Indonesia’s OJK has put in place the legal framework for the demutualisation of the Indonesia Stock Exchange (IDX), allowing its shares to be held by parties beyond exchange members.
The regulation, which took effect on Sept. 17, provides the legal basis for the IDX to change its ownership structure from one restricted to exchange members to one that can include individuals and Indonesian legal entities, whether or not they are exchange members.
“The demutualisation structure of the Stock Exchange, which allows broader ownership by exchange members, strategic investors and the public, will improve governance, broaden access to capital and accelerate the development of the Stock Exchange,” said Hasan Fawzi, OJK’s chief executive for capital markets, derivatives and carbon exchange supervision, in a statement.
Under the new regulation, ownership of the exchange is separated from exchange membership. Shareholders can own up to 5% of the IDX’s issued shares, while holdings above that threshold require OJK approval.
The regulation also provides a route for Danantara to become an IDX shareholder. Article 8 allows the Ministry of Finance, Bank Indonesia and Danantara to hold shares in the exchange, subject to applicable regulations and the requirement to maintain the exchange’s independence. They may also appoint another party to hold the shares.
For the parties covered by Article 8, applications for holdings above 5% are made through coordination with OJK. Such shareholders must provide value to the exchange, with the regulator considering factors including capital strength, access to technology and trading infrastructure, domestic and international connectivity, liquidity and market development.
The regulation also allows the IDX to issue new shares as part of the demutualisation process.
IDX plans to implement the demutualisation through a rights issue, according to its development director Iding Pardi, in a separate statement cited from local reports. The new shares will dilute the holdings of existing shareholders, with the price to be agreed by the parties and expected to be above the exchange’s book value.
Danantara could become the largest shareholder outside the group of exchange members following the rights issue, with a potential 40.12% stake, as previously reported in local reports.
No party can hold a majority stake in the IDX, either directly or indirectly, including through affiliates. The regulation defines a majority as more than 50% of the exchange’s issued shares.
IPO plans
The demutualisation could later pave the way for an IPO of the IDX itself. Pardi said an IPO would be an ideal form of demutualisation, but the exchange would first complete the ownership restructuring. He added that IDX has no immediate IPO plan and that the process from demutualisation to an IPO could take around one to two years, based on practices in other markets.
The regulation also separates the IDX’s regulatory, supervisory and business functions. The exchange must appoint a director overseeing regulatory functions separately from directors responsible for supervision and business, while information barriers must be implemented between regulatory and business units.
Share ownership is also separated from exchange membership. Shareholders will not automatically receive trading access, which can only be granted to eligible exchange members. The IDX must provide access independently, transparently and fairly, without discriminatory tariffs.
The demutualisation is considered implemented on the date of the IDX shareholders’ meeting approving the entry of new shareholders other than exchange members. The separation of board functions and information barriers must be completed within six months of that date.
