Brokerages may have ties with listed firms

Brokerages may have ties with listed firms

JAKARTA (JP): Minister of Finance Mar'ie Muhammad yesterday
argued against a suggestion of House members that the affiliates
of listed companies not be licensed as securities companies.

"Securities firms, which are affiliated with publicly-listed
firms will still be allowed to operate," he said in his response
to the House of Representatives' suggestions on the capital
market bill.

Speaking at the end of the two-day plenary meeting of the
House's Special Committee for the Capital Market Bill, the
minister said that the public disclosure requirement to be
imposed on securities companies would allow for early detection
of any trading frauds.

"It would, therefore, be no problem for affiliated members of
publicly-listed companies to involve themselves in securities
underwriting as long as they publicly disclose the nature of
their affiliation," he said.

The Indonesian Democratic Party (PDI) urged the government on
Tuesday to revise the licensing procedures as stipulated in the
bill which do not impose any restrictions on the operation of
securities companies affiliated with publicly-listed firms or
with other securities houses.

The party said limiting the operation of such securities
companies is essential in curbing insider trading and other
trading fraud.

Limiting the activities of such securities firms would be
difficult due to the vague definition of the wording
"affiliation", the minister said in his argument to the party's
reservation.

The debate on the Capital Market Bill, submitted to the House
early last month, takes place until the end of October. The new
law is expected to be passed in January.

A number of existing securities companies are affiliated
either with publicly-listed companies or other members of the
Jakarta Stock Exchange.

Securities companies with such linkages, according to the
House members, could easily manipulate trading due to their wider
access to information about listed companies' activities and also
because of their domination in trading activities.

"The most important thing is how we can prevent a single party
controlling more than one securities house," the minister said of
the government's approach in curbing trading fraud.

Role

Another concern raised by the House members was related to the
extended role of the Capital Market Supervisory Agency (Bapepam),
the auditing system and the domination of foreign investors in
securities trading.

About the need for limiting activities of foreign investors,
who at present carry out over 75 percent of the domestic stock
transactions, the minister said such a suggestion required
thorough assessment, given the poor condition of alternative
sources of funds at home.

The minister said that the presence of foreign investors, who
are at present allowed to buy maximally 49 percent of listed
shares of a public company, is still essential in extending the
capital sources of local firms.

The opening of the capital market to foreign investors is also
in line with the globalization trend, the minister explained.

The bill, which will replace the outdated 1952 capital market
law, contains 16 chapters and 123 articles, covering legal bases
for all activities in the capital market.

The most important aspect in the draft law, the provisions of
which are mostly based on Bapepam's existing regulations, gives
stronger investigative power to the capital market watchdog and
stipulates tighter penalties.

Under the proposed law, Bapepam, which at present is allowed
only to investigate fraud through written reports of listed firms
or exchange members, will be authorized to directly carry out a
field investigation, even without the help of the police or other
judicial institutions.

In addition, the bill also introduces stricter penalties, with
jail terms of up to five years and fines of up to Rp 15 billion
(US$6.75 million) for those found guilty of violating the capital
market regulations. (hen)