• News & Article
• OJK's New Free Float Rules and the Transformation of Indonesia's Stock Market

OJK's New Free Float Rules and the Transformation of Indonesia's Stock Market

Indonesia is entering a critical phase in the evolution of its capital market. The Indonesia Financial Services Authority (OJK) and Indonesia Stock Exchange (BEI) are preparing to issue new rules regarding minimum free float limits, which will be increased gradually from the current level of approximately 7.5 per cent towards a range of 10 to 15 per cent.

This step is not merely a technical change, but part of a long-term strategy to transform Indonesia's stock market from one dominated by retail investors and low-float stocks into a healthier, more liquid market suitable for global institutional investors.

These rules are designed to be implemented gradually over 5 to 10 years, allowing issuers and the market time to adjust.

Why free float is an important issue
Free float reflects the portion of shares that are truly in circulation and tradeable by the public. In Indonesia, many shares have low free float because the majority of shares are held by controlling shareholders.

This structure creates several important consequences:
- Low liquidity
- Price movements easily influenced by small transactions
- Higher risk of price manipulation
- Global institutional investors find it difficult to enter due to limited tradeable shares

Currently, retail investors control more than 50 per cent of share ownership on the BEI, even greater than the combined domestic institutional investors. On the other hand, domestic institutional investor ownership is only around 37 to 40 per cent, while foreign investors account for approximately 40 to 49 per cent depending on the period.

This makes Indonesia's market highly sensitive to short-term sentiment and more volatile than countries with institutional dominance.

What OJK aims to achieve
By raising free float to 10 to 15 per cent, OJK wants to drive structural change in the stock market.
The targets of this policy include:
- Increasing market liquidity
- Creating more room for institutional investors to enter
- Reducing potential for price manipulation
- Encouraging fairer valuations
- Making Indonesian shares more compatible with global index standards such as MSCI and FTSE
- Increasing Indonesia's potential weight in global indices

According to OJK's calculations, a 10 per cent increase in free float alone requires additional public shares worth approximately Rp21 trillion, and if it rises to 15 per cent it could exceed Rp200 trillion. This shows that this change will create a large supply of shares for the market to absorb.

Who benefits the most
Not all shares will be impacted equally.
Shares with the following characteristics have potential to be winners:
- Large capitalisation
- Strong fundamentals
- High liquidity
- Inclusion in major indices such as LQ45, IDX30 or MSCI

When free float increases, these shares become easier to purchase by institutional funds, both local and foreign, as the size of transactions that can be executed becomes larger without affecting the price.

Conversely, shares with small free float and thin liquidity will face increasing pressure to adjust, as institutional investors tend to avoid shares that are difficult to enter and exit.

Implications for mutual fund investors
For mutual fund investors, this free float rule is good news for the medium to long term.

Markets that are more liquid and more institutionally owned typically:
- Are more stable
- Are harder to manipulate
- Are more efficient in reflecting fundamentals
- Are more attractive to global funds

Equity Funds focused on large cap and high-quality shares will be in a better position to capture this flow of funds. In the context of Syailendra Capital, strategies such as SAFE, SEOF, and SEMF that emphasise stock selection and liquidity can benefit from this shift in market structure.