Indonesia stock exchange to meet MSCI on Monday, seeking clarification on downgrade warning

JAKARTA, Oct 19 (Reuters) - The leadership of Indonesia's stock exchange will meet global index provider MSCI on Monday, its chief executive said, days after MSCI warned that Indonesia's stock market was no longer worthy of "emerging" status and could be downgraded.

The MSCI announcement on Friday came as a surprise to Jakarta and its main stock index saw its worst day of trading since 1998. It made further losses on Monday, dropping 5% to hit its lowest point in six years.

The Indonesia Stock Exchange management will hold an online meeting with MSCI later in the day to seek clarification on the reasoning behind MSCI's announcement, chief executive Jeffrey Hendrik told reporters.

"We, as well as the Financial Services Authority and most of the participants of MSCI, did not expect this," Jeffrey said.

"Based on our discussion with market participants, including global investors, all agreed that Indonesia meets all criteria to keep the emerging market status."

MSCI said Indonesia could be downgraded to the "standalone" category due to significant concerns about dysfunctions in the market, including coordinated trading behaviour and a failure to enforce rules. The downgrade would be more severe than a previous MSCI warning that Indonesia could be relegated to "frontier" market status.

"Standalone" status would exclude Indonesian stocks from global indexes tracked by billions of dollars in passive investment.

The unexpected nature of the downgrade risk has triggered massive selloffs, wiping off $65 billion of Indonesia's market capitalisation on Friday alone, exchange data showed.

To arrest the drop, IDX on Monday halved the daily down limit on stock prices to 7%, a move Jeffrey said was an effective way to reduce volatility.