Capital Market: Definition, Functions, Benefits, Actors, and Institutions in Indonesia

There are several investment instruments in which gold or real estate is better known. However, many are not aware of the investment opportunities available in the capital market.

The fact that deciding to invest through the capital market does not only offer profit opportunities for the community. But also make an active contribution to improving the domestic economic situation.

Then what is the capital market? DailySocial.id will summarize this topic in the article below.

Definition of Capital Market

The capital market is a market for various tradable long-term financial instruments, including bonds, shares, mutual funds, derivatives and other instruments. The capital market is a financial and investment vehicle for companies and other institutions (eg the government). Thus, the capital market allows various facilities and infrastructure for buying and selling activities and other related activities.

The capital market is the activities related to the public offering and trading of securities, publicly traded companies in relation to the securities they issue, and institutions and professions related to securities.

Meanwhile, according to Bruce Lloyd, the capital market acts as a liaison between investors and companies and government agencies by trading long-term instruments such as bonds, stocks and others.

Capital Market Function

• The capital market is one way to increase capital for a company

Companies can raise funds by selling shares in the capital market. The public, other companies, institutions or governments buy these shares.

• The capital market as an instrument for equal distribution of incomel

After a certain period of time, the shares acquired distribute dividends (part of the company's profits) to the buyer (owner). Therefore, the sale of shares in the capital market can be seen as a way of equalizing income.

• The capital market as a means of increasing productive capacity

With the additional capital accumulated in the capital market, the company's productivity increases. The capital market as a way to create jobs

The existence of the capital market can encourage the emergence and development of other industries3 which affect the creation of new jobs.

• The capital market as a means to increase government revenue

State taxes all dividends paid to shareholders. The additional revenue generated by these taxes increases government revenue.

• The capital market as an indicator of the country's economy

The increase in (general) capital market activity and buying/selling volume shows that various companies are doing well. And vice versa.

Capital Market Benefits

The capital market benefits issuers (Parties conducting Public Offerings, namely securities issued by issuers for the sale of securities to the public based on applicable laws and regulations) and investors.

Capital Market Benefits for Issuers

• The amount of funds that can be collected is large

• The funds can be received immediately after the primary market is over

• There is no convenant, so management can have more flexibility in managing funds/companies

• High company solvency, which enhances the company's image

• Issuer's dependence on small banks

Capital Market Benefits for Investors

• Investment value grows in line with economic growth. This increase was reflected in the increase in share prices which had an impact on capital gains

• Receive dividends for those who own or hold shares and floating interest rates for bondholders

• Can invest in several instruments at once, reducing risk

Capital Market Participants

The main capital market players and supporting institutions that are directly involved in the transaction process between the main actors are:

• Issuer, companies that issue both stocks and bonds.

• Investor, investors who buy or invest in emission companies.

• Underwriter (Underwriter), an institution that guarantees the sale of shares/bonds before the specified time limit and can obtain the funds desired by the issuer.

• Realtor, a party that sells securities from a company that "goes public" without an agreement with the issuer concerned.

• Broker, an intermediary between the seller (issuer) and the buyer (investor) when buying and selling securities.

Capital Market Institutions in Indonesia

Indonesia has many institutions and capital market structures. The following are capital market institutions in Indonesia:

• The Financial Services Authority, which replaces the function of the Capital Market Supervisory Agency as supervisor of all activities that occur in the capital market.

• Stock Exchanges, currently there are two: the Jakarta Stock Exchange and the Surabaya Stock Exchange but since the end of 2007 the Surabaya Stock Exchange merged into the Jakarta Stock Exchange to become the Indonesia Stock Exchange

• Securities Companies

• Clearing Guarantee Institution, currently managed by PT. Indonesian Clearing and Guarantee Agency (PT. KPEI)

• Depository and Settlement Institution, currently conducted by PT. Indonesian Central Securities Depository (PT. KSEI)

That is a summary of the capital market from its definition to the body of the capital market structure in Indonesia. I hope this helps.