For decades, Indonesia Stock Exchange’s (IDX) institutional structure has acted as a brake on the growth and global competitiveness of Indonesia’s capital market.

The exchange still operates under a mutual ownership model, in which brokerage firms that use it are also its owners. While such arrangements were once common around the world, they have increasingly become an anachronism in modern financial markets.

When the same entities that trade on the exchange also control its strategic direction, conflicts of interest become unavoidable. The exchange is expected to function as a Self-Regulatory Organization (SRO), enforcing market discipline impartially. Yet under a membership-based structure, those subject to regulation effectively influence the regulator itself.

This concern is hardly new for Indonesia. As early as 2002, some international institutions conducted a comprehensive study on exchange demutualization and concluded that the existing non-profit model was no longer adequate for a market increasingly exposed to global financial shocks.

Reliance on member contributions limited the exchange’s ability to invest in advanced trading infrastructure, reducing liquidity and weakening the efficiency of price discovery. The structural shortcomings have become particularly visible when disciplinary action is required against brokerage firms involved in market manipulation or abusive trading practices.

Exchange executives often face political and institutional pressures because their positions are closely tied to the very members they are expected to supervise. Demutualization, therefore, is not merely an exercise in institutional modernization but is an urgently needed step toward separating ownership rights from trading privileges and establishing a more independent governance framework.

Momentum for this transition arrived with Law No. 4 of 2026, which amended Indonesia’s Financial Sector Development and Strengthening Law (P2SK). The legislation fundamentally changes the stock exchange’s ownership architecture by allowing individuals and legal entities, whether or not exchange members, to hold shares in the exchange.

In effect, it ends the long-standing ownership monopoly enjoyed by securities firms and opens the door to a more diversified shareholder base.

Promise and risks of demutualization

Transforming the IDX from a non-profit institution into a profit-oriented corporation is expected to improve managerial efficiency and enhance the exchange’s ability to raise capital. In the future, it could even pave the way for a public listing of the exchange itself, following a path already taken by many leading exchanges around the world.

Yet the most controversial aspect of the new law lies elsewhere. The legislation permits the Indonesian government, through the Ministry of Finance, Bank Indonesia and the sovereign investment vehicle Danantara to become shareholders in the exchange.

Supporters argue that state participation could strengthen market credibility, align the exchange with national development objectives and provide additional capital for technological modernization. During periods of financial stress, government-backed shareholders could also serve as a stabilizing force.

However, this arrangement introduces a potentially serious governance dilemma. The Indonesian state already occupies multiple roles within the financial system. Through the Financial Services Authority, it regulates and supervises markets.

Through Bank Indonesia, it manages monetary stability. Through the Ministry of Finance, it oversees fiscal policy and sovereign debt issuance. Through state-owned enterprises, it remains a dominant corporate shareholder. Through Danantara, it acts as a strategic state investor.

Adding ownership of the stock exchange to this list risks creating a double conflict of interest. Investors could reasonably question whether the exchange would remain fully neutral when supervising state-owned enterprises or when market decisions intersect with broader government objectives, including Danantara investments in both public and private entities.

Global institutional investors place significant weight on governance quality and regulatory independence. Concerns may emerge that state-linked companies could receive preferential treatment, regulatory leniency or informational advantages unavailable to private-market participants.

The legislation formally requires state shareholders to preserve the exchange’s independence. Yet legal language alone may not be sufficient. Effective safeguards will require secondary regulations that impose voting-right restrictions on state institutions and establish strong firewalls between the exchange’s commercial interests and its regulatory responsibilities.

Without these protections, demutualization could replace one governance problem with another.

MSCI verdict looms

Indonesia’s capital market presents a paradox. Investor participation has expanded at an extraordinary pace, yet structural vulnerabilities remain deeply embedded.

The number of capital-market investors surged from 14.87 million at the end of 2024 to more than 21 million by early 2026. Digital investment platforms, financial technology innovations and social-media-driven financial education have dramatically broadened retail participation.

Young investors dominate this expansion. Millennial and Generation Z punters account for more than half of Indonesia’s retail investor base. A growing aspiration toward financial independence has encouraged many young Indonesians to shift from traditional savings toward investment products.

Yet participation has expanded faster than financial sophistication. Financial literacy surveys continue to show a significant gap between investor enthusiasm and practical understanding of market risks.

On the corporate side, the exchange hosts a growing number of listed companies across multiple listing boards. However, quantity has not translated into resilience. Market capitalization remains heavily concentrated among a handful of large firms, many of which are controlled by dominant shareholders or business conglomerates.

Between late 2025 and April 2026, the market value of Indonesia’s ten largest listed companies declined by more than 25%, wiping out roughly 1.6 quadrillion rupiah (US$89 billion) in capitalization.

Some of the steepest losses occurred among large energy and natural-resource companies whose valuations had previously risen sharply. The dips have exposed a fundamental weakness: Indonesia’s market remains highly vulnerable to concentrated ownership structures and governance concerns, issues that have long attracted scrutiny from global index providers.

That scrutiny intensified in 2026 when MSCI conducted its latest market-classification review. Although MSCI retained Indonesia’s Emerging Market status, it downgraded assessments related to information flow and foreign-exchange market accessibility.

The decision effectively granted Indonesian regulators additional time before a possible future downgrade to Frontier Market status.

Yet MSCI’s message was hard and clear: persistent concerns remain regarding ownership transparency, ultimate beneficial ownership disclosure, English-language reporting standards, foreign-exchange restrictions, securities-lending limitations and indications of coordinated trading behavior.

Several high-profile financial scandals have reinforced these concerns. Cases involving companies such as Jiwasraya, Asabri, Kresna Life and WanaArtha Life damaged investor confidence and highlighted weaknesses in market oversight. In some instances, coordinated trading practices and questionable investment schemes contributed directly to substantial losses for ordinary investors.

Demutualization offers an opportunity to address part of this credibility deficit. A commercially managed exchange with diversified ownership would face stronger incentives to improve governance standards, enhance transparency, expand English-language disclosures and invest in surveillance systems capable of identifying market manipulation more effectively.

Deeper institutional change

For instance, Indonesia should seriously consider adopting a Non-SRO Holding Company structure.

Under the model, a publicly owned holding company would manage commercial activities and investment decisions, while regulatory functions would remain within separate SRO subsidiaries, including the exchange, clearing house, and central securities depository.

Such a framework would create a clearer separation between profit generation and market supervision. It would also align Indonesia more closely with governance practices adopted by several advanced financial centers.

Implementation would require coordinated action across multiple institutions that is now glaringly lacking.

OJK, the local financial regulator, would ned to establish ownership caps, restrict excessive voting power and strengthen fit-and-proper requirements for exchange leadership. The exchange itself would need to conduct an independent valuation process, separate membership rights from equity ownership, and accelerate the deployment of artificial-intelligence-based surveillance systems.

Meanwhile, the central securities depository would need to improve beneficial ownership tracking and expand real-time disclosure capabilities. And finally the Ministry of Finance would need to finalize implementing regulations and provide greater legal certainty for institutional investors, particularly pension funds that could serve as long-term anchor investors in the market.

Indonesia is entering a decisive period in its capital-market development. Demutualization can become more than an administrative reform; it can serve as the foundation for a more transparent, resilient and internationally competitive financial system.

Whether that promise is realized will depend not on the legislation itself, but on regulators’ willingness to enforce a genuine separation between ownership, commercial interests and market oversight before MSCI’s next major review in November 2026.

Only then can Indonesia convincingly demonstrate that its capital market is ready for the standards demanded by global investors who are increasingly fleeing the IDX.

Ronny P. Sasmita, PhD, is senior analyst at the Indonesia Strategic and Economic Action Institution, a Jakarta-based independent think tank