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View all search resultsAnalysts warn of risks as IDX brings back short selling
The Indonesia Stock Exchange (IDX) is cautiously reintroducing short-selling in equities in a move to improve liquidity on the local bourse, but the measure could have negative side effects unless it comes with stringent regulatory enforcement.
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Red day: Employees watch a digital screen displaying stock movements on Jan. 28 at the Indonesia Stock Exchange (IDX) in Jakarta. (Antara/Dhemas Reviyanto)
I
ndonesia Stock Exchange (IDX) is cautiously reintroducing short selling in equities in a move to improve liquidity on the local bourse, but the measure could have negative side effects unless it comes with stringent regulatory enforcement, analysts warn.
Avere Investama director Teguh Hidayat told The Jakarta Post on Tuesday that Indonesia’s stock market was prone to price manipulation, as reflected in concerns noted by index compiler MSCI earlier this year.
He said the regulations and laws to ward off foul play had “always been there”, but their enforcement was questionable, which in the case of short selling could entail a structural risk.
In a scenario where enforcement remains lax, large-scale manipulation to profit off short selling could occur and may bring about a market crash that would “impact our economy”, Teguh warned.
Short selling is selling borrowed stocks in the hope of buying them back later at a lower price, returning them to the broker, and pocketing the difference.
The trader profits if the stock price drops below their selling price, after subtracting brokerage fees and interest costs.
If the stock goes up, investors incur a loss, because they must buy back the short-sold stock at a higher price to close their position.
