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IDX bans short selling until January
Since short selling was widely blamed for helping to drag down the stock market's main index in the October collapse, the regulator will continue to ban the short selling practice at least until January 2009 to give the market a chance to recover
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Since short selling was widely blamed for helping to drag down the stock market's main index in the October collapse, the regulator will continue to ban the short selling practice at least until January 2009 to give the market a chance to recover.
"We will continue banning short selling until January to let the market fully recover. We hope to allow the practice again by then, but let's take one step at a time," M.S. Sembiring, trading director at the Indonesia Stock Exchange (IDX) said.
A short sale occurs when an investor borrows a stock from a broker and sells it, with the understanding that he or she would buy it back later (hopefully at lower prices) and return it to the broker.
It's basically the sale of a stock which the seller does not own at the time of sale and is generally used by investors trying to profit from the falling price of a stock.
The Capital Market and Financial Supervisory Agency (Bapepam-LK) issued in June a regulation restricting short selling and margin trading in the light of the volatility in the stock market, which saw the Composite Index (JCI) drop 16.64 percent during the first quarter of the year.
In October, with the global financial meltdown led by the credit crisis in the United States, a number of brokers active in the Indonesian market, foreign and local, were recorded as booking massive trading during the Oct. 6-8 period when the stock market opened immediately after the Idul Fitri holidays.
The massive selloff dragged down the stock index down by more than 10 percent on Oct. 6 alone, leading to the temporary closure of the Indonesian stock market.
Bapepam then launched on Oct. 13 an investigation into twelve securities houses, one local and eleven overseas-based, to find out if there were possible occurrences of illegal speculative practices in the market leading up to the collapse.
Last Tuesday however, Bapepam came up with the results of its investigations saying it could not find enough evidence to prove that short selling had occurred.
The twelve securities companies were found however to have violated "administrative regulations" and a fine of Rp 50 million was imposed on eleven securities companies and of Rp 100 million on one other.
"We find the 12 securities houses only broke the administrative regulations and there isn't enough evidence of short selling practices," said Bapepam head of legal and regulatory affairs bureau Robinson Simbolon Tuesday.
The regulations broken by the securities houses, according to Robinson, included a regulation to verify the sufficiency of a costumers' funds prior to a transaction and a regulation to provide a written statement proving that the securities house knew the identities of its clients.
Responding to these sanctions, Lily Widjaja, the president director of Merril Lynch Indonesia, one of the securities houses that was fined, said she had gathered her colleagues from other companies on Wednesday to clear their position over Bapepam's imposition of sanctions.
"So far, we neither accept nor refuse the decision," Lily, who is also the chairperson of the Association of Indonesian Securities Companies (APEI), said.
"We will examine thoroughly the official letter from Bapepam first."
The Bapepam sanctions, however, will not give the stock market players any firm guidance or lesson, according to analyst Yanuar Rizky.
"If there was no short selling why did the IDX suspend the market on Oct. 9 and say there were extraordinary transactions," Yanuar said Thursday. (hwa)
