges regarding information on company’s
will continue to provide many if not performance, ownership, and
most of the same services, they will stakeholder.19
have different governance structures Corporate Governance is a set
in which outside shareholders are of rules which regulate the
represented by boards of directors.15 relationship between shareholders,
Demutualization, in the strictest managers of the company, creditors,
sense, refers to the change in legal government, officers and the internal
status of the exchange from a mutual stakeholders or its external which
association with one vote per member related to their rights and obligations
and possibly consensus-based or in the other word is a system which
decision making, into a company regulates and manage the company20.
limited by shares, with one vote per In this Journal, I will be
share with majority-based decision explained whether the structure of
16
making . Indonesia Stock Exchange nowadays
In the process of implemented the Good Corporate
Demutualization, The demand for the Governance to create orderly, fair and
implementation of good corporate efficient trading exchange and why is
governance is one of the issues to demutualization necessary by
attract the interest of coming investor Indonesia Stock Exchange to create
17
on capital market in a state . Because orderly, fair and efficient trading
the more implementation of the exchange.
principle of good corporate
governance is conducted, it will B. Main Study
automatically give good impact for 1. The Implementation of Good
the sustainability of capital market in Corporate Governance in
general and as an indication of good Indonesia Stock Exchange
treatment towards shareholders18. It is
agreed that the important of a) The implementation of Good
shareholder’s rights to get accurate Corporate Governance
information and on time. And also Principles in Indonesia Stock
became the responsibility of the Exchange:
company to conduct the disclosure 1) Fairness;
14 17
Reena Aggarwal, Demutualization and Hamud M. Balfas, Hukum Pasar Modal
Corporate Governance of Stock Exchanges, Indonesia, Jakarta:PT Tatanusa, 2007, p. 231.
Washington D.C. McDonough School of 18 Ridwan Khairandy, Camelia Malik,
Business Georgetown University, 2002, p. 6. Op.Cit., page 2.
15 19
Shamshad Akhtar, Demutualization of See, Tata Kelola Perusahaan, Forum for
Asian Stock Exchanges – Critical Issues and Corporate Governance in Indonesia, jilid I
Challenges, in DEMUTUALIZATION OF edisi ke-2, 2001, page 3. Whereas according
STOCK EXCHANGES: PROBLEMS, to Robert A.G. Monks and Nell Minow,
SOLUTIONS AND CASE STUDIES, Asian Corporate Governance, edisi kedua, 2001,
Development Bank, 2002, p. 4. page 1, stated that “Corporate Governance is
16
Ridwan Khairandy dan Camelia Malik, the relationship among various participants
Good Corporate Governance Perkembangan in determining the direction and performance
Pemikiran dan Implementasinya di Indonesia of corporations.”
dalam Perspektif Hukum, Yogyakarta, Kreasi
Total Media, 2007, page 1.
63
Since the parties who the other hand he is a
are able being the member of the stock
shareholder of Indonesia exchanges, it becomes
Stock Exchange are only difficult. This relationship
Broker-Dealer. Whereas is indeed very possible
based on Article 8 of Law causes the conflict of
Number 8 of 1995 has interest between these two
specifically defined that the statuses. Because in one
one which is able being the side that the board of
shareholder of Stock exchanges must protect and
Exchange is Securities respect the shareholders,
Company which hold which have great power,
business license to conduct but on the other side the
the activity as Broker- board of exchanges also
Dealer. Based on the must have the courage to
explanation on article 8, the undertake disciplinary
purpose of Stock Exchange action on members which
is to provide system and or violate the regulations.
facility of securities trading Despite of Indonesia
and parties which are able Stock Exchange is a limited
to conduct securities liability company but the
trading in Stock Exchange element of membership is
is only Securities Company existed because there must
which are conducting be a separation of status as
activity as Broker-Dealer, in between shareholder and
so that the shareholder is member. Thus in one side
limited only to Securities that the securities company
Company which hold as the member of stock
business license from OJK exchanges and also in other
as the Broker Dealer. side as the shareholder of
This type of the exchanges21.
relationship may lead to a Consequently, if the
non-favourable situation in Securities Company is no
the enforcement of longer becoming the
membership regulation and member of stock exchange
the other capital market because he has no longer
regulations, in which at the fulfil the requirement
very first place that the role anymore, therefore that
and purpose are to protect Securities Company is
the public interest. Due to automatically not
the nature of the becoming the shareholder
relationship between on the of stock exchange and
one hand that the securities within three months that
company is a shareholder Securities Company shall
of stock exchanges, and on sell his share to another
20
See Point II of Regulation III-A about the
Membership of Stock Exchanges.
64
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