Incentives needed for sluggish bond market

Incentives needed for sluggish bond market

JAKARTA (JP): The Indonesian government needs to issue special
incentives and ease tax rulings to reinvigorate dormant trading
on the secondary market of bond instruments.

Basjiruddin A. Sarida, the president of the Surabaya Stock
Exchange (SSE), said yesterday the government's role in
mobilizing the secondary market of debt instruments is urgently
needed.

"The government should at least facilitate the operation of a
market dealer," he told a capital market convention.

The convention, organized by the Singapore-based AIC
Conference Pte Ltd, is being attended by 125 foreign and local
securities dealers and investors. The two-day conference will end
today.

Speakers at the conference, including executives of
international securities companies, mainly blamed the government
for the sluggish trading on the bond secondary market.

"The government has been successful in developing the primary
market but it seems to forget the secondary trading," Gustiaman
Deru, a director of Pregrine Securities S'pore Pte. Ltd. told the
conference participants.

Deru described the lack of a reliable clearing and depository
market as the most horrible problem for foreign fund mangers when
dealing on the secondary market of debt instruments in Indonesia.

Clearing

"We have to put heaps of bond certificates and their coupons
in a big car when delivering the securities to buyers," another
speaker told the conference participants about the difficulty
often encountered by securities dealers due to the absence of a
clearing depository agency.

He said the problem occurs because many bond certificates
carry a par value of less than Rp 50,000. "Imagine if you buy one
million U.S. dollars worth of bonds," he added.

Besides having extra messy jobs such as taking out coupons
from millions of bond certificates, securities dealers also have
to wait for at least one day to get interest yields from the
paying bank.

"The paying bank often has not enough cash to pay the coupon
yields until the next day," he said concerning the weakness of
the settlement system in the country's bond secondary market.

Basjiruddin said to start a secondary market for bonds, there
should be least two market makers operating for each bond
issuance.

"Market makers must provide a large amount of funds.
Therefore, giving special incentives to them is essential to
boost the secondary market," he said of how to stimulate the
inactive bond trading.

"The government must also give a rediscounted facility so that
bonds can be engaged as a secondary reserve in banking," he said.

At least 68 bond issues, with a par value of Rp 6.29 trillion
(US$2.92 billion), are listed on the Jakarta, Surabaya and OTC
stock markets at present. However, trading activities on the
secondary market remain inactive.

Basjiruddin said a number of bonds were, in fact, often traded
but that both buyers and sellers did not report the transaction,
to avoid tax and fee payment.

"We should, therefore, change the form of debt instruments now
available from bearer bonds to registered ones to prevent such a
practice," he said

Most of debt instruments listed on the Indonesian markets are
in bearer forms which do not carry names of their holders. This
form of bonds could be easily traded outside the market system as
owners do not have to register them. (hen)