Why the IDX Is Reviving Short Selling
IDX Prepares a Gradual Return for Short Selling
Kabarsaji.com – Indonesia Stock Exchange (IDX) is preparing to bring back short-selling transactions through a phased rollout beginning in October 2026. The move follows earlier regulatory caution over the trading mechanism and comes as the exchange seeks to provide investors with additional tools for managing market risk.
Short selling allows an investor to sell borrowed shares that they do not currently own. The investor’s expectation is that the share price will fall after the sale. If that happens, the investor can repurchase the shares at a lower price, return them to the lender, and retain the difference. The strategy can generate gains when prices decline, but it can also create losses if prices rise instead.
The Financial Services Authority, or OJK, had previously recommended delaying the planned resumption of short selling, which had initially been set for September 17, 2025. Trading was resumed on March 13, 2026, and the regulator later instructed IDX to restore the mechanism. The exchange is now targeting October 2026 for its implementation.
A Tool for Hedging, With Safeguards Needed
IDX Director of Development Inding Pardi said the decision reflects both market conditions and the need to address limited short-selling transaction records noted by Morgan Stanley Capital International, better known as MSCI. Such records can matter because international market observers assess the range, structure, and accessibility of trading mechanisms available in an equity market.
"The other reason is, of course, our market is relatively stable. Although from the IHSG (stock index) side, it is still far below the all-time high, if we look at our market, it is quite stable,"
Inding made the remarks to reporters at the IDX Building on Friday, September 18, 2026. His reference to the IHSG, Indonesia’s main stock index, highlights the distinction between an index remaining below its historical peak and a market that is functioning with relative stability.
For investors, short selling is not simply a way to make a negative bet on a stock. It can also be used as part of a hedging strategy. An investor holding shares or maintaining exposure to a particular sector may use a short position to reduce the impact of a market decline. In that sense, the instrument can support risk management when applied carefully and within established rules.
At the same time, the practice can become speculative. A short seller faces the possibility that a stock price will rise rather than fall, making it more costly to buy back the borrowed shares. This risk is one reason market authorities and exchanges place close attention on supervision, eligible securities, and measures designed to prevent abusive behavior.
Inding stressed that avoiding manipulation is the central concern in the return of short selling. A market with adequate liquidity is especially important because shares that trade actively are generally less vulnerable to sharp price moves caused by a small number of transactions.
Initial Access Will Be Limited to Liquid Shares
IDX does not plan to open short selling across the market immediately. The first phase will cover selected shares considered liquid, with five companies from the LQ45 index initially eligible. One of the five stocks will come from the banking sector.
The LQ45 is widely associated with actively traded Indonesian shares, making it a logical starting point for a controlled introduction. By limiting access at the outset, the exchange can observe how the mechanism operates before considering whether the list of eligible securities should be expanded.
"Why does it have to be liquid? Because short selling is a trading strategy to prevent stocks from being easily manipulated in transactions and their prices fluctuating,"
The focus on liquid stocks is intended to support orderly price discovery. When many buyers and sellers are active in a stock, transactions are less likely to be dominated by a small group of market participants. That does not eliminate market risk, but it can help reduce the chance of excessive volatility linked to thin trading.
The phased approach also gives market participants time to understand the mechanics of borrowing, selling, and later repurchasing securities. Investors considering short positions need to recognize that the strategy involves more than predicting a decline in a share price. They must also account for the obligation to return borrowed stock and for the possibility that prices can move against their position.
Potential Expansion After the First Phase
Once the initial implementation is underway, IDX will evaluate whether short selling can be introduced more broadly. Any expansion would depend on the results of the staged program and the exchange’s assessment of market conditions.
The return of short selling marks an effort to deepen the range of available trading and risk-management instruments while retaining safeguards around market integrity. For ordinary investors, the development is a reminder that a broader market toolkit can offer more flexibility, but it also demands a clear understanding of risk. Short selling may help sophisticated participants hedge exposure, yet it remains a strategy that requires discipline, liquidity, and close attention to market rules.
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