JFX scrambles to survive on tight budget
Berni K. Moestafa, The Jakarta Post, Jakarta
The Jakarta Futures Exchange (JFX) has been toiling to survive since even before trading began in late 2000, and now a tight budget and mismatched commodities continue to dim the prospects of the country's first futures exchange market.
The JFX ended the year 2001 in red, and will likely stay there up until 2004 -- the same year its Rp 12 billion (about $129,000) startup capital is likely to dry up if no profit is made, according to JFX director JW Sudomo.
"I wouldn't say that I am being pessimistic, I do see bright lights," Sudomo told The Jakarta Post over the weekend.
So far, however, the JFX has seen more dark signs, with old problems persistently dragging down the fledging futures exchange market.
"Anyone can handle a futures exchange market without budget constraints," Sudomo said when asked what the JFX's main problem was.
Budget constraints dogged the JFX long before it opened for trading in late 2000.
Established in August 1999, the exchange should have started trading in March the year after, but computer glitches and incomplete operational requirements forced it to postpone trading several times.
The frequent delays were costing the exchange some Rp 350 million a month in fixed costs.
Sudomo said JFX's founders were reluctant to inject more cash. He did not say how much of it was left, but estimated it to run out by 2004.
Poor trading volume in the first year of its operation yanked the JFX's bottom line to Rp 3 billion in the red.
Sudomo expected to reduce losses this and next year, hoping to eventually reach breakeven by 2004.
Back then, as now, he said, the answer to the JFX's depleting capital had been to introduce new commodities.
"New commodities would enlarge our memberships, ... entice transactions," he explained.
Futures exchange markets cater to people who want to protect themselves against commodity price fluctuations.
But there is a loose definition of what constitutes a commodity, with the obvious traded commodities like coffee and sugar jostling for space in the market with obscure ones known as financial derivative products such as a stock exchange market's index.
Sudomo said Indonesia contained a vast hedging demand for agricultural products, which was why the JFX began trading with coffee robusta and olein and later expanded to include crude palm oil.
However, only olein is still in its market, with coffee and crude palm oil suspended on lackluster trading.
Sudomo blamed the suspension not on poor interest, but more on technical faults. "We are reviewing the contracts for these products to make them more attractive."
A contract sets out the conditions of how a commodity is traded on the JFX.
He added that many brokers, most of whom are from the Jakarta Stock Exchange (JSX), were unable to grasp the trading techniques of agricultural commodities.
Trading coffee and crude palm oil, he said, was a bit too complex for some brokers to be good at.
"That's why we should be giving them financial derivative products instead," Sudomo noted, adding that demand was high.
According to him, there are about 40 of what he called pocket shops which offer local investors trading of financial products at futures exchange markets abroad. "Unofficially, we are already trading them (financial products)."
For now, the JFX makes ends meet from trading on olein and on the recently launched gold, which has been generating better than expected trading volume.
But while the JFX expects trading to really kick off once it offers financial products, they are actually hard to come by.
In 1999, JFX executives complained about how difficult it was to get trade permits for financial products. And they are still complaining.
Sudomo said that all JFX commodities require a presidential decree, of which the endless bureaucracy of getting one, he said was the single biggest hurdle.
Nonetheless, he expressed confidence the JFX would survive, expounding, "We will continue our struggle to get the financial products on our market."