Indonesia Unveils New Market Regulations to Address MSCI Concerns

The Indonesia Stock Exchange (IDX) has introduced new draft regulations concerning minimum free float requirements for new share listings. This initiative comes in direct response to concerns raised by global index provider MSCI, which recently warned of a potential downgrade for Indonesia's market status. The proposed changes aim to enhance market transparency and investor confidence following a substantial market downturn.

Addressing MSCI's Concerns

The new regulations are a swift attempt to address issues flagged by MSCI, which had expressed concerns over market transparency and investability in Indonesia. These concerns led to a significant market sell-off, with the Jakarta Composite Index (JCI) plummeting by up to 16.7% over two days, resulting in an estimated US$80 billion in capital outflows. MSCI had indicated that Indonesia's capital market, a US$1.4 trillion G20 economy, could be downgraded from 'emerging market' to 'frontier market' status if transparency issues were not resolved by May 2026.

Key Proposed Changes

The draft regulations outline several significant adjustments to the existing free float requirements:

• The minimum free float requirement for listed firms is set to be doubled to 15%, up from the current 7.5%. This will apply to both new listings and existing companies, with a transition period for the latter.
• For new share offerings, companies with a pre-listing market capitalization exceeding IDR 50 trillion (approximately US$3.8 billion) will be required to have a minimum free float of 15% of total shares, an increase from the previous 10%. Companies with smaller capitalizations will face even higher minimum free float requirements.
• The new rules stipulate that the minimum free float level must be maintained for at least one year post-listing. Should the free float amount be diluted due to certain transactions, companies will have a two-year window to restore it to the required level.
• Additionally, the classification of shareholder types will be expanded from 9 to 27, and disclosure will be mandated for shareholders holding at least 1% of shares, a reduction from the previous 5% threshold.

Timeline and Official Statements

The draft regulations were released on Wednesday, February 4, 2026. The proposals are now open for a 10-day feedback period from industry stakeholders and the public. Hasan Fawzi, interim chief supervisor of capital markets at Indonesia's Financial Services Authority (OJK), stated that the regulation is expected to be finalized by March 2026. OJK Chairman Mahendra Siregar emphasized that the policy will include clear disclosure requirements and a defined transition period for companies to adapt. OJK Acting Chairwoman Friderica Widyasari Dewi noted that MSCI is looking for 'concrete implementation of the action plan,' not just proposals.

Market Impact and Future Outlook

The urgency behind these regulatory changes underscores Indonesia's commitment to strengthening its capital market governance and restoring investor confidence. The previous free float requirements mandated at least 50 million shares and 7.5% of total listed shares, along with a minimum of 300 shareholders. The move to increase these requirements and enhance transparency is crucial for Indonesia to retain its 'emerging market' status and avoid potential capital flight that a downgrade could trigger.