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The Indonesian Financial Services Authority (Otoritas Jasa Keuangan or OJK) has recently issued OJK Regulation No. 13 of 2023 on Policies to Maintain the Performance and Stability of the Capital Markets in Significantly Fluctuating Market Conditions (OJK Regulation 13/2023) to assist it in more effectively managing significantly fluctuating market conditions in the Indonesian capital markets sector. OJK Regulation 13/2023 also revokes the relevant OJK regulation in relation to share buybacks by an issuer or a public company in significantly fluctuating market conditions (OJK Regulation 2/2013).
In broad terms, OJK Regulation 13/2023 provides the following:
- revised parameters for significantly fluctuating market conditions;
- broad authorities for OJK to maintain the performance and stability of Indonesia’s capital markets; and
- notable changes to rules for share buybacks by public companies in significantly fluctuating market conditions.
NEW PARAMETERS FOR SIGNIFICANTLY FLUCTUATING MARKET CONDITIONS
In principle, OJK is given broad authority to determine significantly fluctuating market conditions. In determining the presence of such conditions, OJK may consider the following new parameters:
- the trading price of major securities listed on the Indonesian stock exchange (IDX) or other non-stock exchanges has significantly decreased abruptly (eg, significant decrease of the stock exchange composite index);
- significant pressures on capital markets (eg, significant decrease of assets under management and significant widening of bid-ask spread);
- significant sustained pressure and slowdown in regional and/or global economies which have an impact or potential impact on the stability of the Indonesian capital markets;
- natural or non-natural disasters that could impact the stability of the capital markets (eg, earthquake, flood, war, mass riots, pandemics and epidemics);
- sudden significant redemption (crash) of shares or participation units in investment products;
- trading halt of major securities or investment products;
- closure of the Indonesian stock exchange;
- failure of the trading system or settlement which causes the market to significantly fluctuate; and/or
- other conditions as may be stipulated by OJK.
OJK Regulation 13/2023 does not, however, provide any firm quantitative parameters for determining conditions to be considered as a significantly fluctuating market condition, as was previously the case under the previous OJK Regulation 2/2013, which identified the stock exchange composite index falling by 15% or more over three consecutive days. That said, some examples are provided in OJK Regulation 13/2023, including a 5% composite index fall in one day, a 5.63% composite index fall over six consecutive days and a 15% composite index fall on a year-on-year basis.
Furthermore, as there is now a new parameter relating to non-natural disasters, pandemic or epidemic situations could fall under this new express parameter as opposed to “other conditions as stipulated by OJK”, as was previously the case for the COVID-19 pandemic.
OJK’S BROAD AUTHORITY IN HANDLING SIGNIFICANTLY FLUCTUATING MARKET CONDITIONS
In handling significantly fluctuating market conditions, OJK Regulation 13/2023 now gives broad authority to OJK to, among other things:
- issue written orders to, as relevant, the stock exchange (IDX), other non-stock exchanges, clearing and guarantee institutions (KPEI), and/or depository and settlement institutions (KSEI) to adjust their relevant regulations in an expedited manner to support the stabilisation of capital markets conditions (eg, adjusting the relevant regulation in relation to, among other things, auto-rejection limits, trading halt, haircut value for adjusted net working capital, margin trading, short selling, pre-opening trading and trading time);
- relax certain reporting obligations and the relevant requirements for IPOs and corporate actions to be carried out by public companies (eg, extending the timeline in relation to book building and corporate actions by public companies, determining certain conditions that can be relied upon to permit the postponement or cancellation of an IPO and allowing share buybacks by public companies pursuant to this regulation (ie, in significantly fluctuating market conditions);
- relax certain requirements in relation to investment management and/or investment products (eg, extending the timeline in relation to reporting/submission obligations, the offering of investment products, the adjustment of investment portfolio composition, the dissolution or liquidation of investment products and determining certain conditions that can be relied upon to permit the postponement or rejection of purchase and/or resale of investment products);
- make other changes that may be required by capital markets stakeholders to support the stabilisation of capital market conditions (eg, adjusting the mechanism and timeline in relation to reporting obligations, relaxing certain requirements for applying for permits, approvals and registration, and relaxing the time limit to rely upon certain documents in relation to corporate actions by public companies); and
- request additional data and information from all stakeholders in the capital markets sector.
If required, OJK may also coordinate with other relevant authorities to stipulate policies to handle significantly fluctuating market conditions (for instance, the financial system stability committee if the condition has a potential impact on the banking industry).
NOTABLE CHANGES IN SHARE BUYBACKS IN SIGNIFICANTLY FLUCTUATING MARKET CONDITIONS
In essence, OJK Regulation 13/2023 retains various requirements previously under OJK Regulation 2/2013, including the maximum 20% share buyback limit and the exempted shareholders’ approval requirement.
However, notable changes under OJK Regulation 13/2023 are as follows:
- clarity on required media used for information disclosure (previously not expressly regulated): information disclosure required for share buybacks must be announced:
- for stock exchange listed shares, on the websites of the relevant public company and the stock exchange; or
- for unlisted shares, (i) on the website of the relevant public company, and (ii) in an Indonesian daily newspaper with national circulation or on the website of OJK;
- new reporting obligation: the public company must now also submit a report to OJK on the implementation of share buyback on each day during the share buyback period immediately after the closing of share trading on the stock exchange; and
- unified pricing and method for retransferring treasury shares: retransferring shares bought back in significantly fluctuating market conditions should now follow the pricing and method for retransferring shares bought back in “normal conditions” (regulated under separate OJK regulations).
Through this regulation, OJK has provided further support for one of its main functions of taking necessary actions to counteract and manage significantly fluctuating market conditions and, hopefully, promptly restoring balance to the capital markets sector in such challenging conditions. Generally, it remains to be seen how and when OJK will implement these new parameters (given, among other things, the absence of quantitative parameters as noted above), but the wording is broad enough to enable OJK at its sole discretion to assess the relevant conditions on a case-by-case basis (including, for example, a fall in the composite index below the amount covered by the regulation).