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January 27, 2009

Indonesia plans protection for securities investors
Bank Indonesia (BI) and the Capital Market and Financial Institution Supervisory Agency (Bapepam-LK) are teaming up to regulate derivative investment products offered by both local and foreign banks, reported the Jakarta Post.

Linda Rahman, BI bureau chief for financial systems stabilization, said recently banks that planned to offer any investment products would have to seek approval from the central bank.

The products will also be scrutinised thoroughly by Bapepam-LK before being offered to investors.

“Currently, such products, especially those from overseas, can enter Indonesia without our knowledge,” Linda said. “They can just come in like that and seek investors here.”

She added regulations for screening the securities would be issued as soon as possible.

The regulations will provide protection to Indonesian retail investors against vague investment products, which mostly take the form of derivatives of the capital market but are issued by banks, Linda said.

Under existing regulations, banks are not allowed to sell securities or other products related to that.

In late October, investors suffered unexpected losses after investing in supposedly secure Citibank Indonesia-issued Citigold products linked to bonds issued by the now-defunct Lehman Brothers.

Two months later, another investment product “bomb” exploded, with preliminary investigations revealing investors could lose an even a more staggering figure — up to 1.4 trillion rupiah ($124 million) this time — from failed investment products issued by PT Antaboga Delta Sekuritas and marketed through Bank Century.

The central bank estimates local investor exposure to risky derivatives and structured products at about $3 billion.

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