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)