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STOCK MARKET: IDX to implement new auto rejection system next week
The Indonesia Stock Exchange (IDX) authority will apply next week a new mechanism that caps the movement of share prices to help reduce volatility given current unfavorable market sentiment
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The Indonesia Stock Exchange (IDX) authority will apply next week a new mechanism that caps the movement of share prices to help reduce volatility given current unfavorable market sentiment.
IDX president director Erry Firmansyah said on Monday that the new mechanism, known as the auto rejection scheme, will be set symmetrically and varied from one share to another based on the company’s capitalization and share prices.
Under the existing scheme, the auto rejection mechanism, which automatically halts the trading of a share, is applied flatly to companies whose shares decline by 10 percent or go up by 20 percent during a single trading day.
With the new system, for a publicly listed company, whose share price is high and market capitalization is big, then the auto rejection will be set at a lower percentage level of not more than 10 percent, so when the company’s share go up or down by 10 percent, its trading will be automatically halted.
On the other hand, for a company that has a low share price and market capitalization, its automatic rejection scheme can be set higher at a level of up to 50 percent in relation to share prices.
However, Erry was quick to add that there would be some changes in the structure of the percentages under the new auto rejection scheme.
“The old structure had been made before the crisis, and the situation of companies has been changing so far, so we need to change it,” he said.
IDX will announce the new structure Friday and is expected to start implementing the new auto rejection scheme next week, Erry added.
The new auto rejection scheme will be the third change made by IDX on its auto-rejection scheme since the market collapse in October.
IDX applied the symmetric 10 percent auto rejection scheme as of Oct. 13, after the main index fell by more than 10 percent on Oct.8, triggered by the fall in prices of shares of Bakrie and Brothers and its subsidiaries on speculation that it failed to pay up on it debts amidst the regional market collapse.
As soon as the market improved, by Oct. 31, the IDX applied an asymmetrical auto rejection scheme, under which trading in any share would be terminated automatically should it jump by 20 percent or fall by 10 percent in terms of share prices during one trading day.
Responding to the plan, head of research of HD Capital Adrian Rusmana questioned the changes made by the stock market authority, noting that this was the third change in a short period of time.
“It is not good for the market as the investors will get confused.”
He also called for the IDX not to restrict the movement of the share price, as it would distort the real value of a share.
“The fall and rise of share prices should be determined by the company’s performance and not by the interference of the authority.”
