Analysts Welcome New Stock Exchange Autorejection System Changes
Jakarta. Analysts are optimistic a new autorejection system introduced at the Indonesia Stock Exchange this week which allows for larger stock price fluctuation will offer bigger margins for market players.
The "symetrical" autorejection system, which was implemented this week, sets the ceiling and floor limits for stock price fluctuations each day.
“In the long-term, I support the implementation of symetrical auto-rejection and I am sure the effect is positive. One of which is from volatility aspect, with a bigger price fluctuation allowed, transactions will be more interesting,” said Bima Setiaji, an analyst from brokerage NH Korindo.
He suggested that under the new system investors would pick shares based on company fundamentals and be less attracted to penny stocks.
Under the new system, shares with prices ranging from Rp 50 to Rp 200 are allowed to fluctuate, either positively or negatively, by a maximum of 35 percent from the previous day's level.
Auto-rejection is implemented by the stock exchange as a set of mechanism to create a fair trading and protect small investors from speculators taking advantages of sharp stock price fluctuations.
Narrower price fluctuations are set for more expensive stocks. Stock prices ranged above Rp 200 to Rp 5,000 per share can see up to 25 percent gain and loss while shares above Rp 5,000 can only fluctuate by up to 20 percent.
In the previous system, the IDX used a “asymetrical” system which set different level of ceiling and floor limits.
This system set a maximum gain level at 35 percent and maximum loss of 10 percent for stocks with price from Rp 50 to Rp 200. More expensive stocks, at above Rp 200 to Rp 5,000, the maximum gain was limited to 25 percent and a maximum loss at 10 percent.
Stocks priced at over Rp 5,000 could see a gain up to 20 percent and a loss at maximum 10 percent.
Bima said the old system saw "pump and dump" trading, in which traders would spread rumors or exaggerate company news to inflate particular stocks which would then be dumped by others and then purchased by the traders.
Binaartha Sekuritas analyst Reza Priyambada said the impact of the new system is unlikely to be felt until next week, with this week's trading remaining low following the year-end holiday.
Indonesia introduced the auto-rejection system in 2008 after the Lehman Brother crisis spread into the local stock market, causing a free fall in the level of the main stock index and hefty losses for investors.Tags: