BI to issue derivatives guidelines

BI to issue derivatives guidelines

JAKARTA (JP): Bank Indonesia, the central bank, will issue
guidelines on derivatives transactions to prevent future big
losses on the part of local firms.

Paul Soetopo Tjokronegoro, managing director of Bank
Indonesia, said over the weekend that the central bank was
currently consulting the Forex Club Indonesia and a number of
local banks in drafting the guidelines.

With the introduction of the planned guidelines, Paul said, it
is expected that foreign exchange (forex) dealers will carry out
derivatives transactions more prudently.

"Derivatives are risky products...Therefore, derivatives
transactions have to be carried out healthily to reduce the
risks," Paul told journalists after closing the 17th Asia Pacific
Forex Assembly here on Saturday.

When asked, Paul declined to explain when the guidelines would
come into being.

A number of critics have called on the government to restrict
local firms from taking part in derivatives trading on overseas
markets.

Last year, two publicly-listed Indonesian companies incurred
loses of US$66.6 million from derivatives trading. They are PT
Indah Kiat Pulp & Paper and PT Tjiwi Kimia, both paper makers
under the flag of the Sinar Mas Group.

The vice president of Bank Internasional Indonesia, Okkie A.T.
Monterie, said Saturday that local forex dealers have to analyze
derivatives products thoroughly before they trade them.

He suggested that derivatives products be used for hedging
only, not for speculative purposes. "If you want to speculate,
you'd better go to a casino," he said.

Paul said Bank Indonesia's guidelines are expected to create a
self-regulatory mechanism in local forex transactions.

"We would lead toward a self regulatory system in the forex
dealings...Therefore, we should not create a ruling each time a
new derivatives product surfaces," Paul said.

The Forex Club Indonesia is, therefore, expected to issue its
own guidelines on derivatives trading for its members, in
addition to the existing code of conducts for forex dealers, Paul
said.

He also made an appeal to all foreign exchange banks to choose
their best dealers and then educate and train them to be
professional dealers.

Currently each foreign exchange bank is free to choose their
own dealers. However, they are required to submit their names and
curriculum vitae to the central bank.

Paul said his party had planned to certify dealers according
to their qualifications and experiences in forex dealings. They
would be categorized as either junior or senior dealers.

"In this case, we support the efforts of the Forex Club
Indonesia and the Institute of Indonesian Bankers to educate
local dealers, so that there will be certain standards for them,"
Paul said.

Therefore, Paul said, it is expected that "those who carry out
forex trading in Indonesia will be those who are really
professional."

When asked about commission houses which are still operating
here and carrying out foreign exchange transactions, Paul said
the government had been working on "disciplining" them. (rid)