The Indonesia Stock Exchange trading floor. (JP/Wienda Parwitasari)

The Indonesia Stock Exchange’s (IDX) free-float methodology to be introduced on Feb. 1 is expected to encourage listed companies to increase the number of shares available for the public, securities firm Investa Saran Mandiri stock exchange analyst Hans Kwee has said.

He also said with the new methodology, the amount of the free-float shares of each listed company would determine the weighting of their share index and if the percentage of their free-float shares was small, the weighting on the index would also be small.

“So, the new method will encourage share issuers to increase the number of their free-float shares so that their share prices would reflect real market conditions,” he told The Jakarta Post recently.

Under the free-float adjusted index, the listed companies’ weighting would be the number of shares available for trading (free float) rather than the total number of shares outstanding, which is currently used by the stock exchange.

For the initial stage, the new methodology will be used in calculating the LQ45 and IDX30 blue-chip share indices.

The change of the index calculation methodology is expected to reflect the real picture of the prices of shares because the calculation is based on the shares available for trading (free float), Hasan Fauzi, the IDX development director, told the Post.

“The current methodology does not really reflect the real value of the share prices, because the calculation is based on the outstanding shares [market capitalization] even if they are not all available for trading,” he said. (das/bbn)