NEWS | APAC
Indonesia exchange unveils rules on structured warrants The Indonesia Stock Exchange (IDX) has published new rules on the listing, trading and liquidity providing of structured warrants and has targeted Q3 22 for the debut launch. in the top 60 companies with the highest market capitalisation in the last 12 months. Financials account for nearly half of the weights led by Bank Rakyat Indonesia (Persero) and Bank Central Asia, followed by infrastructures.
The new products will ‘increase investment alternatives for investors in the Indonesian capital market’ and ‘will increase the level of transaction liquidity and market deepening,’ according to the bourse. Effective from 11 April, the new guidelines comprise Rule Number I-P concerning listing of structured warrants, Rule II-P concerning trading of structured warrants and Rule III-P concerning liquidity provider requirements of structured warrants on the IDX. ‘Structured warrants will be an investment product that can be utilised by investors to get investment returns from the movement of stock prices of the IDX30 Index constituents with relatively smaller capital compared to buying the shares,’ said Hasan Fawzi, business development director at IDX. ‘Investors can purchase structured warrants in the primary market such as during the public offering of shares as well as in the secondary market.’ Launched in 2012, the IDX30 Index measures the stock price performance of 30 stocks with relatively large market capitalisation, high liquidity and good fundamentals with the LQ45 Index being the universe - the LQ45 index consists of 45 companies that have been included
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‘Structured warrants provide more value added to investors compared to ordinary warrants. They’re not only issued based on the underlying stock of the IDX30 Index constituents, but are also available in two types, namely call warrants and put warrants,’ added Fawzi. ‘In addition, they are also required to have a liquidity provider so that investors do not have to worry about selling them before maturity.’ The process of exercising structured warrants at maturity is carried out automatically so that investors can easily receive profits at maturity if they’re in the money, according to Fawzi. ‘Just like other products traded through the exchange, trading of structured warrants is a safe and transparent transaction because it is transacted in real time, supervised by the IDX and the Financial Services Authorities (OJK), ’ said Laksono W. Widodo (left), director of trading and membership at IDX. “The transaction and exercise settlements are guaranteed by PT Kliring Penjaminan Efek Indonesia (KPEI).” The Indonesia exchange is inviting all exchange members to become issuers of structured warrants as a way to increasing their respective investor base, but also to add product services to customers and obtain alternative income from issuance and transaction activities as well as hedging. MARKET MAKERS Liquidity providers will also benefit from the market activity as they can earn
income by providing quotations according to the spread and volume determined by the exchange and to get rebate transaction fees, said the IDX. Market makers are also allowed to conduct short-selling activities on the underlying securities of structured warrants without having to follow the uptick rule, which would have required short sales to be conducted at a higher price than the previous trade. On 22 February, the IDX carried out a trade test of a structured warrant with RHB Securities Indonesia linked to the shares of Bank of Central Asia. The call warrant beta product will expire on 24 February 2023, and will be settled in cash with an exercise price of 7,000. The regulatory move comes after the financial watchdog OJK published a framework (8/POJK.04/2021) on structured warrants in March 2021, which provides a legal basis for the issuance, trading and supervision of listed products. According to the new rules, the issuance of mandatory structured warrants through a public offering shall meet a minimum value for each series of IDR5,000,000,000 (US$350,000). Structured warrants must have collaterals kept in collective custody at the depository and settlement institution. Under the new rules, structured warrant issuers will also be required to fulfil the reporting obligations that cover reports of changes in information in the prospectus and term sheets, issuer’s semi-annual and annual financial statements and reports on calculation of adjustments to conversion ratios as well as exercise price in accordance with the adjustment policies that have been determined at the time of the issuance.
