Derivatives trading is unavoidable
Derivatives trading is unavoidable
JAKARTA (JP): Developing derivatives trading remains a priority in the long-term program of the Jakarta Stock Exchange (JSX) despite growing concern over its negative impact on investors, says the exchange's top executive.
"Derivatives trading is an important aspect of stock trading activities and we, therefore, cannot stay away from it," Hasan said at a routine press briefing yesterday.
Derivatives trading, initially created mostly as a hedge to protect investors against massive financial losses, has rapidly developed into one of the most sophisticated and speculative instruments in the world's major capital markets.
But investors, lured by high returns, no longer use the derivatives only as a hedge but mostly for speculative purposes.
"That's why many investors or dealers could suffer losses of millions of dollars from the derivative trading within just few days," Hasan said.
He, however, said that the introduction of the derivatives trading in JSX is inevitable.
Hasan likened the derivatives trading to a sharp sword, which can be used by its owner for either positive or negative purposes.
"It is the same with trading derivatives. It depends on us which direction we want it to take," he said.
Financial analysts warned the stock market authority recently to stay away from derivatives trading, which led to the collapse of Barings Plc, the old British investment bank.
The British bank was reported to have incurred financial losses of around US$1.4 billion from derivatives trading carried out by its business arm in Singapore.
Hasan said that derivatives instruments on the JSX, which at present comprise only of less risky instruments as rights and convertible bonds, should further be expanded to improve trading activity.
The JSX is formulating the trading system for the warrant instrument while some share issuers are preparing the issuance of their warrant instrument, he said of the JSX program to expand derivatives trading.
He said that other derivatives instruments, such as put and call options, will be introduced later in 1997 so that both the Capital Market Supervisory Agency (Bapepam) and JSX will have enough time to prepare their trading systems.
"We are not in a rush. We need to thoroughly study the system before introducing such highly risked instruments as put and call options," he said.
Baring
The JSX president said that PT Baring Securities Indonesia (BSI), which suspended its trading last week following the collapse of its principal firm, still needed approval from Bapepam to resume trading.
Hasan said to resume trading, BSI, which initially expected to revive its operation yesterday, should not only settle all the transactions it made last week, but also should have a clean balance sheet.
"In addition, we have to ascertain that the relationship between BSI and the new shareholders of Barings Plc would not jeopardize its future operation," he said.
Hasan explained that studies of the balance sheet of BSI and its relationship with new shareholders had been made and that the result is positive.
The recommendation for BSI's return to the trading floor has been submitted to Bapepam, which will later decide the fate of the securities company, which is 80 percent owned by the Barings group and 20 percent by its local partner.
"It is up to Bapepam when BSI will be allowed to reenter the market but we hope it will be soon," he said. (hen)