Jakarta. The Indonesia Stock Exchange, or IDX, will start in November to shorten by two business day the standard settlement cycle for stock transactions from three days currently, to ease trade across continents and boost international competitiveness.
The bourse will conduct trials before implementing the new system on Nov. 26.
"The IDX and other self-regulatory organizations have been studying this new mechanism by distributing questionnaires, holding focus group discussions, conducting self-assessments, and also meeting with related authorities," IDX trade director Laksono Widodo said in Jakarta on Wednesday (18/07).
Self-regulatory organizations include stock exchange authorities, custodian banks, payment banks and domestic and foreign investors.
Laksono expects the new mechanism to ease transactions between bourses, countries and even continents. It will also bring the IDX in line with major exchanges in the United States and Europe.
The system will boost liquidity as it will reduce settlement risks and increase operational efficiency in the capital market.
Laksono said the IDX already implemented a straight-through processing system, which allows the trading process to be conducted electronically, and single investor identification, which is supported by the new mechanism.
Self-regulatory organizations have raised several concerns, including the readiness of the new system, the scheduled transaction trial, mitigation efforts if transactions fail, and adjustments for investors living in different time zones.
He said US and European investors have raised concerns over the current settlement system, while Asian investors do not have the same concerns as they already implemented similar systems.
Pakistan, India, Taiwan, Hong Kong, South Korea, Russia, Vietnam, Australia, New Zealand, Thailand, Saudi Arabia, Iran, the United States, Canada, Mexico, Argentina, Peru, Jamaica, and Bermuda have all implemented T+2 settlement cycles.
Malaysia will adopt the same mechanism in the third quarter of this year, while Singapore will start on Dec. 3. Japan will implement the system on July 16 next year.