Indonesian capital market structure comprises five core institutions. Therefore, investors should know institutions or entities running the whole mechanism of the capital market. Otoritas Jasa Keuangan (OJK), or Financial Services Authority is the primary regulatory framework.
Furthermore, the other three entities regulate the transparency and smoothness of securities exchanges, they are; Bursa Efek Indonesia (Indonesia Stock Exchange: IDX) which acts as the market regulator for securities trading; Kustodian Sentral Efek Indonesia (Indonesia Central Securities Depository: KSEI) that provides organized, standardized, and efficient central custodian and securities transaction settlement services; and Kliring Penjamin Efek Indonesia (Indonesia Clearing and Guarantee for Securities: KPEI). Finally, the brokerage companies (so-called Exchange Members) intermediate the securities transactions between investors and securities issuers.
Below, we briefly elaborate on how each mentioned entities play their roles in the capital market. A fair understanding of the exchange mechanism will help investors in monitoring their wealth mobility within the capital market.
1) Otoritas Jasa Keuangan (Financial Services Authority: OJK)
OJK has the task of administering an integrated system of regulation and supervision of the capital market sector. The functions of the OJK include:
- Formulating standards, norms, guidelines for criteria and procedures in the Capital Market sector;
- Carrying out analysis, development, and supervision of the Capital Market, including the Sharia Capital Market;
- Implementing law enforcement in the Capital Market sector;
- Settlement of objections submitted by parties subject to sanctions by OJK, IDX, KPEI, and KSEI;
- Formulate the principles of Investment Management, Securities Transactions and Institutions, and the governance of Issuers and Public Companies;
- Providing guidance and supervision to parties who obtain business licenses, approvals, registrations from the OJK and other parties engaged in the Capital Market sector.
2) Bursa Efek Indonesia (Indonesia Stock Exchange: IDX)
The IDX resembles a market venue for all capital market products in the Indonesian capital market structure. To illustrate, if the OJK regulates the legal framework of the capital market, the IDX is the market supervisor and the owner of “capital market building”. Exchange members take place to fill the units of the vendor within this building. Meanwhile, the KSEI will settle all transactions. At the same time, the KPEI will provide the clearing and guarantee of every particular transaction within the “building”.
As a market venue, the IDX provides comprehensive services from access to financial statements, extensive market data, capital market education, and more facilities that you may find out about it in https://www.idx.co.id/en-us.
3) Kustodian Sentral Efek Indonesia (Indonesia Central Securities Depository: KSEI)
In general, within the Indonesian capital market structure, KSEI’s services can be broken down into Asset Management, Central Security Depository Services, Transaction Settlement and Corporate Actions Services, and Other Related Services.
Furthermore, Central Security Depository Services and Transaction Settlement are the services that investors need to know. KSEI provides the depository of securities and funds for the former services, securities withdrawal, and reconciliation of securities or funds. And for the latter services, with the script-less securities trading process through C-BEST, KSEI processes settlements of transactions conducted inside and outside the Stock Exchange. For the detail of these services, please visit https://www.ksei.co.id/services/types/transaction-settlement.
4) Kliring Penjamin Efek Indonesia (Indonesia Clearing and Guarantee for Securities: KPEI)
The clearing function identifies the rights and obligations of stock exchange transactions for each Clearing Member (CM) that must be resolved on the settlement date. In addition, the role of exchange transaction settlement guarantee ensures that CM’s responsibilities and obligations deriving from securities exchange transactions are fulfilled legally and reliably.
Additionally, KPEI serves as a Central Counterparty (CCP) in the Indonesian capital market, acting as an intermediary for completing novation on exchange transaction settlement guarantees. To clarify, novation is a legal relationship transfer between selling Exchange Member (EM) and buying EM to a legal relationship between selling EM to KPEI as a buyer and buying EM to KPEI as a seller. As a result, KPEI will always communicate with all EM to settle each EM’s transactions. You may visit https://www.idclear.co.id/page/securities-exchange-transaction-clearing-overview for the details of KPEI services.
5) Brokerage Companies (Exchange Members)
These companies provide several types of services depending on their IDX license. Therefore, they may act as investment managers, underwriters, or securities trading intermediation. When investors purchase stocks from certain apps or websites, these companies deal with such services. The IDX does not trade even a single stock from the transaction. Alternatively, when investors are willing to sell their securities, they need to use the services of these brokerage companies to enable their transactions. If you want to know the detail of these companies in Indonesia capital market structure, you can visit https://www.idx.co.id/en-us/members-participants/exchange-members-profiles/.
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