CONCEPT OF STOCK EXCHANGE IN INDONESIAN

Maybe some of use used to think a capital market where there are many people who work in front of the computers an there are giant screens where index numbers are written. In the sub-chapter of stock exchange, we will learn about the definition of capital market and the elments of and who plays in the stock exchange. In Indonesian we know the Indonesian stock Exchange which consists of Jakarta Stock Exchange and Surabaya Stock Exchange.

1.      Definition of Stock Exchange.

A stock exchange or capital market is a meeting place of issuers and investors who have registered with the stock exchange controling body to operate in indonesian stock exchange with the parties who have money for investmen. The meeting of an issuer and a prospactive investor is conducted through a broker. The investor or emitter does a transaction by ordering the broker to sell or buy the stock market bonds. The needs for capital of an issuer company is a long-term finance and the return period is more than one year by producing or selling bonds.

2.      The bonds in the Stock Exchange.

a.       Stock.

Stock are the proof of an individual’s ownership of a company because he/she has paid in some capital or bought the stocks which are issued by the company. The stock holder will get a part of the company’s profit, based on the parcantage of capital which is paid to the total capital of the company. The part of the company profit for the stock holder is called dividend. Stock are divided into two types, the are regular stocks and preference stocks.

b.      Preference Stocks.

Preference stocks are the stocks with special rights. A preference stock is often called semi stock and semi bond. The stock holder of a preference stock, together with craditors and bond holder, wil get compensation of their capital if the company gets bankrupt by selling the company’s assets, together with the bond holders and investors. The advantage of a preference stock over a regular stock is that the owner has a right to claim the company’s assets as the capital return. Nevertheless, the dividend of the stock holder is not as big as that of a regular stock. The holder of a preference stock is a semi owner and semi creditor. So, he gets small profit but has a priority when the company gets bankrupt and sells the properties and assets to pay the debts and responbilities.

c.       Bonds.

A bond is the proof of a long term loan betwen an issuer companyand the obligor (holder of bond or the capital owner who buys the company’s bonds). Like a creditor, an obligor has the right to be prioritized in returning the capital by the issuer company. Even if the company gets bankrupt, the result of selling company assets is preoritized to be given to the obliger, the result or compensation as the capital peyment of a bond is called bond interest. In other words, a bond is the some is a long-term debt certificate.

3.      Some Parties which Operate in the Stock Exchange.

a.       Issuers

A company which needs capital and issues stocks and bonnds is called issuer company. The requirements to be and issuer company operating in the stock exchange are as follows.

a.)    Has 20 billion rupiahs of total assets in minimum and 7,5 billion rupiahs of self capital (for stocks) in minimum and 25 billion rupiahs for bonds in minimum.

b.)    Registered in the Stock Exchange Supervisory Body.

c.)    Has a financial report which has been audited by a publick accountant declared as unqualifiedly clean.

d.)    Has existed for more than 3 years.

e.)    Gets profit in two year consecuively.

b.      Invesrtors and obligors.

Investors and obligors are the parties that have capital and fund to be invested by buying bonds in the capital market to obtain dividends or bond interest.

c.       Brokers.

A broker operates in the capital market and finds issuers and investors. A broker gets his income from the profit of stocks selling (capital gain) if the stocks have been traded. Meanwhile the price of stocks and bonds is fluctuative according to the demand and supply and the condition of issuer company in producing profit. In the case of publishing bonds. It is his duty to analyze the ability of an issuer in paying the bonds and the interest when they are due.

d.      Public Accountants.

A public accountant is responsible for analyzing a company according to the company’s financial report. Audit is the activity of analyzing the truth about the company according to the documents and transaction facts and cross-checking with other parties which have relation with the producer of financial report.

e.       Notaries and Law Consultants

A notary has a responsbility to legalize the decision of General Meeting of Stock holders about the issuance of stocks and bonds to in crease the invenstors capital in the company and the amount of profit which is given in the form of dividends or retain earnings, so the decision will have a legal force.

      A law consultant is responsible for giving a legal opinion to the issuer companies and giving opinions and suggestions to prospective investors about the result of legal audit from the issuer companies.

f.        Stock Exchange Supervisory Body.

The Stock Exchange Supervisory Body is a goverenment institution which has a responsibility in controling the capital market in Indonesia. The institution also has the authority to control and give entry permit as well as operate in the capital market.

g.       Indonesian Stock Clearing and Guarantee Ltd.

The Indonesian Stock Clearing and Guarantee is a state-owned company which is responsibile for implementing and organizing settlement of stock ownership and other bonds. Every day, people can buy or sell them unlimitedly. So the ownership of stocks and bonds can change many times and it is impossible to be settled directly at the transaction. The settlement will be done periodically, for example per week by the Indonesian Stock Clearing and Guarantee Company.

h.       Indonesian Central Exchange Custodian Ltd.

Indonesian Central Exchange Custodian is a state-owned company which has a responsibility in keeping stocks and bonds which are traded in the capital market. So, if somebody buys stocks at Jakarta stock exchange through the brokers, the stocks are not brought by the buyer, but they are kept at Indonesian Central Exchange Custodian Ltd. (PT. KSEI)