About Stock (Equity)

Equity

Stock (Share) is one of the
most popular securities available. If a company wants to raise capital,
one of its options is to issue stock. Stock also offers interesting return
rate for its investors. That is why most investors choose stock for their
investment.  

 

Stock can be defined as a sign of ownership of an individual or
institution in a corporation. The person or institution who owns the
stock can claim on the company's earnings, assets, and rights to attend
its General Meeting of Shareholders.



 

Basically, there are two
benefits for stock investors:



 

1.      
Dividend

Dividend is the earning given to the company's shareholders from
the company's income. The amount of dividend paid to the shareholders is
decided in the Company's Annual General Meeting. To receive dividend, a
buyer of a stock  must own the stock for a relatively long period until it
passes its ex-dividend date, where he/she will be acknowledged as the
shareholder who has the right to obtain the dividend.



 

2.      
Capital Gain

Capital gain is the positive different between the purchase price and the
selling price of a stock. Capital gain is formed through the stock trading
activities in the secondary market. For example, an investor bought ABC’s
stock for Rp 3,000 per share and then sold it for Rp 3,500 per share. It
means the investor receive capital gain of Rp 500 for every sold share.

However, like other instruments of investment, stock has its own risks:



 

1.      
Capital Loss

It is the reverse of Capital Gain. It is a condition when the
stock is sold for a price that is lower than its original purchase price.
For instance, an investor bought the stock of PT XYZ for Rp 2,000 per
share, but aftermath the stock price fell to the level of Rp 1,400 per
share. Afraid of continuous declines, the investor sells the shares for Rp
1,400 per share. The investor has retained a capital loss of Rp 600 per
share.



 

2.      
Liquidity Risk

A Company, whose shares are owned by public, is stated for bankruptcy by
the Court or is being dismissed. In this case, the claim of the
shareholders' rights will get the last priority after all the company’s
liabilities have been settled (through the selling the company’s
assets). The rest of the company’s wealth, if exist, will be distributed
proportionally to the shareholders. However, if there is no rest left, the
shareholders will not receive anything. This is the worst condition a
shareholder might go through. Thus, a shareholder needs to monitor every
development happens in the company.

 

In the secondary market or daily stock trading, stock price fluctuates.
Stock price is formed by the demand and supply of the stock, while  the
supply and demand of a stock are influenced by many factors, such as the
company and industry’s performance, the macro factors (interest rate,
inflation, currency rate), the non-economical factors (social and
political conditions), and so on.

resource: idx.co.id

Introduction To Capital Market

What is the Capital Market?

The Capital Market is a vehicle to unite parties who need
long term financing and parties who have the money.

Definition of the Capital Market due to the Capital Market
Law

Capital Market is an activity which is related to :

• 
  
  
  Going public and securities trading
  
  


• 
  
  
  Listed companies which is related to their issued securities
  
  


• 
  
  
  Institution and profession which is related to securities
  
  


• 
  
  
  Capital Market Law No. 8, 1995
  
  

Function of the Capital Market

• 
  
  
  Long term financing
  
  


• 
  
  
  Alternative investment
  
  


• 
  
  
  Restructuring tool of corporate capital
  
  


• 
  
  
  Divesting tool
  
  

What is Going Public ?

Going Public is a securities offering executed by issuers in
order to sell their securities to the public.

The Process of Going Public

1. 
   
   
   Primary Market
   
   

• 
  
  
  Securities Offering by Underwriter and Selling Agent
  
  


• 
  
  
  Allotment
  
  


• 
  
  
  Securities Delivery
  
  

     2.  Secondary Market

• 
  
  
  Issuers list their securities at the bourse
  
  


• 
  
  
  Securities trading at the bourse
  
  

Primary Market vs. Secondary Market

1. 
   
   
   Primary Market
   
   

• 
  
  
  Unchanged stock price
  
  


• 
  
  
  No commission
  
  


• 
  
  
  Just for stock buying
  
  


• 
  
  
  Order through the selling agent
  
  


• 
  
  
  Limited period
  
  

    2.   Secondary Market

• 
  
  
  Fluctuate stock price depend on the market
  
  


• 
  
  
  There is a commission
  
  


• 
  
  
  For stock buying and selling
  
  


• 
  
  
  Order through the JSX members
  
  


• 
  
  
  No time limit
  
  

Market Types at the Capital Market

• 
  
  
  Primary Market or Initial Public Offering (IPO)
  
  


• 
  
  
  Secondary Market
  
  

The Capital Market Supervisory Agency

The Role : doing restoration and control

The Bourse

Party which is executing and facilitating systems and
infrastructure for securities trading. Similar with the other market which
facilitate the meeting of a buyer and a seller to do securities transaction.

The Roles of the Bourse

• 
  
  
  Providing infrastructure for securities trading
  
  


• 
  
  
  Providing regulations related to listing, trading and membership
  
  


• 
  
  
  Making the effort for instruments liquidity
  
  


• 
  
  
  Preventing mal practices, i.e. : collusion, insider trading, etc.
  
  


• 
  
  
  Disseminating the exchange information (transparency)
  
  


• 
  
  
  Creating new instruments and services
  
  

What is a Public Company ?

A Public Company is a company which meet the requirements :

• 
  
  
  Shares were owned by more than 300 shareholders, and
  
  
  


• 
  
  
  The Paid up Capital is Rp 3,000,000,000,- (three billion rupiahs) or more.
  
  

Who is the Issuer ?

• 
  
  
  A company which is offering their securities to the public through the
  Initial Public Offering
  
  


• 
  
  
  Such Securities that had been sold to the investors at the Primary Market
  can be re-sold by the investors through the stock exchange where they listed
  (Secondary Market).
  
  
  

The Clearing and Guarantee Institution (LKP)

• 
  
  
  An institution which executed clearing services and guarantee for the
  settlement of exchange transaction
  
  
  


• 
  
  
  Executed by The Indonesian Clearing and Guarantee Corporation (PT KPEI)
  
  

The Custodian and Settlement Institution (LPP)

• 
  
  
  An institution which executed the activity of central custody for custodian
  bank, exchange members and other party.
  
  
  


• 
  
  
  Executed by the Indonesian Central Securities Depository (PT KSEI)
  
  
  

 

SUPPORTING INSTITUTIONS IN THE CAPITAL MARKET

Underwriter

A company which make a contract with an issuer to do the
Initial Public Offering for the issuer’s interest with or without the obligation
for buying the un-sold stocks.

Securities Exchange Member

• 
  
  
  A company which is doing securities selling or buying for themselves or the
  other party (their clients).
  
  


• 
  
  
  Also called as a broker-dealer company
  
  
  

Custodian

A company which is giving services :

• 
  
  
  The custody for securities and other property which is related to
  securities, other services, including receiving dividend, interest and other
  rights.
  
  


• 
  
  
  Completing securities transaction
  
  


• 
  
  
  Representing account holder who are their clients.
  
  
  

Securities Administration Bureau

A company which is due to their contract with the issuer,
doing registration of securities holder and delivering right which is related to
the securities.

Trust Agents

A party which is representing the interest of bond holders.

Credit Rating Indonesia (PEFINDO)

An institution which rank all bonds to give the opinion about
the risks of the bonds independently, objectively and fairly.

Investment Management

A company which manage securities portfolio for their
clients.

SUPPORTING PROFESSIONS IN THE CAPITAL MARKET

Accountant, Consultant of Law, Appraiser, Notary, and other
profession determined by the government rule. To be active in the capital
market, they have to be listed at the Capital Market Supervisory Agency (BAPEPAM).
The requirements are stipulated at the Bapepam’s regulation.

Public Accountant

The Roles :

• 
  
  
  Doing an audit on the financial report and giving their opinion
  
  
  


• 
  
  
  Checking the bookkeeping, has it already met with the Indonesian Accounting
  Principles and the Bapepam’s rules.
  
  
  


• 
  
  
  Giving the direction for doing good-bookkeeping (if needed).
  
  

Consultant of Law

• 
  
  
  Doing Legal Audit
  
  


• 
  
  
  Giving Legal Opinion to the issuer and public company.
  
  

Legal Audit

• 
  
  
  Founding certificate included its changes
  
  


• 
  
  
  Financial Capital
  
  


• 
  
  
  License
  
  


• 
  
  
  Asset ownership on behalf of the company
  
  


• 
  
  
  Contract with the third party, either in nor out of the country
  
  


• 
  
  
  Civil or criminal case related to the company or personal of the board of
  directors.
  
  


• 
  
  
  UMR
  
  


• 
  
  
  AMDAL
  
  

Notary

The roles :

• 
  
  
  Making an official report of the General Shareholder’s Meeting.
  
  
  


• 
  
  
  Making changes of the Article of Association
  
  


• 
  
  
  Preparing agreements underlying the public offering
  
  

Appraiser

A party which publish and sign appraisal report of fixed
asset owned by the issuing company which is arranged base on the investigation
according to the appraiser’s expertise.

resource: idx.co.id