Bapepam issues margin trading regulation

JAKARTA (JP): The capital market supervisory agency (Bapepam) has issued a new trading regulation to ensure fair practice in margin trading.

Under the new regulation issued Wednesday, a broking company should have a net adjusted working capital of at least Rp 5 billion (US$2.08 million) to carry out margin trading.

Chairman of the agency I Putu Gde Ary Suta said a minimum capital requirement was needed so a broking house had enough funds to provide margin facilities to their clients.

He said only about 40 of the 197 existing brokerage companies operating on the Jakarta Stock Exchange (JSX) met the minimum capital requirement.

The new regulation says investors who do margin trading should open margin accounts with their brokers.

"To open a margin account investors must have net assets of at least Rp 1 billion and an annual income of at least Rp 200 million," he said.

Putu said the regulation ensured that margin traders deposited cash or shares worth at least 50 percent of the value of shares traded.

Short selling, the only margin trading available on the JSX, should be carried out only with shares of companies with at least 4,000 shareholders.

"This is important to guarantee fair trading. We don't want rumor-driven trading to create prices," he said.

The margin trading regulation was issued following the widely published suspension of Bank Pikko shares early this month. The suspension came after the bank's share price surged over 200 percent in a few hours.

The surge was caused by rumors spread by speculative investors.

Putu said margin trading was very sophisticated and the parties involved should be bona fide.

"People might think margin trading is just for speculative investors. It is not," Putu said.

He said because it was sophisticated, brokerage firms should improve internal control of the margin facilities they give their clients. (09)