Indonesia strengthens measures against stock manipulation after market rout triggered by MSCI

JAKARTA: Indonesia on Monday (Oct 26) introduced more measures to address stock market manipulation, including adding independent parties to a committee determining stocks with concentrated ownership structures, after MSCI said the country could be demoted due to concerns about opaque trading.

The measures came after MSCI announced earlier this month that it could demote Indonesia's stock exchange to "standalone" market status, saying not enough had been done to arrest coordinated trading practices in its stock market.

That was more severe than the global index provider's January warning that it could downgrade the country to "frontier" status. At present, MSCI still classifies Indonesia as an "emerging" market.

The Indonesia Stock Exchange (IDX) plans to expand the membership of a committee that comes up with a list of stocks with high shareholder concentration to include independent parties like Indonesian academics and F Chapman Taylor as a representative of foreign investors, chief Jeffrey Hendrik said at a press conference.

Previously, the committee members were officials from capital market authorities. Taylor is a former partner with investment company the Capital Group and is currently an adviser to Indonesia's sovereign wealth fund, Danantara.

"We encourage the IDX to strengthen the mechanism and methodology of trading supervision, including its capacity to identify patterns of irregular transactions, detect coordinated trading and strengthen the mechanism to respond to such events," said Hasan Fawzi, the financial regulator's capital market supervisor.

Last week, the IDX said it would exclude stocks with high shareholding concentrations from its main Jakarta index starting on Nov 2. The current list includes 80 companies.

The MSCI downgrade warning spurred Indonesia's deepest-ever two-day stock selloff on Oct 16 and Oct 19 sending the main index to its lowest point since 2020. It has since rebounded.

At 3.20am GMT (11.20am Singapore time) on Monday, the index was down around 0.6 per cent. The rupiah weakened 0.4 per cent to its weakest point since July.

POSSIBLE COORDINATED TRADING TRIGGERS INVESTIGATION

The exchange also plans to launch investigations when it detects possible coordinated trading to manipulate share prices and freeze suspicious investor accounts, Hendrik said.

The new measure, to take effect in November, is more proactive than the IDX's previous response. The IDX previously warned public investors of unusual market activities when a stock price moved sharply and requested an explanation from the company. The process could also lead to a temporary freeze in share trading.

A policy that allows share buybacks without requiring approval from a general shareholders' meeting has also been extended until June 2027, Hasan said, adding that any buyback must consider rules about the minimum free float, or shares available to trade in the market.

Hasan said Indonesia has been communicating with MSCI and other global index providers like FTSE Russell to reiterate its regulators' commitment to market reforms.

The market showed resilience following MSCI's recent announcement, Hasan said, describing local investors as "mature" and "wise" for buying stocks in companies with good fundamentals.

President Prabowo Subianto told his cabinet last week that MSCI was trying to "intimidate" Indonesia, but said the country would not be afraid, striking a combative tone in his first public reaction to the downgrade warning.

Since MSCI's January warning, Indonesia has launched a series of reforms including releasing more details on investor accounts and ownership data, increasing the minimum free-float level and unveiling record fines against parties involved in market manipulation.