Ria Fortuna Wijaya, Muhammad Aulia Rahman, Jakarta – Indonesian authorities have unveiled a sweeping overhaul of the country's capital markets, combining tougher trading rules with rare criminal enforcement as they move to restore investor confidence following sharp market volatility and scrutiny from global index provider MSCI.
Officials say the enforcement action is intended to send a clear signal that market manipulation will no longer be tolerated – as Indonesia seeks to rebuild trust and position its stock market on a firmer, more transparent footing for global investors.
The reforms come alongside a high-profile police investigation into alleged insider trading and price manipulation, underscoring a broader push to strengthen liquidity, improve ownership transparency, and curb coordinated trading practices on the Indonesia Stock Exchange.
Chief Economic Minister Airlangga Hartarto warned that insider trading, stock price rigging, and other manipulative conduct would be dealt with firmly. A few days later, police announced the arrest of several brokerage executives suspected of manipulating share prices for personal gain.
Market shock exposes structural weaknesses
Pressure on Indonesian equities had been building since October 2025, when early signals of a potential MSCI review of free-float methodology weighed on sentiment. The Jakarta Composite Index slid 1.87% on Oct. 27, with heavy trading reflecting growing unease over liquidity and accessibility.
The sharpest shock arrived in late January after MSCI announced a freeze. On Jan. 28, the benchmark index plunged nearly 7% at the open, triggering a trading halt as losses approached 8%, before closing down 7.35%. Selling intensified the following day, with intraday losses briefly exceeding 10% amid turnover of more than Rp 67 trillion, as foreign and domestic investors rushed to reduce exposure.
Market participants said the swings reflected concerns over transparency and effective liquidity rather than macroeconomic fundamentals – highlighting the urgency of structural reform.
Key regulatory measures
Regulators have introduced four major changes aimed at ensuring that "public" shares genuinely reflect investable liquidity:
- Minimum free float raised to 15% from 7.5%.
- Ownership disclosure tightened to the 1% level from 5%, to clarify ultimate beneficial ownership and close loopholes that allow affiliated holdings to appear as public shares.
- The Indonesian Central Securities Depository expanded investor classifications from nine to 27 sub-types, improving data granularity and distinguishing global institutions from intermediaries.
- The exchange began publishing monthly free-float reports in January 2026 to track shares actually available to the market.
Together, the measures are designed to improve transparency, strengthen price discovery, and make Indonesia's equity market more accessible to large institutional investors.
Liza Suryanata, head of research at Kiwoom Sekuritas Indonesia, said free float is not merely a headline ownership figure but a core indicator of market accessibility.
"For global index providers, free float is not simply the percentage of publicly held shares, but the foundation for assessing whether a market is truly accessible to large institutional investors," she said.
She warned that limited ownership transparency can undermine confidence, distort price signals, and raise risk premiums – potentially accelerating foreign outflows.
"This episode should be understood as a stress test of the credibility of Indonesia's stock market, rather than merely a debate over index methodology," Liza said. "If reforms are implemented consistently and translated into real practice, Indonesia could emerge with a more mature market. Without substantive change, similar turbulence may recur."
Maximilianus Nicodemus, associate director at Pilarmas Investindo Sekuritas, said lifting the free-float threshold to 15% aligns with MSCI's push to ensure shares are genuinely public and to reduce coordinated trading risks.
"This signals stronger potential for Indonesia's capital market to attract significantly larger inflows as transparency and credibility improve," he said, adding that near-term liquidity pressure is unavoidable and that implementation should be phased to avoid excessive disruption.
Insider trading probe
In a rare move, Indonesia's National Police said it is investigating two asset management firms – Minna Padi and Narada – and has named three suspects in an alleged insider trading scheme.
Police allege the suspects bought shares through affiliated networks to inflate prices and reap illicit profits, according to Ade Safri Simanjuntak, director of special economic crimes.
"The transaction pattern appears designed to create a false impression of share prices, so the market price does not reflect true fundamental value," Ade said.
Authorities have frozen accounts linked to the two firms, with assets totaling about $40 million. Investigators said coordinated buying and selling by the companies and their affiliates distorted prices and misled investors, generating artificial demand, price dislocation, and a misleading perception of portfolio performance.