Understanding the Definition, History, Types, and Duties of the Indonesian Stock Exchange

Indonesia Stock Exchange – Currently, investment has become a very common activity carried out by today’s society. This is due to the turnover of funds that allows an investor to get abundant profits, both in the short, medium and long term.

In fact, there are many ways investors can invest their capital. For example, stocks, bonds, crypto, and others. Well, one of the places that has become a place for investment for investors (especially Indonesia) is the Indonesia Stock Exchange (IDX).

Simply put, the stock exchange can be referred to as a market for investing. Then, actually, what is meant by the stock exchange? To understand more about the stock exchange, the following is an explanation of the definition and duties of the Indonesian Stock Exchange.

What Is a Stock Exchange?

In general, the stock exchange is a market engaged in the sale and purchase of securities or you could say it is a place that provides a means and system to make a trade happen. Based on the Big Indonesian Dictionary (KBBI), the stock exchange is a trading center for securities of public companies. Therefore, it can be said that the stock exchange can be interpreted as a place to buy and sell securities.

In addition, there are also those who say that the stock exchange is the same as a market, which is a place to carry out transactions such as exchanging, buying, selling, even printing company shares publicly.

With the existence of a stock exchange, market participants, both sellers and buyers, can conduct stock transactions or other investment instruments with very minimal risk.

This stock exchange also includes legal entities that have the task of being a means of carrying out and regulating the course of securities trading activities in the capital market. Meanwhile, if viewed from a micro-economic perspective for issuer members, this stock exchange is very functioning to obtain capital that can be used to expand the business.

Meanwhile, from a macroeconomic point of view, the stock exchange has an important role to drive the country’s economy. If in trading, the stock exchange shows a positive value, then the picture will be seen to have achieved positive performance in the country’s economy, and vice versa.

In fact, the stock exchange is a conventional market that brings together buyers and sellers and it can be defined that the activities carried out by the stock exchange organize and provide trading facilities for its members.

Then, for the Indonesian Stock Exchange itself, it can be said that the stock exchanges are in Indonesia. Therefore, in a country, usually there are stock exchanges respectively.

Definition of Stock Exchange According to Experts and Capital Market Law

1. Marzuki Usman

According to Marzuki Usman, the Stock Exchange is a forum or meeting point between brokers and resellers to conduct buying and selling transactions of securities (stocks and bonds). Because foreign currency exchange is usually held by the private sector, the owners are also the same brokers and resellers.

2. Husnan

According to Husnan, the Stock Exchange is a company whose main role is to carry out all securities trading activities in the secondary market.

3. Capital Market Law No. 8 of 1995

According to Capital Market Law no. 8 of 1995, the Stock Exchange is a part that regulates and provides a system or means to combine offers to carry out buying and selling transactions in other parts with the aim of exchanging securities between them.

History of the Indonesian Stock Exchange

Basically, based on history, this Stock Exchange existed during the Dutch colonial rule in the 19th century. Indonesia is still known as the Dutch East Indies. At that time, the Dutch East Indies government made a massive effort in the plantation sector. The source of these funds in developing plantations was obtained from other Europeans, and many of these foreign companies made transactions using shares.

The first transaction using registered shares was in 1892. Then, after thinking about very thorough preparations, the first capital market in Indonesia (Dutch East Indies) was established in Batavia (Jakarta) on December 14, 1912 which was named Vereniging voor de Effectenhandel or for now it can be called the Stock Exchange and after that immediately start trading activities.

The shares that were traded were shares or bonds of Dutch companies operating in Indonesia and apparently the bonds issued were issued by the provincial and municipal governments (today known as districts) which had company share certificates, issued by administrative offices in the Netherlands and companies other Dutch effects. This development is very rapid, so that there is interest from other people.

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After almost half a century had passed since the Stock Exchange was first created in Batavia in 1912, the creation of this Stock Exchange was carried out because the Dutch government made and implemented an “Ethical Policy” policy in 1901. The Dutch government really believed in this policy, because there was development that could went well and the majority of these investors came from Europeans whose income was above average. However, the First World War occurred which stopped trading activities in this stock in 1914-1918.

However, in 1925, this Stock Exchange began to reopen by forming two stock exchanges, namely the Surabaya Stock Exchange and the Semarang Stock Exchange. But it didn’t last long because the Stock Exchange experienced an Economic Recession in 1929 and the second world war occurred. It was also followed by the Jakarta Stock Exchange in 1940.

On June 3, 1952, the Jakarta Stock Exchange was reopened by Indonesia’s first President, Soekarno. However, the existence of this Stock Exchange was again inactive due to the European company nationalization program, namely the Netherlands in 1956 to 1977.

The reopening of the stock exchange is due to accommodate a government bond issued in the previous year. Then, the management of this Stock Exchange was handed over to the money trading union and consisted of 3 large banks and Bank Indonesia. The development of this Stock Exchange was carried out well even though the securities were actually bonds from Dutch companies and Indonesian government bonds through the development bank in Indonesia.

Through the Bank Negara industry in 1954, 1955 and 1958 the sale of these bonds greatly increased, thus triggering a conflict because of a power dispute between the Indonesian government and the Dutch government regarding West Irian, all Dutch businesses were nationalized through Law no. 86 of 1958. This dispute resulted in Dutch securities not being traded again on the Jakarta Stock Exchange.

Then, during the New Order, investment in Indonesia grew, where in 1966, investment came from abroad and several domestic investments emerged. This investment is very instrumental in improving the economy in Indonesia. People who carry out investment activities are often referred to as investors at that time.

The development of investment in the New Order was greatly improved due to investment made by both foreign and domestic countries. The Indonesian government restarted the capital market in 1977. The JSX was run under the Capital Market Executing Agency, also known as BAPEPAM. The restart of the capital market was marked by the company that went public as the first issuer, namely PT Semen Cibinong. During the New Order, the capital market was known for three periods, which included long sleep periods, long waking hours, and automation.

Then after many things happened in the new order such as long sleeping periods, long waking hours, and automation, on November 30 2007, the Jakarta Stock Exchange and the Surabaya Stock Exchange were finally merged for so long and the name was changed to the Indonesia Stock Exchange or Indonesia Stock Exchange which we know as BEI and IDX, which have offices in Jakarta and have branch offices in other cities.

Duties of the Indonesian Stock Exchange (IDX)

According to Tjiptono Darmadji (2001:95) in the book Banks and Other Financial Institutions (2020:185), this Stock Exchange has two main tasks, namely as a facilitator or provider and supervisor.

1. Duties of the Stock Exchange as a Facilitator

  1. Provide securities trading facilities.
  2. Making the liquidity of an instrument can flow funds quickly in the securities that have been sold.
  3. Create and disseminate stock exchange information to all levels of society.
  4. Conducting capital market promotions for the acquisition of potential investors or new companies that have gone public or known as IPOs.
  5. Create a new tool or service instrument.

2. Duties of the Stock Exchange as SRO

  1. Establish a regulation relating to exchange activities.
  2. Can prevent a transaction practice that is very binding for capital market implementers.
  3. Make a regulation that is relevant to exchange activities.

Types of Instruments in the Indonesia Stock Exchange (IDX)

Now the next discussion regarding the Indonesian Stock Exchange is to discuss the types of instruments. The types of instruments contained in the Indonesian Stock Exchange are as follows:
In general, shares are letters indicating the participation of a person or party in a company or Limited Liability Company (PT). So far, stock instruments are still the most widely traded on the Stock Exchange.
2. Bonds Bonds
are government bonds with medium and long terms that can be traded on the Exchange.
3. Mutual funds
Mutual funds are investment products that serve as a place for collecting or managing investors’ funds. These funds are then managed by investment managers who are divided into several instruments, such as bonds, stocks, money markets, or other securities.
4. ETF
Abbreviation of Exchange Traded Fund which is more or less the same as mutual funds and is sold through the Stock Exchange not through investment managers like mutual funds in general. This ETF itself is a capital market instrument that is traded on the Stock Exchange.
5. Derivatives
These securities are widely known as other forms of shares. However, there are two types of derivatives that can be found in the capital market, namely warrants and rights. Derivatives on the Stock Exchange are variables based on financial instruments which can be in the form of stocks, bonds, interest rates and other financial instruments.
6. Asset Backed Securities (EBA)
These Asset Backed Securities are securities printed by a collective investment contract. In this EBA, there are several assets whose portfolio more or less consists of several financial assets that are formed from claims arising from commercial securities, credit card bills, bills that grow in the future, mortgage lending, debt securities guaranteed by the government. , cash flow / cash flow and means of increasing credit / credit enhancement.

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How Stock Exchanges Work

As a place to carry out securities transactions, the Stock Exchange has several ways of working as follows:

1. Price and Time Priority

This price and time priority is how the Stock Exchange works in carrying out an activity in trading bonds or securities. In general, the Stock Exchange conducts an analysis based on the law of supply and demand, and gives priority to those of you who want to buy or sell at the same price.

2. System in Buying Shares

The next way the Stock Exchange works is the system for purchasing shares. In this case, the Stock Exchange uses units of shares or what is often referred to as lots (round lots). One lot is equivalent to 100 shares.

3. Settlement of Share Transactions

The Stock Exchange has provisions for the duration of transaction settlement, namely sales and purchase transactions must be completed within a maximum of 3 days after the transaction is made.

4. Operational hours

In accordance with existing government regulations, this Stock Exchange transaction only operates from Monday to Friday at 09.00-12.00 WIB for the first session, then continued at 14.00-16.00 WIB for the second session.

5. Transaction Supervision

In the Stock Exchange work system, namely regarding the process of supervising transactions, which includes guaranteeing security related to company information, conducting direct transaction supervision, tracing unreasonable transactions, submitting clarifications to issues within a company, and imposing sanctions on capital market players who commit fraud. an offence.

Types of Stock Market on the Stock Exchange

There are several types of stock markets that you can find on the Stock Exchange as follows:

1. Regular Market

This market is where securities trading takes place based on an ongoing auction bidding process by members of the Stock Exchange through the JATS (Jakarta Automated Trading System). This settlement is carried out on the second Exchange day after conducting an Exchange transaction. Exchange Days are only from Monday to Friday, so settlement on the following Sunday’s Exchange Day is Tuesday.

2. Negotiated Market

This market is run based on a direct bidding system, both individually and by auction, the settlement of which is carried out based on the agreement of the members of the Stock Exchange. Securities trading in this market is carried out through a bidding process with several parties concerned, including:

  • Exchange Member
  • Customer through one Exchange member
  • Customers with stock exchange members
  • Exchange member with KPEI

Then later, the results of the agreement on the bidding process are continued by JATS Exchange members who can submit sales offers and purchase requests through advertising and can be changed or canceled before the JATS agreement is executed.

3. Cash Market

Then, finally, the market is held based on the results of an ongoing bidding process by exchange members through JATS and the settlement is carried out on the same exchange day as the exchange transaction (T + 0).

Stock Exchange Obligations

The following are obligations that must be carried out by the Stock Exchange, namely:

  1. Stock exchanges must have rules from membership, registration, or trading.
  2. Stock exchanges must have a control unit that can be responsible for carrying out regular or periodic inspections of its members and exchange activities.
  3. The Stock Exchange is also collaborating with the DSN-MUI to be able to plan Sharia investments in the Islamic capital market.
  4. The stock exchange is one of the few trade organizers in Indonesia.

Thus the discussion about the meaning of the Stock Exchange, the history of the Indonesian Stock Exchange to the tasks of the Indonesian Stock Exchange. Hopefully all the discussion above is useful and can add to your insight.

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