Legislators must study foreign futures trading

JAKARTA (JP): The government and members of the House of Representatives should study the operations of futures exchanges overseas before establishing a futures commodity exchange here, the head of the Indonesian Business Data Center said yesterday.

Christianto Wibisono, also an economist, suggested they study the Chicago Mercantile Exchange and the Chicago Board of Trade because both were benchmarks of other futures markets under the supervision of the United States' Commission on Commodities Future Trading.

Christianto said futures trading was a worldwide trend in finance and trade which Indonesia should not avoid if it wanted to stay open to globalization.

He said Indonesia should not worry too much about "negative impacts" or risks involved in futures trading because strict law enforcement and control of the market could prevent such harmful practices.

The government-sponsored bill on futures commodity trading was submitted in December and is being deliberated by the House of Representatives.

The government has promised that the private sector would play a major role in running the market while the government, through a Commodity Supervisory Board, would supervise it.

The government's bill has been opposed by some analysts who doubt whether the exchange can operate efficiently or whether it is worth joining, considering that overseas exchanges can be accessed.

Some observers fear that the market will be dominated by groups such as members of the Association of Indonesian Coffee Exporters and the Federation of Edible Oil and Fats, which produce the commodities that are likely to be the first to be traded on the futures market.

Sparks Company of the United States was commissioned by the Indonesian government, World Bank and two commodity associations early last year to study the feasibility of a domestic futures exchange.

Sparks Company concluded that a futures trading exchange would cost between US$5 million and $10 million to set up and $1.5 million to run each year.

The exchange could reach a break-even point in two to four years of operation with fees for each transaction set between $2 and $5, the company said.

The chairman of the Futures Commodity Board, Arifin Lumban Gaol, said four Indonesian commodities had potential to be traded on the exchange: coffee, crude palm oil, rubber and cacao.

But only the Indonesian Coffee Exporters Association and Indonesian Edible Oil Association Federation have pledged full support for the futures trading plan.

"But the bourse won't be monopolized by the two associations. If interested, other commodity producers would be allowed to sell their produce there," Gaol said. (pwn)