Capital Market Instruments Definition – Capital Market Instruments Definition, The capital market is undeniably a significant aspect of the economic system. For information, the capital market is a location where private enterprises and the government may purchase and sell securities.

The capital market in Indonesia has been in operation since 1912. However, its existence at the time was still suffering ups and downs and even had a vacuum, according to the Indonesia Stock Exchange’s official website (IDX).

Soekarno then reopened the Jakarta Stock Exchange on June 3, 1952, with an exchange operation named the Money and Securities Trading Union (PPUE).

Capital Market Instruments Definition

That day was eventually declared as Indonesian Capital Market Day, and it is still observed today. The Indonesia Stock Exchange (IDX) is still growing.

images 2022 08 19T174312.348

Regulations and traded instruments have advanced. To help you better grasp the capital market, I’ll go through the capital market instrument in depth.

Understanding Financial Instruments

All securities (securities) consisting of shares, bonds, and derivatives or derivatives of shares and or bonds are referred to as capital market products or capital market instruments.

Read More : Beware Of These 5 Challenges When Running an Online Business

Securities, according to the Capital Market Law Number 8 of 1995, are any debt acknowledgement, commercial securities, shares, bonds, credit securities, evidence of debt, any rights, warrants, options, or derivatives of securities, or other instrument that sets as effect.

Capital Market History

The capital market or stock exchange has existed since the Dutch colonial era, more specifically from 1912 in Batavia. The Dutch East established it.

The government of the West Indies exists to serve the colonial government, or VOC. Although the capital market has been in existence since 1912, its development and expansion did not go as planned and faced a gap at the time.

According to the book “Effectengids” published by Vereniging voor den Effectenhandel in 1939, securities transactions had occurred since 1880 but were carried out without an official organization, resulting in insufficient data.

Dunlop & Koff, the precursor of PT. Prime, was founded in 1878 as a corporation for community trading and securities. Only on December 14, 1912, did Amsterdamse Effectenbueurs launch the first stock exchange branch in Indonesia, which was located in Jakarta.

After Bombay, Hong Kong, and Tokyo, this capital market is the fourth oldest in Asia. The Dutch government created a stock market in Batavia because numerous plantations were being constructed on a huge scale at the beginning of the nineteenth century.

The Dutch colonial authority, of course, need funds for the growth effort to be successful. Savings from Europeans and Dutch citizens with above-average salaries were one of the sources of capital utilised at the time.

On that foundation, the Vereniging voor de Effectenhandel was officially created on December 14, 1912. The name translates as Securities Trading Association in Indonesian. This market is located in Batavia (Jakarta) and trades securities such as stocks and bonds.

Read More : The Complete Content Marketing Guide to Growing Your Business

Over time, the government of the Republic of Indonesia revived the capital market in 1977, and a few years later, the capital market saw expansion in accordance with numerous government incentives and restrictions.

President Soeharto launched the Stock Exchange in 1977. JSE is managed by BAPEPAM (Capital Market Executing Agency). The revival of the capital market is also highlighted by the first issuer, PT Semen Cibinong, becoming public.

Instruments of the Capital Market

The stock exchange is another name for the capital market. There are numerous sorts of securities that are exchanged or traded on the capital market day. Securities of this sort include:


Shares are securities that serve as proof of a company’s ownership. Shareholders of a firm are entitled to dividends or profit sharing.

Read More : Types Of Trading in The Business World

The process of selling shares in the capital market begins with a public offering (IPO – Initial Public Offering), in which the company’s shares are offered to the public for the first time. Following the completion of the IPO, the shares will be placed on the stock exchange and will be publicly traded.

Profitable Stocks

Later, the corporation will offer shares on the stock market in order to raise funds directly from the public. Dividends and stock price gains will benefit the general public that purchases shares.

The dividend itself is a profit distribution paid by the firm and is derived from the company’s earnings. This dividend will be paid after receiving approval from GMS shareholders.

Author: Irdansyah
I'm a regular contributor to IRDANSYAH commander, and in my business blog, my team and I share tales on the experience of starting a business from zero, how it feels to build a startup, and how to scale-up.