Underwriter and Broker Dealer

The year 2002, Bapepam has granted new operating license to one Securities Company acting as Underwriter and upgraded operating licenses from Broker Dealer to Underwriter to three Securities Companies. Whereas in the same period Bapepam has also revoked six operating licenses of Securities Companies acting as both Broker Dealer and Underwriter. Based on those figures, as of the end of 2002 the total number Securities Companies that has obtained operating licenses as Broker Dealer and Underwriter from Bapepam was 199.

Also, in the year 2002 there were 18 Securities Companies opening 28 new branch offices in various locations and ten Securities Companies closed 20 of their branches. As of the end of 2002 there were 74 Securities Companies with branch offices of 159 nationwide.

Investment Manager

The overall business growth of Investment Managers as portfolio managers for investors or as manager for collective investment portfolio has shown significant increase. The number of Investment Managers that has been granted new operating licenses has been up by 16.45% compared to the same number in the previous year, from a total of 79 Investment Managers in 2001 to 92 in 2002. From this numbers, 64 were managing investors’ money. In addition there were 48 Investment Manager that had also had operating licenses as Broker Dealer and Underwriter.

Total amount of public fund managed by Investment Managers in the year 2002 has shown significant growth, from a mere IDR15.88 trillion in year 2001 to IDR53,95.trillion or an astounding 239.73% jump. Domestic institutional investors played a dominant role in creating such unprecedented increase. From the total amount pooled by Investment Managers, IDR53,36 trillion or 98.90% was generated from domestic investors.

Another significant growth can also be noticed on total number of investors whose funds were managed by Investment Managers. From a total of 449 in the year 2001, the number grew to 539 in year 2002, a 20.04% increase. Institutional investors still constituted a big chunk, i.e. 383 investors compared to 156 of individual investors. All in all, domestic investors recorded a 15.37% increase in total numbers whereas foreign counterparts grew by 22.77% on the same category.

Also in the year 2002, as one of the measures to protect investors, Bapepam revoked licenses of four Investment Managers and imposed administrative sanction to the other three. Those who were imposed adminstrative sanction by BApepam had fulfilled all of their obligation in year 2002.

Individual Licenses

The total number of individuals who were granted licenses by Bapepam in the year 2002 was 1,499, in which 190 as Broker Dealer Representatives, 70 as Underwriter Representatives, 113 as Investment Manager Representatives, and 1,126 as Investment Fund Selling Agent Representatives. In other words, in year 2002 alone Bapepam granted 7,930 new licenses to individuals acting as Securities Company Representative, which was a 18.9 % decrease compared to the same number in 2001.

Inspection of Securities Companies

In the year 2002 Bapepam conducted technical inspection to four Securities Companies who were members of stock exchange on the alleged violation to capital market regulations. That inspection was carried out to prove that internal control and accounting system of those companies complied with regulations in the capital market, which among other things include Bapepam’s rule number III.A.10 concerning Securities Transactions, V.B.1 concerning Licensing of Securities Companies Representatives, V.D.1 concerning Supervision of Representatives and Employees of Securities Company, V.D.3 concerning Internal Controls and Book Keeping of Securities Companies, V.D.4 concerning Control and Protection of Securities Deposited with a Securities Company, and V.D.5 concerning Maintenance and Reporting of Net Adjusted Working Capital.

In addition, Bapepam also conducted inspection to 20 Securities Companies non exchange members. The objective of this inspection was to see the level of compliance of those companies with the existing capital market regulations. Among the total number inspected, 17 were imposed with administrative sanctions due to established evidence of violations to several capital market regulations. That left only three companies who fully complied. The administration sanctions imposed were in the form of revoking business licenses to three companies, suspension of business activities to three companies, and written admonitions to 11 others.

Approval on Service Enhancement

In order to enhance services offered by CSD, Bapepam granted green light to efforts to implement depository services on instruments such as Negotiable Certificate of Deposits (NCD) and Medium Term Notes (MTN). The approval was based on the reasons that those two instruments had already been widely traded among players and depository services demand to CSD was mounted.

Implementation of Scripless Trading

Through Circular Letter No. SE-01/PM/2001 dated November 23, 2001 Bapepam set the date of June 30, 2002 as the latest for issuers to register their shares with Collective Custody. There were only seven issuers who failed to meet the dateline.

As of the end of December 2002, there were 496 securities that registered with Collective Custody in CSD, in which 357 were shares, 62 were warrants, 71 were bonds, and six were MTNs.

On the other hand, the total number of participants who kept securities accounts with CSD was 202, in which 185 were exchange members and 17 were from custodian banks. The total number of sub accounts (investors’ account in exchange members and custodian banks) registered with CSD was 58,622.

Shortening Settlement Cycle of Exchange Transactions from T+4 to T+3

The shortening settlement cycle of exchange transactions that previously took four days (T+4) to just 3 days (T+3) was first put in place on September 9, 2002. Objective and benefits to be gained from this T+3 implementation were to boost efficiency and reduce settlement risk, increase market liquidity, and bring quality of Indonesian capital market practices parallel to those of international capital market.

Supporting implementation of T+3 transaction settlement called for fundamental changes to trading rules in JSX and SSX, especially those with regard to settlement cycle of exchange transactions. Revisions to JSX rules were approved by Bapepam as stated in Bapepam’s letter number S-1966/PM/2002 dated September 2002 and similar revisions to SSX rules were approved by Bapepam through letter number S-2011/PM/2002 dated Septermber 5, 2002.

Remote Trading in JSX

Remote trading system was first introduced in JSX on March 28, 2002. 13 exchange members participated and trading of shares from five issuers were successfully executed.

As of the end of December 2002 transactions of shares from all securities registered with JSX (332 shares, 61 warrants, and 2 rights) by using remote trading system were carried out without disruption by 17 exchange members. The remote trading system in JSX was up and running by virtue of “host-to-host order routing interface system” in which JSX provided interface application to exchange members. The main advantage from remote trading application was to deliver a high level of efficiency for the exchange and its members as well as to improve liquidity on JSX floor.

Technical guidance in conducting securities transaction online had been set up by JSX. However, in order to provide legal certainty to its users, JSX prepared a draft rule with regard to membership and trading related to Remote Trading. This draft rule is now being discussed by Bapepam and JSX.

Online Trading in SSX

On August 9, 2002, SSX brought securities trading on its floor online. In this system, investors could carry out transactions with SSX system, via exchange members’ system, through internet. There were five SSX members that employed this system in assisting their customers in trading their securities. The objective of putting this system in place was to administer efficient securities transactions with regard to either time or cost.

Technical guidance in conducting securities transaction online had been set up by SSX. However, in order to provide legal certainty to its users, SSX prepared a draft rule with regard to online trading. This draft rule is now being discussed by Bapepam and SSX.

Surveillance of Securities Transactions

Surveillance of securities transactions both on the exchange floor and over-the-counter was done by Bapepam by using a number of available tools ranging from electronic devices to printed documents/letters. With regard to surveillance of transactions on the exchange floors Bapepam used Real Time Information, Stock Watch, periodical reports from stock exchanges, internet, e-mails, printed media, and other printed documents/letters.

Surveillance of securities transactions in exchanges floor was carried out in concert with securities exchange management. If according to Bapepam’s surveillance report suspected unfair transaction was going on, Bapepam will contact the securities exchange management via phone or e-mail to request clarification and information regarding any measure that has been taken and must be taken by the management, which include temporary suspension of the shares trading. Any measure and result obtained by management of securities exchange shall be reported to Bapepam for further analysis and scrutiny. If according to further analysis an indication of violation to capital market regulations is confirmed, the case is then transferred to and handled by Inspection and Investigation Bureau of Bapepam for further investigation.

During the period of 2002, Bapepam had made 15 requests for clarification and information on an alleged unfair securities trading. Clarification and request for further information were made on the indication of false trading on shares of PT Primarindo Asia Tbk, and an indication of market manipulation on shares trading of PT Jaka Artha Graha Tbk, PT Lippo Land Development,PT Centrin Online Tbk and PT Astra Internasional Tbk.

Besides, indication of six criminal cases related to false trading on Bank Mayapada Tbk  and market manipulation on shares trading of PT Astra Internasional Tbk, PT Lippo Land Development, PT Anugerah Tambak Perkasa Tbk, PT Humpus Internasional Tbk and PT Hanson Industri Utama Tbk. have been delivered to Investigation Bureau of Bapepam to be  further investigated  to ascertain whether or not there were criminal act against Capital Market Law and its implementing rules. 

The Restructurization of Securities Industry

As part of restructuring program of Indonesian Capital Market Industry, Bapepam chairman formed two working teams that are responsible for viewing the plans of exchange demutualization and securiities company restructuring

Both teams have completed their  study on the first quarter of year 2002. The result of two studies has been socialized to Bapepam’s officials, SRO’s directors and the Indonesian Securities Companies Association’s administration.

Bapepam and SROs continuesly prompted the Exchanges demutualization and securities company restructuring program to all securities companies and capital market associations, including the preparation and necessy steps made.

Following are the brief result of these studies :

• Demutualization of Stock Exchange Institutions

  Demutualization of Stock Exchange Institution in Indonesia is necessary for various reasons such as to meet the need of capital from the exchange institution, improve good corporate governance practices, product development, infrastructure development, increase shares values of Stock Exchange Institution and its members, continuing market development, and as a vehicle for exchange members to dispose of their shares without losing the luxury of members’ rights.

  Based on a study, the proposed model for demutualizing stock exchange institution was Operating Holding Company SRO model. In this model, shareholders of exchange institutions (JSX, SSX, CGI, and CSD) will collectively establish a parent company as the major shareholder of the Exchange Institution. The parent company’s business will revolve around supporting its subsidiaries businesses, i.e. providing investment and other related supporting services activities but not activities related to the business as SRO.

  Implementation of demutualization of Exchange Institutions in Indonesia will be carried out in four steps. The first step is to disseminate results of study to SRO shareholders, members of House of Representatives, Ministry of Justice and Human Rights, and public at large. The second step is to form committee for restructuring SRO and committee for establishing the parent company. The third step is established the parent company whereas the fourth step is regarding business development of the parent company and distribution of its shareholding. The implementation of step 3 and 4 is subject to approval of Amendment to Capital Market Law, which include a special section concerning demutualization. On the other hand, steps 1 and 2 were performed in year 2002 and were continued in 2003.

  Furthermore, there were a number of issues such as ownership, management, operation, business, and regulation to be considered with regard to the implementation of demutualization of exchange institutions.

• Restructuring of Securities Companies

  Based on the study, restructuring of securities companies can be carried in a manner as follows:

  • Creating a more stringent requirements for a securities company to become an exchange member, i.e. to increase minimum paid-in capital requirement to Rp25 billion and minimum working capital of Rp20 billion, to require a securities company to have an organization structure with at least six divisions, to set up minimum requirements for a securities company to have at least three competent and professional directors, and to set up a minimum standard for Brokerage Office System (BOFIS).

  • in the case where a securities company fails to meet those requirements, the company will lose its membership in a securities exchange and therefore becomes a non-exchange-member securities company though it will not lose its ownership in the exchange (demutualization of securities exchange).

  • Relaxing requirements for a non-exchange-member securities company whose business is managing investors’ funds and increasing requirements for a non-exchange-member securities company whose business is underwriting. However, Bapepam must prepare a surveillance system to supervise these non-exchange-member securities companies.

  • Requiring securities companies to comply with good corporate governance principles and to prepare Standard Operating Procedure which includes orientation program for investors

  • Making additional rules in order to improve surveillance on securities companies and to increase investors’ protection as well as to continuously develop domestic investors

  • Encouraging SROs, associations, and other related parties to conduct advanced training program for directors of securities companies and urging Association of Indonesian Securities Companies (APEI) to set code of ethics for securities companies.

Table of Contents Bapepam Annual Report 2002

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