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)