T

he management of the Indonesia Stock Exchange (IDX) is investigating six brokerage companies for their alleged involvement in illegal short-selling practices on the local bourse.

IDX president director Tito Sulistyo said in Jakarta on Thursday the six brokerage companies involved global funds in the alleged short-selling activities which were carried out during the past several days.

The short-selling transactions, he said, might have contributed to a stock market crash earlier this
week, adding that if the firms were found guilty they could be suspended or expelled from the stock exchange.

'€œWe cannot give names, or unveil whether these brokerages are domestic or foreign companies. What we can say right now is that they are under our investigation and heavy punishment might follow if they are found guilty,'€ he said.

Tito added that one of the suspected firms had been listed out because most of its transactions were made by its clients '€” most of which were retail investors '€” that were listed in the Indonesian Central Securities Depository (KSEI).

The KSEI, he said, had a system that would automatically reject illegal short selling and enabled each account holders'€™ transactions to be well traced.

Other brokerages on the list, he said, were implicated by suspicious short-sell transactions they facilitated from accounts registered in global depositories.

A short sale occurs when an investor borrows a stock from a broker and sells it, with the understanding that he or she will buy it back later (hopefully at a lower price) and return it to the broker.

Short selling can be legal as long as it is applied according to the Financial Service Authority'€™s (OJK) regulations. The stipulations include active short-selling licenses for the brokerages and investors and Rp 200 million (US$414,250) of collateral.

The stocks to be traded should have average daily transaction of Rp 10 billion in the previous six months and Rp 1 billion in the day of the short-selling transaction, for stocks that have been traded for at least six months. For stocks that have been traded for less than six months, both figures rise by five times.

Tito said that if the brokerages implicated by short-selling also participated in the similar incidences in 2008, the bourse might consider kicking out the firms from the market. In 2008, 12 brokerages '€” mostly foreign '€” were fined for breaching the regulations.

Meanwhile, after sharp declines in the previous days, the Jakarta Composite Index (JCI) rallied by 4.5 percent on Thursday, the most gains it recorded since Sept. 2013, as regional indices rebounded and investors started to purchase.

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 foreign investors pulled out their investment from emerging markets on gloomy economic outlook, China'€™s currency devaluation and fears on a US Federal Reserves interest hike.

The IDX has imposed several measures to curb the declines, which include introducing a 10-percent loss limit believed to be effective in countering short selling. 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.