The capital market serves as a vital platform for the economy, connecting companies that require funding with investors who wish to invest their capital. Behind the movements of stock and bond prices, there exists a complex mechanism that ensures smooth transactions and protects all parties involved.
Read this article further to learn about the regulations of capital market mechanisms and what types of capital markets are available.
Key Takeaway:
The capital market is a place related to securities trading and share offerings between investors and companies that issue these shares. Companies issue securities for funding purposes, while investors seek profits. These activities are supervised by financial authorities to maintain transparency.
Things that must be prepared before transacting in the capital market include an identity card, taxpayer identification number, selecting a securities company, completing the provided forms, and then initiating the initial transaction.
Capital market transaction mechanisms are differentiated based on their types, namely the primary market and secondary market.
Transaction Regulations in the Capital Market
According to Law No. 8 of 1995 concerning Capital Markets, the capital market is an activity related to the buying and selling of securities as well as share offerings between investors and companies that issue these shares.
For prospective investors who wish to begin investing in the capital market, the preparatory steps include:
- Preparing personal documents such as Identity Card (KTP), Taxpayer Identification Number (NPWP), and savings account book.
- Selecting a broker or securities company (securities firm) that will act as an intermediary in securities transactions.
- Completing the forms provided by the securities company.
- Making an initial fund transfer to the investor fund account after opening a securities account and customer fund account.
Types of Transaction Mechanisms in the Capital Market
The capital market is a place where buyers and sellers of securities (valuable papers) such as stocks, bonds, and others meet. Generally, there are two main types of capital markets, namely:
1. Primary Market
The primary market is a market where new financial instruments are first issued and sold to investors. This is the initial stage where companies or governments seek new funds from investors for new projects or other funding needs.
Several forms of primary markets include:
Initial Public Offering (IPO)
An IPO is a process in which a company first sells its shares to the public. Through an IPO, companies can obtain funds for expansion, product development, acquisitions, and other activities. Investors who purchase shares in an IPO are typically large financial institutions and retail investors.
Rights Issue
A rights issue occurs when a company already listed on the stock exchange wishes to issue additional shares to current shareholders. Existing shareholders are given the right to purchase additional shares at a price lower than the market price.
Private Placement
A private placement occurs when a company sells its shares to certain institutional investors or individuals directly, without going through the open market. Typically, private placements are used by companies that are not yet ready or do not meet the requirements to conduct an IPO.
Transaction mechanisms in the primary market:
Initial Public Offering (IPO):
- The company appoints an underwriting manager to assist with the IPO process.
- Bookbuilding is conducted to determine the offered share price.
- Shares are offered to the public through a prospectus.
- Interested investors deposit their funds into a collection bank account.
- Shares are distributed to investors after the IPO process is completed.
Limited Public Offering (LPO):
- Shares are offered to specific parties, such as institutional investors or company employees.
- The process is simpler and does not require bookbuilding.
2. Secondary Market
The secondary market is where stocks and other financial instruments that have already been issued are traded among existing investors. This is the "used" market where investors buy and sell shares that were previously issued in the primary market.
The secondary market has several characteristics:
Stock Exchange
A stock exchange is a place where stocks and other financial instruments are traded regularly and centrally. Examples include the Indonesia Stock Exchange (BEI) in Indonesia, the New York Stock Exchange (NYSE) in the United States, and the Tokyo Stock Exchange (TSE) in Japan. Stock exchanges provide a platform for regular, transparent, and regulated trading.
Over-the-Counter (OTC) Market
Besides stock exchanges, there is also a secondary capital market outside the exchange known as the Over-the-Counter (OTC) market. In the OTC market, trading is conducted directly between buyers and sellers, usually through dealers or financial institutions.
Liquidity
One of the advantages of the secondary capital market is its high liquidity. Liquidity refers to the ability to quickly buy or sell shares without significantly affecting the market price. A liquid secondary market allows investors to easily liquidate their investments.
Price Determination
Share prices in the secondary market are determined by supply and demand. When demand for a particular stock is high, prices tend to rise, and vice versa. Economic factors, politics, and company news can also affect share prices.
After an IPO, stocks and bonds are traded on stock exchanges, such as the Indonesia Stock Exchange (BEI). This is where investors buy and sell securities among themselves.
Transaction mechanisms in the secondary market:
- Investors open a securities account at a securities company.
- Investors order the purchase or sale of securities through a broker at the securities company.
- Investor orders are matched with other investor orders in the stock exchange trading system.
- Transactions occur if the purchase and sale prices match.
- Transaction settlement is conducted through the Indonesia Clearing and Guarantee Corporation (KPEI) and the Indonesian Central Securities Depository (KSEI).
Exploring Bond Investment Opportunities with BTN Prioritas
After understanding how the capital market mechanism works, you can now maximize profit opportunities and minimize risks in investing.
BTN Prioritas, as a priority service for its customers, offers two investment products in the capital market, namely primary market bonds and secondary market bonds.
In this primary market, you can invest in Retail Savings Bonds (SBR), Indonesian Retail Bonds (ORI), Retail Sukuk (SR), and Savings Sukuk (ST). Meanwhile, in the secondary market, the investments you can obtain are Fixed Rate (FR), Foreign Currency Government Bonds INDOIS series, and Foreign Currency Government Bonds INDON series.
By understanding the capital market mechanism and BTN Prioritas products, customers can maximize profit opportunities and minimize risks in investing.
You can also consult with a BTN Prioritas Priority Banking Manager to obtain information and recommendations that suit your needs.
