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What is a Primary Market, IPO, and its Mechanism?

Updated: Jan 5

Generally, in the capital market realm, there are two types of markets provided by the stock exchange based on the placement of listed companies (issuers) on the stock exchange and/or based on transaction time, namely the primary market and the secondary market.


The primary market is where shares are offered for the first time from the issuer to potential investors within a predetermined period of time. This process is done before the shares are listed on the stock exchange.


Once officially listed, the shares will then be traded in the secondary market according to the prevailing mechanism and trading hours. It can be said that the secondary market is a continuation of the primary market.


In this article, we'll take a complete look at the ins and outs of the primary market.


Primary stock market

Primary Market Mechanism


The process that takes place on the primary market is often called an initial public offering (IPO). Many people also call it "go public".


The company first determines the price and number of shares offered to the public. Investors then fill out a share purchase order form which will be further processed by banks, Broker-Dealers, Underwriters, Fund Administration Agency, and related issuers. After the offering period ends, investors will receive confirmation information on the allotment of shares.


E-IPO System


In 2022, the Indonesia Stock Exchange and other capital market regulators launched the E-IPO (Electronic Indonesia Public Offering) system to support the process of initial public offerings to the public. The existence of this electronic tool is expected to facilitate retail investors' access to the primary market and expand the participation of securities companies as selling agents.


The initial public offering in E-IPO consists of the following periods.


1. Pre-effective (Publication)


Companies that have qualified for an IPO will obtain a publication license to display their initial public offering information. Investors can view the prospectus and summary on the E-IPO homepage.


2. Book Building


Investors can already order IPO shares in this period by inputting the preferred number of lots, but the price is not finalized. Therefore, investors are allowed to fill in the price within the book building price range. The company and the Underwriter will then look at investor interest to determine the final price of the IPO shares that will be applied during the offering period.


3. Offering


The Offering is the stage where the company and the Underwriter have determined the final price. Investors can then submit their initial share orders at this single price.


For investors who place an order during the book building period, if the initial price is lower than the final price, they need to re-book during the offering period. Meanwhile, if the initial price is higher, investors can immediately confirm.


4. Allotment


In the next stage, the company along with the Underwriter will carry out the allotment or allocation of shares to investors who have confirmed the order. An investor can only get a maximum allotment of 10 lots of shares per IPO.


5. Distribution


At the end, shares are distributed to investors who are entitled to a certain number of lots according to the allotment results.


Take Note of a Few Things before Hunting for IPO Stocks


Just like the secondary market, trading in the primary market also has its considerations. Here are the advantages and disadvantages of buying IPO shares that investors need to know.


Advantages:


  • Investors can buy IPO shares at low prices.

  • IPO shares have a great opportunity to immediately generate capital gains on the first day of listing on the stock exchange. Shares can also be sold quickly.

  • Companies that have just gone public generally have good fundamentals.


Disadvantages:


  • Investors may not receive an allotment of IPO shares.

  • There is still potential for the share price to decline on the first day of listing, even up to the lower limit percentage of auto rejection (ARB).

  • The decline in IPO share prices can occur in the medium and long term.


Cara Pesan E-IPO di KAF Sekuritas


  1. Access E-IPO menu through KAF ETRADE or go directly to the registration page: e-ipo.co.id/id/register.

  2. Fill in the form according to the customer's personal data registered during the account opening process at KAF Sekuritas.

  3. Activate your E-IPO account by clicking the link sent via e-mail and verify phone number.

  4. After success login to the E-IPO profile, please add Broker Dealer data in the column provided. Select “DU – KAF SEKURITAS INDONESIA” as a participant and fill in the customer SID number obtained during the account opening process.

  5. KAF Sekuritas will authenticate customer requests within a maximum of 1 working day. If it has been authenticated, customers can immediately place an E-IPO order by selecting the offer available on the page: e-ipo.co.id/id/ipo.

  6. When filling out the order form, make sure the RDN balance is sufficient for the total IPO you wish to purchase.

  7. Customers can then view the order status and allotment on the Order menu during or after the offer period.


Cancellations or changes to order amounts can only be made by System Participants (in this case KAF Sekuritas). Please contact KAF Sekuritas' Customer Service to cancel or change IPO orders.

 

Disclaimer: The content is made for educational purposes, not a recommendation to buy or sell a particular stock. PT KAF Sekuritas Indonesia is licensed and supervised by the Financial Services Authority (OJK).




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