Indonesia’s IDX: digitally ready

Indonesia

Inarno Djajadi, president-director of the Indonesia Stock Exchange (IDX), talks to The Energy Year about the impact of the Covid-19 crisis on the Indonesian market and how IDX is helping companies and investors during this challenging time. IDX was established in 1912 and privatised in 1992.

This interview is featured in The Energy Indonesia Special Edition: Crisis and Resilience in the Covid-19 Era.

How has the pandemic shaken the dynamics of the exchange?
The impact of Covid-19 has been quite bad. It has affected the market and our internal business process. From the beginning of 2020 to August 7, 2020, the Jakarta Composite Index fell about 18.34% from 6,300 points down to 5,178 points. The worst day was on March 24, when it fell 37.5% to 3,937 points. Hopefully, that will be the lowest point.
The downturn has of course impacted market capitalisation. The Covid-19 pandemic wiped out about IDR 1.7 trillion in just a month. From the liquidity perspective, the average daily trading value fell about 15% from IDR 9.1 trillion in 2019 down to IDR 7.75 trillion. As of August 7, 2020, the daily trading value was IDR 7.65 trillion.
On the internal business side, we have been working from home since March 24, so everything is being done electronically. 90% of our employees work from home. Almost every activity is being done electronically, and we have tried to offer equivalent services by this means.

How challenging was the shift to remote operations?
Fortunately, we were ready. Before the pandemic we had already moved our production of the Jakarta Automated Trading System from the head office to backup places and that was the big shift. So during the pandemic, that has been no problem at all.
We had already taken other services electronic, such as education, capital market score and even the IPO process. So our activity is basically the same as usual, just being done electronically. The positive point of the pandemic is that now we are being forced to use this digitalisation and hopefully after the pandemic is over we can keep up the same behaviour.
Doing things electronically is more efficient. We already have 2,881 activities done electronically with over 637,000 participants, so it seems the number of participants can be larger than when events are held face to face. Regarding the growth of the investors, the number of individual investors has grown by 22% until the end of July 2020, compared to last year.
Thanks to digitalisation, the stock investors themselves grew by 16% in July 30, from 2019 levels of 1.1 million up to 1.3 million stock investors.

Do you think that Indonesia’s manufacturing sector could benefit from a backlash against Chinese manufacturing?
I think we are heading in that direction. I have heard that Vietnam is already benefiting from that. We are trying hard to compete with Vietnam. You can see the growth of local investors putting money into the local market. Even though there is also outflow from foreign investment, the ones that can protect our market are the local investors.

Will we see a further increase in the number of IPOs in the second half of the year?
Up to now, the growth of the IPOs has been good; it is the best among Asian countries. As of August 7, we have listed 34 new companies and there are 13 in the pipeline, so hopefully this year, compared to other Asian countries, we will be the best.
We already do the IPO process digitally. One-on-one meetings are digital and the IPO is done via an e-registration. Before that, we used many files, but now with digitalisation, the IPO process is very efficient. There is only one window and then it goes to IDX and the regulator, OJK. Public exposures are already done electronically, as are listing ceremonies.

What initiatives have you implemented to ease doing business in this crisis?
We have many initiatives in place to ease the pain of the pandemic. With the pandemic, the index has gone down. We implemented a policy with OJK to give room for the listing company to buy back without the general meeting. Among the private sector companies there are about 19 companies committed to buying back from the market. We hope this will provide more hope and stop the price from dropping.
A second initiative is to relax the submission of the audited financial reports for the 2019 fiscal year. Usually companies have to submit this in March but we moved that to May 31, 2020. The annual report for 2019 is usually from April, but we have relaxed the deadline so that it can be submitted before June 30, 2020.
Likewise, for Q1 companies usually have to submit before April, but we moved that to June 30, 2020. Also, the annual general meeting can be held via an electronic proxy mechanism since we gave permission to them to hold the meetings digitally.
For trading, our key initiative has been banning the short sell transactions since March 2, 2020. Then we are applying a limit so that if the index goes above 5%, the trading hub doesn’t allow transactions for 30 minutes to give the investor time to think about whether it is realistic to sell at that price or not. Then we turn on trading again. Next is the auto-rejection rules for stocks whose price has declined more than 7%; that is the limit for the decline. That prevents panic selling and it gives time for the investor to be more realistic.

Is it your experience of past crises that has helped you in your preparedness?
Fortunately, we have faced crises several times, such as in 1998 and 2008. So we have several tools that we had used in past crises that we have been able to use again this time. So fortunately, we are probably more prepared than others.

How do you evaluate the government’s reaction to the pandemic?
I think the government has been pretty quick in its response to the pandemic. Of course, there is some limitation due to the budget, which is limited compared to that of other countries.
We have seen people helping each other in the private sector as well. For example, in the capital market Pasar Modal, we raised funds of around IDR 3 billion and we gifted this to the people. This is a gift not only from us, but from all of the private sector, hand in hand, to aid during the pandemic.

What would be your message right now from the Indonesia Stock Exchange to the global investment community?
IDX along with OJK and other SROs [self-regulatory organisations] will continue to monitor the market development throughout the Covid-19 pandemic, and we are ready to act and ensure a fair and orderly market.
We have relaxed several policies to ease the burden on listed companies and exchange members during their battle to survive the pandemic. However, we have not reduced market surveillance nor investor protection at all. Even while working from home, surveillance and investor protection is the most important thing for this stock exchange and we will maintain it.

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