Following a series of investment frauds causing multi-trillion losses to customers, the stock market regulator is to draft new regulations on so-called discretionary funds - which are largely unregulated at the present time - to provide investors with more protection.
Fuad Rahmany, chairman of the Capital Market and Financial Institution Supervisory Agency (Bapepam-LK), said his office was seeking to regulate these capital market products to help ensure that the capital market was well-managed and to try to put buyers and sellers on an equal playing field.
Currently, Bapepam does not regulate discretionary funds and leaves the transactions to the two parties involved -- investment managers and their investors.
Bapepam had decided not to overly regulate the products for fear this could become detrimental to the growth of the industry.
But, after the October stock market crash, many contracts related to discretionary products were found to have put investors at a serious disadvantage, which eventually proved conducive to the increased likelihood of financial frauds related to them, thereby forcing a shift in the position of Bapepam.
Fuad did not elaborate on the details of the planned regulations, as the agency was still gathering inputs from industry players in order to prepare its position.
Inputs will also be sought from an upcoming seminar on the integration of regional capital markets, which will take place on March 24 and be attended by various stock market regulators from ASEAN countries.
"We need to discuss the matter together with other countries as this is important because when we regulate things here, the money can then go to other places like Singapore for instance. That's why we need this cooperation," Fuad said.
The growth in discretionary funds in Indonesia has been robust.
Bapepam data shows that a total of Rp 41 trillion (US$3.48 billion) in discretionary funds was managed by investment managers in February, representing more than a 30 percent increase in the trading of this type of financial product, up from Rp 30 trillion in December 2008.
Currently, there are 75 investment managers in the country, out of a total of 99 operating across the Indonesian financial market, who offer financial services in relation to these discretionary funds.
The need for regulation on discretionary funds arose after a number of cases involving questionable financial products, some of which hit the headlines as widely publicized financial scams or became the subject of investigations by regulatory authorities and the police.
Fresh in mind is the case of PT Antaboga Delta Sekuritas, which had offered what turned out to be bogus discretionary fund products to investors, causing losses of up to Rp 2.5 trillion.
From the industry, president director of Batavia Prosperindo Aset Management, Rudi Rahardjo told The Jakarta Post that such a regulation was needed to make sure that in future the management of discretionary funds would be properly supervized and be on the right track.
"We hope that Bapepam can issue a regulation that will put things right without putting too much pressure on the already-battered industry," he said.
He said the regulation could take the form of requiring every investment manager to report the availability of discretionary products before their being issued, and explaining all possible risks to investors.
He called on Bapepam to require investment managers to put such investor funds in custodial banks to protect the interests of investors.