Badan Pengawas Pasar Modal (Capital Market Executive Agency or BAPEPAM)

proposed a 5-year master plan which initiated the merger between SSX and JSX on December
27, 2005. SSX founded in June 1989 operating in Surabaya. SSX was privately owned
organization to operate in the bonds market and regional stock listings for Surabaya-based firms.
JSX founded in December 1991 and owned by a private organization that took over the
operations from BAPEPAM to separate the functions of regulation and daily operations of the
stock exchange. On September 11, 2007, a merger announcement that declared SSX to be part of
JSX was released. Soon, there was official merger held on November 30, 2007. A general
meeting for both exchanges stockholders was held on October 30, 2007 as to confirm the
official merger date resulting in SSX terminated its operations with all listed companies and
merged into JSX, which was renamed as IDX.
Primary reasons to engage in merger and acquisition of stock exchanges is to achieve
economies of scale and scope which both aim to increase market efficiency and
performance(liquidity). In order to increase trading volume, market share, and stock prices,
merger and acquisition is believed to be the best way. Stock exchange mergers play a role in
increasing trading volume while reducing transaction costs to improve liquidity. Stock exchanges
also to provide financial intermediary services and products, therefore, an increase in stock
exchange members through integration could cut the cost of stock exchange operation to acquire
greater liquidity and trading volume
This research attempts to investigate the market liquidity and efficiency of the merger
between the Surabaya Stock Exchange and the Jakarta Stock Exchange into the Indonesia Stock
Exchange (IDX), to compare the IDX composite index and the LQ45 index market efficiency
levels according to market capitalization, industry sector, and indices as well as to propose
appropriate managerial strategies for improving the market efficiency of stock exchanges. Few
hypotheses developed such as Hypothesis 1; stock market merger activities increase market
liquidity to improve market performance, Hypothesis 2; larger capitalization firms benefit more
from stock market mergers than smaller firms, for greater liquidity and efficiency, Hypothesis 3;
stock market merger activities increase market efficiency to improve market performance,
Hypothesis 4a; large market capitalization firms with foreign ownership reduce stock market
efficiency and liquidity, Hypothesis 4b; small market capitalization firms with foreign ownership
increase stock market efficiency and liquidity.