New ‘Free Float’ Regulation Will Boost Indonesian Capital Market 

By: Willy Isananda, SH., LL.M.

Indonesia, a country which has craved its name on world’s 20 strongest economies, believed to be one of the most appealing markets for investment nowadays. Speculation towards 2014’s presidential and legislative election seems to be not a factor impeding investor’s motivation to invest even more in this country. Even though the political tension will rise, Bank Indonesia (BI) and Indonesia Financial Services Authority (OJK) believed to be capable of maintaining the economic stability, financial system, and banking liquidity. One of the most enthused investments for many investors, local or foreign, is through Indonesian capital market.

Among massive funds flowing to capital market, there are still many speculators seeking for instant profit. Moreover, many blue-chip stocks are overvalued as a result of irresponsible party using every way imaginable to increase the stocks’ reputation. These major problems will take great part in harming Indonesian economy if one day those stocks plummet.

 Thus, we eagerly welcome the new regulation announced by the Indonesian Stock Exchange (IDX) No. Kep-00001/BEI/01-2014 which became effective on January 30, 2014, concerning the limitation of minimum free-float shares which replaces the previous IDX regulation No. 1-A Kep-305/BEJ/07-2004.

The regulation is different for main board and development board. For main board, the minimum requirement is 300 million shares, and for development board, 150 million shares. Moreover, the shares listed in main and also development boards have to submit to requirement as follows:

Ø  Minimum of 20 percent for a company with equity value prior to IPO less than IDR 500 billion.

Ø  Minimum of 15 percent for a company with equity value prior to IPO from IDR 500 billion through IDR 2 trillion.

Ø  Minimum of 10 percent for a company with equity value prior to IPO more than IDR 2 trillion.

In addition, for main board, a company shall submit business profit report of one most recent year.

By enacting this new regulation, we hope that the companies which listed in Indonesian bourse are only excelled-highly qualified companies. Furthermore, this new regulation will boost listed companies’ intent to build up and expand to attract investors, which will also increase liquidity. With this regulation, we believe that public’s trust to Indonesian capital market will rise.