What is SRO? Functions, Authority, and Role in Indonesia

A Self-Regulatory Organization (SRO) plays a vital role in maintaining integrity and accountability within industries that require consistent oversight. Formed independently from government bodies, an SRO establishes rules, standards, and enforcement mechanisms to guide the behavior of market participants.

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These organizations operate either where government regulation is limited or in partnership with public authorities, offering an added layer of structure and transparency.

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By promoting ethical conduct, resolving disputes, and monitoring market activity, SROs contribute to regulatory structure and market monitoring by setting rules, overseeing compliance, and providing dispute resolution. Their ability to enforce rules without relying on government authority further strengthens their regulatory effectiveness.

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What is a Self-Regulatory Organization (SRO)

What is SRO? SROs are independent body created to oversee and regulate specific industries or professions. Typically formed as a non-governmental entity, an SRO establishes standards and rules to maintain order and ensure responsible conduct among market participants.

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These organizations operate either where government regulation is limited or in partnership with existing oversight frameworks. SROs are particularly valuable in sectors where trust needs strengthening, as they provide structure and accountability.

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Notably, they can enforce their regulations without requiring formal government authority.

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Key Aspects of SRO Legal Authority

1. Legislative authority: An SRO must hold the power to develop industry policies and ensure their enforcement within its designated sector.
2. Strong governance: It should operate transparently and remain independent, using a clear process for gathering feedback when forming new rules.
3. Management of conflict: Since disagreements are inevitable, an SRO needs a defined approach for managing disputes and guiding them toward resolution.
4. Oversight: With large memberships, the organization must implement strong monitoring systems to ensure compliance and uphold ethical conduct.
5. Surveillance methods: SROs should adopt up to date surveillance technologies to stay informed about ongoing developments in the fields they regulate.
6. Enforcement program: A robust enforcement framework must work alongside government bodies to uphold rules, safeguard members, and ensure fair treatment during investigations.
7. Regulatory database: They must maintain a database of supervised individuals or firms, including logs of complaints and disciplinary measures.
8. Disruption procedures: SROs require contingency plans that identify disruptions, especially technological ones, and restore essential systems and data.
9. Resolution of disputes: A transparent, consistent mechanism for resolving conflicts should be in place, ensuring equitable treatment for all parties involved.

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Role of SRO in Finance

1. Establishing industry standards: SROs craft conduct standards and recommended practices to promote integrity and proper behavior within their membership.
2. Setting rules and regulations: They outline and uphold rules governing trading and other market operations, including measures to deter misconduct and abuse.
3. Monitoring and enforcement: SROs oversee member activities to confirm regulatory compliance and may issue sanctions, including monetary penalties or suspensions, when breaches occur.
4. Investor protection: A key role is ensuring investor safety by maintaining markets that are transparent, well-regulated, and orderly.
5. Dispute resolution: SROs commonly offer structured processes to settle disagreements either among members or between firms and their clients.
6. Education and licensing: They may also oversee licensing standards and deliver professional accreditation programs for industry practitioners, such as the CFA qualification.

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Read also: Commodity Futures: Understanding the Basics and Its Impact

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Example of SROs in Indonesia

1. Bursa Efek Indonesia (BEI) or Indonesia Stock Exchange (IDX)

The Indonesia Stock Exchange (IDX) operates and maintains the marketplace where buyers and sellers of securities meet. Its primary purpose is to support orderly, transparent, and efficient trading by providing essential infrastructure and supervising market operations.

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2. PT Kliring Penjamin Emisi Indonesia (KPEI) or Indonesian Clearing and Guarantee Corporation

The Indonesian Clearing and Guarantee Corporation (KPEI) serves as the central counterparty and clearing body for capital market transactions, covering equities, bonds, and derivatives traded through the IDX. KPEI determines the obligations and entitlements generated from exchange trades and ensures their accurate and timely settlement.

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3. PT Kustodian Sentral Efek Indonesia (KSEI) or Indonesian Central Securities Depository

The Indonesian Central Securities Depository (KSEI) is the entity authorized to manage centralized safekeeping and settlement of securities. KSEI also implemented the Single Investor Identification (SID), a unique code assigned to each investor. Through its recording and settlement services, KSEI guarantees that investors' securities are securely stored and safeguarded from loss.

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Conclusion

SROs, or Self-Regulatory Organizations, answer the question of what  SROs  contribute to regulatory structure and oversight by establishing rules and monitoring compliance across financial markets, combining industry expertise with strong regulatory practices. Through rule-setting, compliance monitoring, and investor protection initiatives, they are responsible for setting standards intended to support orderly and efficient markets.

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Their independence allows them to respond quickly to industry changes while maintaining consistent standards across participants. The examples of IDX, KPEI, and KSEI demonstrate how SROs support Indonesia’s capital market infrastructure by overseeing trading, clearing, settlement, and investor identification systems.

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Overall, SROs play an oversight role in establishing standards and supporting orderly market operations within Indonesia’s capital market infrastructure.