Indonesia Stock Exchange

DERIVATIVES

Introduction

Derivative Security is a financial security whose value is derived from the value of another security (underlying asset) such as equity or debt instrument. It can derive directly from an underlying asset or from the underlying asset’s derivatives. Derivative can also be defined as a contract or agreement, which value depends on the performance of an underlying asset.

In a more specific definition, derivative is a traded financial contract between two or more parties to buy or sold an asset/commodity on an agreed time and price. The future value of the derivative is highly influenced by its underlying asset in the Spot Market.

 Financial Derivatives

Derivatives listed in the Exchange are financial derivatives, which derived from financial instruments such as stock, bond, stock index, bond index, currency, interest rate and other financial instruments. Financial derivatives are often used by Investors and Issuers to perform hedging on their portfolios.

Jurisdiction

·          Capital Market Law of the Republic of Indonesia No. 8 year 1995 concerning the Capital Market

·          The Government Regulation of the Republic of Indonesia No. 45 year 1995 concerning the Capital Market Organization

·          The Decision of the Chairman of Bapepam No. Kep.07/PM/2003 dated February 20, 2003 concerning Futures Contract on Security Index as Security

·          The Bapepam Rules No. III. E. 1 dated October 31, 2003 concerning Futures Contract and Option on Securities or on Securities Index

·          Circular Letter from the Chairman of Bapepam No. SE-01/PM/2002 dated February 25, 2002 concerning Futures Contracts Index in the Net Adjusted Working capital Report of Securities Company

·          Approval Letter of Bapepam No. S-356/PM/2004 dated February 18, 2004 concerning the Agreement of Foreign Futures Contracts (DJIA & DJ Japan Titans 100)

Several Derivative products traded at IDX:

1.            Stock Option

Option is a contract that gives its Taker (the owner) the right (without obligation) to buy or sell an asset at a certain price in a certain period of time. Option is officially traded for the first time at the Chicago Board Options Exchange (CBOE) in 1973.

Stock option is a contract that gives the Taker the right to buy (call option) or to sell (put option) an underlying stock (listed stock that becomes the basis of the option) in a certain amount, Strike Price (price set by the Bourse for every option as a benchmark for Exercise) and period of time.

Call Option gives the Taker the right, but not obligation, to buy a specified amount of an underlying security at a specified price within a specified time. On the other hand, Put Option gives the Taker the right, but not obligation, to sell an underlying security.

American-type Options gives the Taker the chance to exercise his/her right during any trading day on or before expiration, while European-type Option gives its taker the chance to exercise his/her right on Expiration.

Below are the Specifications of Stock Options traded at IDX:

2.            Index Futures Contract (LQ45 Futures)

Futures is a contract obligates the buyer or the seller to purchase an underlying financial instrument (index, stock, or bond, etc.) at a future date. Index Futures are futures contracts that use stock indices as their underlying.

LQ45 Futures uses the LQ45 index, a well known index that serves as the benchmark of stocks in Indonesian Capital Market, as its underlying. In the fast growing capital market in Indonesia, LQ45 index can be the most effective way in tracking the stocks market of Indonesia in general.

Specifications of LQ45 Futures

3.            Mini LQ Futures

Mini LQ Futures is a contract that uses the same underlying as the LQ45 Futures, that is the LQ45 index. The difference between them is that Mini LQ Futures has smaller multiplier (IDR 100,000/point or 1/5 of the LQ Futures), thus resulted in a lower transaction values, initial margin and transaction fee).

Mini LQ45 Futures is segmented for beginner and retail investors who would like to practice the LQ Futures transaction in lower requirements, before start doing transaction in LQ Index.

Specification of the Mini LQ Futures:

4.            LQ45 Futures Periodic

LQ45 Futures Periodic is a contract that is issued and expired on a certain trading day.

There are several types of the LQ45 Futures Periodic:

1.             Two (2) Weeks Periodic Contract. It is a contract which expiration date falls on the last trading day of the second week after the issue of the contract.

2.             Weekly Periodic Contract (5 trading days). It is a contract which expiration date falls on the fifth trading day after the issue of the contract.

3.             Daily Periodic Contract (2 trading day). It is a contract which expiration date falls on the second trading day after the issue of the contract.

Specification of the LQ 45 Futures Periodic:

5.            Japan (JP) Futures

JP Futures gives investors the opportunities to invest globally and expand the cope of derivatives product in Surabaya Stock Exchange to be product that used as a benchmark in the world class. It allowed investors to get benefit from the movement of Japan market as the second most active market after the US market in the world.