Restriction on derivatives trading is crucial
Restriction on derivatives trading is crucial
JAKARTA (JP): Senior economists, concerned about world market instability over the recent Barings crisis, called on the government yesterday to restrict members of the local exchange from taking part in derivatives trading on overseas markets.
Sjahrir, the managing director of the ECFIN financial consulting firm, said that restricting derivatives trading is crucial to protect Indonesian investors from incurring huge losses.
Speaking during the launching of his book on the prospect of the Indonesian capital market, Sjahrir warned the Indonesian investors not to be lured by the easy promises of derivatives traders.
Indonesian investors are mostly engaged in derivatives trading overseas due to the absence of such products on the local market.
"We have to be careful about derivatives trading. It is very speculative," Sjahrir said in his comment about the derivatives dealing scandal involving Barings Plc., the London-based merchant bank.
Barings bank has been placed in administration by the London financial authorities after losing more than $750 million in derivatives trading in Singapore.
Baring Securities Indonesia, an affiliate of the British bank, voluntarily suspended trading on the Jakarta Stock Exchange (JSX) on Monday following the disclosure of the financial crisis of its principal company.
Securities analysts, however, played down the impact of the futures dealing scandal on the domestic market despite the leading position of the Barings' Indonesian subsidiary in Indonesia.
"The people are, of course, afraid about the possible sell-off of Barings' holdings. But I don't think there will a big impact on the local exchange," said FT Chong, a senior capital market analyst at Bank Dagang Nasional Indonesia.
Achmad Daniri, a director of the Jakarta Stock Exchange also saw no immediate impact of Barings' futures trading scandal on the local market, saying that the British brokerage company's own portfolio investment on the local market is too small to affect the market.
"Barings' own portfolio investment is not so significant and I think the impact will be also minimal," Daniri said when he was questioned about a possible Barings sell-off on the JSX.
Lesson
Sjahrir, however, said that Indonesian companies should learn from Barings' mistake. "A significant financial loss incurred by several Indonesian companies from derivatives trading in the past should not be repeated," he added.
Sinarmas, a major Indonesian business group, was recently reported to have suffered a huge financial loss from derivatives trading overseas.
Marzuki Usman, the chairman of the Association of Indonesian Economists, described the derivatives -- a future trading instrument linked to the share price index or prices of commodities -- as being too alluring due to the high profits they offer.
"Many investors, buoyed by lucrative promises, often forget about the risks of the derivatives trading," was how Marzuki assessed the risks of derivatives trading.
The Capital Market Supervisory Agency (Bapepam) and Bank Indonesia (the central bank) warned Indonesian investors to stay away from speculative derivatives trading.
"Indonesian companies should carefully learn about the products before getting involved in derivatives trading," Bank Indonesia Governor J. Soedradjad Djiwandono said in his recent comment about the financial losses suffered by several Indonesian companies in derivatives trading.
Bapepam chairman Bacelius Ruru also appealed to Indonesian investors not to engage in derivatives trading if they did not really understand how to "play with those highly risked financial instruments." (hen)