Margin stock transaction is widely opened

JAKARTA. Soon, the stock options for margin transactions will be tripled! The new margin trading regulation, which will take effect at the early of February 2017, will increase the margin and the short selling stocks from only 57 shares to 179 shares.

Therefore, the Indonesia Stock Exchange (IDX) to revise two regulations. First, Regulation No II-H on the Terms and Securities Trading in Margin Transaction and Short Selling Transaction. Second, Regulation Number III-I on Membership of Margin and / or Short Selling.

There are also several revisions in terms of margin transaction. First, the IDX will classify members of the stock exchange into two categories based on the adjusted net working capital (MKDB). The member of stock exchange, which has adjusted net working capital as much as Rp 250 billion or more can conduct margin transaction in the new list of margin securities, while the member of stock exchange with the adjusted net working capital of less than Rp 250 billion can only trade margin securities of LQ-45 Index.

Furthermore, there are additional rules on several matters, which have no existing standard provision. For example, the takeover of a customer’s obligations on margin transactions by another stock exchange member. Subsequently, there is a ban on lending to customers, except for overdraft purpose. A customer is also prohibited to shift the credit from regular securities account to margin securities account of the similar stock exchange member.

The new regulation also stipulates the removal of the approval letter to conduct margin and short selling transactions from those who fail to comply with the obligations as the stock exchange member of margin securities and short selling.

IDX also changed the criteria of margin securities by revising Regulation II-H. According to Director of Trade and Stock Exchange Member Arrangement of the IDX Alpino Kianjaya, previously a security can be included on the margin list if it has price earning ratio (PER) of no more than three times than market PER. A stock with the PER of three times than the market PER could still be considered as the margin stock if the price to book value (PBV) is less than three times than the market PBV.

The new regulation also reduces the minimum of 600 shareholders to 300 shareholders. The criteria for the minimum value of daily margin transactions also have been revised. "The stocks should still be liquid but the liquidity criteria are relaxed," said President Director of IDX Tito Sulistio.

Anticipating the risks

Chief Executive of the Stock Market Supervisory of the Financial Service Authority Nurhaida said, the revised regulation is adapting with the financing trend of the stock exchange members to their customers for the stocks, which are beyond the criteria of margin transaction.

As of 28 December 2016, the outstanding margin financing amounted to Rp 1.8 trillion. About 72% or Rp 1.3 trillion out of the total outstanding financing margin were contributed by 18 stock exchange members, which have adjusted net working capital of more than Rp 250 billion.

In fact, outstanding financing of the stocks, which are beyond the criteria of margin shares margin reached Rp 4.3 trillion. About 77% of the outstanding financing were contributed by 19 stock exchange members adjusted net working capital of more than Rp 250 billion.

IDX is preparing PT Pendanaan Efek Indonesia (PEI) to sustain the adjusted net working capital of securities companies. This securities financing company will disburse loans to securities companies for margin transaction purpose. PEI could lend Rp 100 billion for each securities company.

According to Tito, there are 28 stock exchange members with the adjusted net working capital of more than Rp 250 billion. This number will increase up to 40 stock exchange members so that PEI will prepare Rp 4 trillion funds.

According to Chairman of Association of Indonesian Securities Companies (APEI) Susy Meilina, the relaxation of margin transactions will affect to the volume of stock exchange transactions. Thus, he hopes that all brokers could enjoy this policy. “The brokers will face their own risks. Therefore, no need for the classification of adjusted net working capital,” Susy said.

More than the pursuance of profit and market liquidity, the authority needs to anticipate the risks.

(Muhammad Farid/Translator)