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)