The Indonesia Stock Exchange (IDX) implemented a two-day settlement cycle for stock transactions on Monday in a bid to increase market liquidity and competitiveness against regional peers. (Reuters Photo/Beawiharta)

IDX Implements T+2 Settlement Cycle for Stock Transactions


NOVEMBER 26, 2018

Jakarta. The Indonesia Stock Exchange implemented a two-day settlement cycle for stock transactions on Monday in a bid to increase market liquidity and competitiveness against regional peers.

Indonesia is the second country in Southeast Asia to implement the new T+2 settlement cycle after Thailand, which did so on March 2.

"With advanced technology and evolving mechanisms being implemented by stock exchanges across the world, one of the key takeaways [to make stock transactions easier], is by shortening the settlement cycle," the bourse said in a statement on its website on Monday.

With a shorter settlement period, investors can liquidate their positions faster, which would boost liquidity in the market, according to the stock exchange, better known as the IDX.

"The newly implemented mechanism is in accordance with international best practices to boost the operational efficiency in the stock exchange," Hoesen, head of capital markets at the Financial Services Authority (OJK), said in a statement.

The settlement period, which has been reduced from three working days to two, is in line with major stock exchanges across the world, including in New Zealand, Hong Kong, Germany, Taiwan, Saudi Arabia, Canada and the United States, and it should decrease market risks stemming from mismatched settlement periods, the IDX said.

Japan has also announced plans to implement a two-day settlement cycle in July next year, while Singapore will begin on Dec. 3.

Despite operating in Southeast Asia's largest economy, the size of the IDX is still eclipsed by that of its neighbors. On average, about $570 million worth of stock changes hands daily on the IDX this year, up 15 percent from last year. But this is just over a half of the daily average on the Singapore Exchange (SGX).

The IDX's $455 billion market cap is the third-largest in the region, behind Singapore and Thailand.

The IDX has been revamped over the past few years with a better risk management system and services to cater to more individual investors as part of efforts to improve its market appeal, especially to foreign investors, on which Indonesia still heavily relies to plug its gaping current-account deficit.