JSX ready to launch stock contract options in November

JSX ready to launch stock contract options in November

Tony Hotland, The Jakarta Post, Jakarta

The Jakarta Stock Exchange (JSX) expects to officially launch a
stock contract option as a new trading instrument by November,
and hopes that it will help make the bourse more stable if major
shocks occur.

Edison Hulu, a senior researcher at the JSX and the
coordinator of the stock contract option, said that the Capital
Market Supervisory Board (Bapepam) was planning to issue a
regulation on the new instrument this week.

"We already discussed the final form of the regulation with
Bapepam last week and we hope it will be issued this week. Then
we could launch the instrument in the next two months," Edison
said on Saturday.

He said that it would take another couple of months to
familiarize members of the bourse with the new stock contract,
although the JSX management has been doing simulations for it
over the past year.

Currently, there are five bluechip stocks, which will be
traded under the new instrument. They were picked based on
specific conditions and their performance at the bourse. The
stocks are Telkom, Astra, BCA, Sampoerna and Indofood.

Edison added that there were already 40 securities firms (JSX
members) that had expressed an interest in applying for the new
stock contract option.

"We're sure that the familiarization process won't take very
long. The system is ready and the 40 interested members have also
sent representatives to participate in training programs," he
said.

Edison explained that the stock contract option had many
benefits compared to the current trading method used by the JSX,
the common daily transaction of stock.

"With a stock contract option, you can protect the value of
your investments because the instrument allows you to hedge and
also get bigger capital gains since the control of when you want
to buy or sell is more flexible due to the longer contract
period," said Edison.

The stock contract option is a contract that confers the
right, but not the obligation, to buy (call option) or sell (put
option) a particular stock for a specified price (strike price)
agreed upon by both parties on or before a specified date. Each
contract represents 10,000 shares.

If over a specified period of time the market price of the
stock rises above the agreed upon price, the buyers will earn
handsome gains since they only pay the agreed upon price.
Likewise, if the market price falls below the agreed price, the
seller still gets the agreed upon price.

Therefore, the instrument requires broad knowledge and sharp
analysis of future projections about the traded stocks in order
to earn profit.

Edison also said that the instrument could minimize the
possibility of panic stock selling or buying, which could
adversely affect the index.

"For example, Wall Street (New York Stock Exchange) did not
have unbearable pressure on it and quickly recovered even after
the Sept. 11 attacks, because most of the trading is done through
similar stock contract options. The stockholders didn't hurry to
sell their portfolios because they already had contracts under an
agreed price," he explained.

For the JSX this will be new, but the Surabaya Stock Exchange
(SSX) has been using a similar instrument for the past several
years, such as the LQ45 Futures and Dow Jones Industrial Average
(DW Futures).

The SSX also plans to launch the Hangseng Index, Bond Futures
Index, and Interest Rate Futures Index in 2005.