Rama Sukarta, Jakarta – The Indonesian Ulema Council (MUI) has declared short selling as haram (forbidden under Islamic law). MUI's statement followed the Indonesia Stock Exchange (IDX) announcement of short-selling regulations to be implemented in the second half of this year.

IDX Development Director Jeffrey Hendrik acknowledged that some products and transactions on the IDX have not received a halal fatwa from MUI.

"We certainly agree with MUI; products or services that have not obtained a fatwa from MUI are considered non-halal," Jeffrey told reporters at the IDX in Jakarta on Friday.

Out of the 116 stocks eligible for short selling, some are Sharia-compliant.

He explained that the IDX offers several products and services that have not been submitted for Sharia compliance fatwas to MUI. "For example, derivative products, margin trading, and even the trading limits provided by exchange members to investors do not have Sharia compliance fatwas. If you want to use another term, yes, it's haram," he said.

Jeffrey added that individual investors are left to decide to engage in transactions involving these IDX products. "The full call auction (FCA) trading mechanism, margin trading, and derivative products are not requested for fatwas. This means that the responsibility is returned to the investors," Jeffrey explained.

Short selling is an investment strategy where an investor borrows shares from a broker to sell them on the market, hoping the stock price will drop. The investor then repurchases the shares at a lower price to return them to the broker, thus profiting from the difference between the initial sale price and the repurchase price.

MUI said their fatwa is based on a hadith that forbids selling something one does not own. They also explained that short selling is categorized as an act of gharar, which involves transactions that lack certainty in terms of the nature, form, or price.

Source: https://jakartaglobe.id/business/idx-responds-to-mui-declaring-short-selling-hara