Derivatives trading regulated<\/p>\n
JAKARTA (JP): Bank Indonesia (BI), the central bank, issued
\nnew guidelines on derivatives trading by local banks yesterday in
\nan effort to prevent major losses in the future.<\/p>\n
Paul Soetopo Tjokronegoro, a director at Bank Indonesia, said
\nthat under the new guidelines, banks are allowed to conduct
\ntrading on behalf of themselves and their customers.<\/p>\n
The derivatives transactions the banks can enter are limited
\nto those dealing with foreign exchange and interest rates,
\nexcluding those dealing in stocks and futures, Paul said.<\/p>\n
He added that banks may enter transactions on stock-related
\nderivatives products only with the consent of Bank Indonesia.<\/p>\n
\"Derivatives transactions other than those mentioned above are
\noutlawed,\" Paul said when announcing the guidelines.<\/p>\n
Paul also used the media briefing to explain that most local
\nbanks do not have enough knowledge or information, let alone
\nskills, in derivatives trading apart from those based on foreign
\nexchange and interest rates.<\/p>\n
Mukhlis Rasjid, another director at Bank Indonesia, concurred
\nthat stock and futures-related derivatives products carry more
\nrisks.<\/p>\n
\"You see, interest rates fluctuate in a very small range, but
\nnot stock indexes. They can drop and shoot up in a very short
\ntime,\" Mukhlis said. \"You can see from the Barings case.\"<\/p>\n
Barings Bank, a London-based merchant bank, collapsed after
\nits Singapore futures division suffered losses of more than $750
\nmillion in unauthorized risky Japanese stock futures deals. The
\n233-year-old bank has since been bought by ING of the
\nNetherlands.<\/p>\n
Paul explained that to reduce future big losses on the part of
\nlocal banks, banks are required to provide their own written
\nguidelines on how to conduct derivatives deals in a prudent
\nmanner.<\/p>\n
In conducting derivatives transactions, bank boards of
\ndirectors and commissioners should be involved, not merely
\nnotified.<\/p>\n
\"Bank commissioners are required to actively monitor and
\nsupervise derivatives transactions,\" Paul added.<\/p>\n
A number of critics have called on the government to restrict
\nlocal banks from taking part in derivatives trading for
\nspeculation instead of for hedging.<\/p>\n
Last year, two publicly-listed Indonesian companies incurred
\nloses of US$66.6 million from derivatives trading. They are PT
\nIndah Kiat Pulp & Paper and PT Tjiwi Kimia, both paper makers
\nunder the Sinar Mas Group.<\/p>\n
Paul explained that under the new guidelines banks may not
\nconduct derivatives trading which could incur losses of more than
\n10 percent of their capital.<\/p>\n
When banks enter derivatives deals on behalf of their
\ncustomers, they are required to have a margin deposit of at least
\n10 percent of the total value of the deals.<\/p>\n
Paul noted that before sealing derivatives transactions, in
\nthe name of customers, banks are obligated to give a clear
\nexplanation to their customers about the possible risks of the
\ntransactions.<\/p>\n
\"The explanation should be clearly represented in terms of the
\nderivatives contracts,\" Paul said.<\/p>\n
Indonesian publicly-listed investment holding firm PT Dharmala
\nSakti Sejahtera is currently engaged in a court battle against
\nBankers Trust New York Corp. over a US$69-million financial
\ndispute resulting from their derivatives transactions.<\/p>\n
Dharmala said the dispute was caused by differences in
\nfinancial calculations, which resulted from unclear information
\nprovided by Bankers Trust.<\/p>\n
However, Bankers Trust reportedly said that it had not misled
\nDharmala and accused Dharmala of trying to escape the contract.
\n(rid)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/derivatives-trading-regulated-1447893297",
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"sponsor": "Okusi Associates",
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