Indonesia steps up market oversight after MSCI alarm

Indonesia has rolled out new measures to tackle stock market manipulation after MSCI warned that the country’s stock exchange could be demoted to standalone market status, a threat that helped trigger Indonesia’s deepest-ever two-day stock selloff on October 16 and 19. The selloff sent the main index to its lowest level since 2020 before it later rebounded. The moves announced on October 26 aim to address concerns over opaque and coordinated trading practices that prompted MSCI’s latest warning.

At 0320 GMT on Monday, the main index was down around 0.6%, while the rupiah weakened 0.4% to its weakest point since July. Officials said the market had nonetheless shown resilience following MSCI’s announcement. MSCI still classifies Indonesia as an emerging market after issuing a separate warning in January that it could downgrade the country to frontier status.

The Indonesia Stock Exchange (IDX) plans to expand the membership of a committee that compiles a list of stocks with high shareholder concentration by adding independent parties such as Indonesian academics and F. Chapman Taylor as a representative of foreign investors. Previously, the committee was composed of officials from capital market authorities. Taylor is a former partner at investment company the Capital Group and currently an adviser to Indonesia’s sovereign wealth fund, Danantara.

Last week, the exchange said that stocks with high shareholding concentrations would be excluded from its main Jakarta index starting on November 2. The current list of companies with high shareholder concentration includes 80 firms. The changes to the committee are intended to be more proactive than prior arrangements, which leaned on internal regulatory officials alone.

The IDX will tighten trading supervision by immediately launching investigations when it detects possible coordinated trading to manipulate share prices, rather than relying first on public warnings. The exchange also plans to freeze suspicious investor accounts as part of these probes. Previously, the IDX warned public investors when a stock price moved sharply and sought explanations from listed companies, a process that could lead to a temporary trading halt.

Regulators have called for improvements in the mechanism and methodology of trading supervision, including better capacity to identify irregular transaction patterns, detect coordinated trading, and strengthen the response to such events. These steps form part of a broader effort to address the concerns cited by MSCI about coordinated trading practices in Indonesia’s stock market.

A policy allowing companies to buy back shares without approval from a general shareholders meeting has been extended until June 2027. Any share buyback under this policy must still comply with rules on minimum free float, which governs the proportion of shares available for trading in the market. Officials described the extension as one element of ongoing support for market liquidity while structural reforms continue.

Since MSCI’s January warning, Indonesia has introduced several reforms, including publishing more detailed investor account and ownership data, raising the minimum free-float level, and imposing record fines on parties involved in market manipulation. Authorities said they have been in communication with MSCI and other global index providers such as FTSE Russell to reiterate their commitment to these reforms. President Prabowo Subianto has also addressed the downgrade warning, characterizing MSCI’s stance as an attempt to intimidate Indonesia while affirming that the country would not be cowed.