Local stocks will only be able to plunge by a maximum of 10 percent per day after the Indonesia Stock Exchange (IDX) implemented a measure to protect the domestic market, amid the ongoing global financial market and currency rout.

Starting on Tuesday, the system will automatically block trading in stocks that have declined by 10 percent in one day.

The previous daily limit on losses '€” also known as '€œauto rejection'€ '€” had been set at between 20 and 35 percent, depending on stock prices.

'€œWe believe this move will be effective in holding declines. By imposing a narrower auto-rejection we hope that investors will trade more rationally, which is an important quality in the current volatile market,'€ IDX development director Nicky Hogan explained to reporters on Tuesday.

Such a move was previously imposed during the US-led global financial crisis in October 2008, lasting for three months before it was revoked when the bourse felt the market had picked up sufficiently.

The new policy was rolled out just after the Financial Services Authority (OJK) eased buyback requirements starting on Friday, to help prop up the index.

State-Owned Enterprises Minister Rini Soemarno has instructed state-run companies to collectively spend at least Rp 10 trillion (US$710 million) to buy back shares to support prices.

The benchmark Jakarta Composite Index (JCI) rallied by 3.32 percent during the course of trading, before closing up 1.56 percent at 4,228.5. Most benchmark indexes in Asia ended higher on Tuesday, except for those of China and Japan.

The index has lost 12 percent in the past two weeks, 20 percent in the year to date, one of the worst-performing indexes in the region, as investors have fled emerging markets like Indonesia for safer havens such as the US on the back of stalling domestic growth and China'€™s economic slowdown.

David Sutyanto from First Asia Capital said that in the short-term, the IDX'€™s auto-rejection measure was expected to help stop short selling, which some analysts and local media have blamed for the local index sliding deeper than its regional peers.

'€œI cannot confirm whether or not short-selling actually happened but the rumors have been running wild, especially in the media. If it indeed happened, the move might help to reduce the gains of speculators, in addition to curbing stock prices from falling deeper amid the global equity rout,'€ he explained.

Short selling is the sale of a security that is not owned by the seller '€” it is either borrowed or temporarily acquired '€”, motivated by a belief that the security'€™s price will decline, enabling it to be bought back at a lower price thereby making a profit.

On Tuesday, sales of seven stocks were auto-rejected, all of which were small caps, according to David.

'€œThere'€™s little likelihood of big caps being auto-rejected given their high price, but it'€™s a good move to curb a declining index because there are also cases when blue chips fall by more than 10 percent, like AALI [Astra Agro Lestari], which recently lost 13 percent of its value in only a day, thus exacerbating a plunging index,'€ he explained.

While applauding the move, David said the policy could only work temporarily, and that mid- to long-term stimuli were essential to boost economic growth and restore investor confidence in Indonesia'€™s fundamentals.

Alfred Nainggolan from Koneksi Kapital, however, disagreed, describing the move as a desperate call by the bourse board to address the falling index.

'€œThe JCI jumped on Tuesday after hearing that there will be buybacks by state-run companies and that the bourse has imposed a loss limit. However, foreign net sales are still quite high, meaning that Tuesday'€™s rally was only because domestic investors anticipated the policies might give stock prices a boost and tried to benefit from already low prices,'€ he explained.

'€œThe index is still in a bearish trend, and if the rupiah remains above 14,000 per US dollar this week I am afraid that the JCI might fall below 4,000 and state-run companies might think twice about buying back their shares.'€

Foreign investors sold Rp 697 billion shares more than they bought on Tuesday, ballooning the foreign net sale figure to Rp 5.82 trillion so far this year.