Capital market authority to review stock trading regulations

The Jakarta Post, Jakarta

Tuesday's free fall of share prices in Jakarta, caused by global panic selling for fears of a possible U.S. recession, has triggered a review of regulations reportedly prone to speculation.

Fuad Rahmany, head of the Capital Market and Non-Bank Financial Institution Supervisory Agency (Bapepam-LK), said Friday his office would prepare stricter regulations on short-selling and margin trading to help keep bargain-hunters from speculating in the market.

"We're scrutinizing the violators by doing sampling research," Fuad said.

"We will consider the sanctions after discovering the violators. We will probably suspend (their) licenses."

The Jakarta Composite Index plunged 191.36 points, or 7.7 percent, to close Tuesday at 2,294.52, its biggest drop since October 2002 when bombs exploded on the resort island of Bali. The stock market, however, has since recovered.

Margin trading occurs when investors make share transactions worth more than the funds deposited, while short-selling occurs when investors sell shares that do not actually belong to them. They usually "borrow" the shares from a broker and sell them, but the shares must later be bought back (hopefully at a lower price) and returned to the broker.

Margin trading is allowed as long as the excess amount of transactions is no more than the total amount of the deposits.

The sanctions against violators would be aimed at improving the discipline of market players and forcing them to comply with regulations.

Fuad said Bapepam had been monitoring all transactions to find out whether there were any violations.

To prevent share prices on the capital market from steep drops in the future, he also suggested securities firms improve their risk management by, among other things, improving their knowledge of their customers.

"When share prices are declining, for example, securities companies should not accept orders that may cause the prices to go down even further," Fuad said.

Fuad said traders should do their business in line with government regulations to avoid a market crash.

"Although prices have rebounded from Tuesday's plunge, we still have to stay alert. Traders should not be too aggressive," he added.

On Wednesday, the Jakarta Composite Index rebounded 181.75 points, or 7.9 percent to close at 2,476.27, its biggest one-day gain since June 8, 1999, after the U.S. Federal Reserve unexpectedly cut interest rates to shore up rocky investor confidence. (nkn)