Jakarta. The Indonesia Stock Exchange (IDX) announced on Monday its plans to introduce short selling by October 2024, aiming to enhance market liquidity and improve price discovery, especially in bearish market conditions.

Irvan Susandy, IDX's Director of Trading and Regulation, highlighted that the exchange is currently in discussions with the Financial Services Authority (OJK) to finalize regulations. These discussions also focus on preparing exchange members interested in participating in short selling activities.

Short selling is a widely adopted practice in regional exchanges, where investors borrow shares from a broker, sell them on the market, and aim to repurchase them at a lower price. This strategy allows investors to profit from the difference between the sale and repurchase prices.

"Short selling will enable investors to manage risks and capitalize on market opportunities," Irvan told reporters.

The IDX plans to implement intraday short selling, requiring investors to close their positions by the end of the trading day to mitigate default risks associated with this strategy.

"It's important to note that short selling will be limited to specific investors licensed by exchange members to ensure controlled access," Irvan emphasized.

However, the introduction of short selling faces opposition from the Indonesian Ulema Council (MUI), which has declared it haram (forbidden under Islamic law). MUI's fatwa prohibits transactions where the seller does not possess the asset, citing concerns of uncertainty and risk.

IDX Development Director Jeffrey Hendrik acknowledged that some products and transactions on the IDX have not received a halal fatwa from MUI. He explained that the IDX offers several products and services --such as derivative products and margin trading-- that have not been submitted for Sharia compliance fatwas to MUI.