tock trading transactions on Indonesia Stock Exchange is still relatively small compared to transactions in other countries. Currently the number of investors in the In-

donesia capital market is still less than 1 percent of the county Indonesia’s population. There are only around 500,000 regis-tered investors out of 255 million Indonesians. If number and value of transactions in IDX are higher than they are now, and stocks become more liquid, the securities would be an at-tractive investment alternative for Indonesians. After all, the people need to get used to invest in order to have a rate of return that beats inflation rate.

One way to increase the num-ber and value of stock transaction is by allowing margin transaction. The existing margin transaction today is a financing facility from Securities Company (SC), that is an Exchange Member (EM) or Clearing Member (CM), to its cus-tomers or investors. According to current provisions, the customers can trade stocks twice as much as their available funds. But the

Indonesia capital market has established a new financial institution, PT Pen­danaan Efek Indonesia, which is expected to help increase the liquidity of the stock market. The securities financing institution will provide fund or securities lending to securities companies that offer margin trading facilities to its customers.

INDEX >>Overcoming Risks With ‘Recovery and Resolution Plan’

Vo l u m e 1 I Q u a r t e r I l 2 0 1 7

PT Kliring Penjaminan Efek Indonesia

1KPEI Newsletter

The existing margin transaction today

is a financing facility from

Securities Company (SC), that is an

Exchange Member (EM) or Clearing

Member (CM), to its customers or

investors.

HEADLINE

3Statistics4

Securities Financing to Boost Market Liquidity1

Securities Financing to Boost Market Liquidity

S

problem lies in a limited PE funds source that cap the size of margin facilities the PE can provide its customers with. The value of outstanding margin transactions on the IDX margin as of December 30, 2015 amounting to Rp1 tril-lion, with the daily margin transaction reached Rp181 billion, or with the average margin period of 6-days.

Iding Pardi, the Head of Research & Development Divi-sion at KPEI, said the IDX needs to clear some obstacles for margin transaction. First, there are only limited funding facility which can be obtained by EM from banks or oth-er sources to finance securities transactions. Second, EM is not optimized in managing and monitoring customer

KPEI Newsletter2

Volume 1 I Quarter I l 2017

accounts, due to lack of EM’s back office capabil-ities and limited access to information regard-ing margin transaction. Third, the practice of financing of securities transactions by EM has not been facilitated and yet to have a central-ized infrastructure. In addition, the increase in securities transactions must be supported by adequate financ-ing facilities, in order to increase the liquidity of securities transactions. To that end, the Indonesia Financial Ser-vices Authority (IFSA) includes Securities Financing (SF) as one of its initiatives in the IFSA Masterplan 2015-2019.

SF became one of the programs of Capital Market Infrastructure Develop-ment Team (TPIPM) decided in Strategic Management Office (SMO) meeting on March 29, 2016. The SF also become an initiative in IDX Master Plan 2016-2020 and KPEI Business Strategy 2016-2020. Since then, Indonesia FSA and the SROs have been disseminating information in a variety of events and press reports regarding the plan to establish a SF. The fact that Indonesia had yet to have any specialized institution that provides securities financing facilities, in parti-cular margin trading financing helped the initiative to gain momentum. Fi-nally, the SF insti tution was formally established in December 2016 under the name PT Pendanaan Efek Indone-sia (PEI) with authorized capital set at Rp 1 trillion. IDX, KPEI, and KSEI owns

H E A D L I N E

equal shares in the com-pany and contribute a paid-up capital of Rp250 billion in initial stage (2016-2017). “Looking ahead, PEI is expected to receive funding from the financial markets”, said Iding. PEI will pro-vide several services for capital market partici-pants namely, financing for buying on marging,

financing for selling on margin, secu-rities borrowing lending and repo, fi-nancing for the issuance of securities (IPO/underwriting), general loan. But for the early stages, PEI is likely to focus on financing margin transaction.

Currently, PEI is drafting organiza-tional instruments and preparing busi-ness permit as a funding company to the IFSA. The company is also making other operational preparations, such as supporting regulations, developing system and infrastructures, establi shing link to SRO framework, as well as re-cruiting talents.

At the same time, PEI will continue disseminating information and edu-ca ting market participants. Many ho-pes that PEI could be operational in 2017. But it certainly must overcome a lot of challenges. “In the future, the preparation for PEI operation will be underta ken by the newly-selected mana gement. KPEI as an SRO that was appointed as the coordinator for setting up the SF has completed its task in line with TPIPM program,” he said. F

[TEAM EDITOR]

Starting its fourth year of

publishing, KPEI News letter

pre sents readers with an

update of the Clearing and

Guarantee Corporation’s acti-

vities at the end of 2016.

The headline discusses the

Establishment of the Securties

Financing Company while the

special article higlights a Study

of Recovery and Resolution

Plan for CCP.

Finally, we hope the rea-

ders would enjoy this news-

letter and gain more insight

about KPEI. Happy New Year

2017!

Best Regards,

Editor

E D I T O R I A L

Publisher:PT Kliring Penjaminan Efek Indonesia (KPEI)

Adviser: Board of Directors of PT KPEI

Person in Charge:Corporate Secretary

Editorial Board: Reynant Hadi, Diah Sugiretno, Lisda Rumondang Sitohang, Arie Budieningsih,

Vinsensia Selvia Muga, Rivanie Novalia

Editorial & Circulation Dept. Office:Indonesia Stock Exchange Building,

Tower I, 5th floor

Jl. Jend. Sudirman Kav 52-53

Jakarta 12190

Phone : 021-5155115

Facsimile : 021-5155120

Toll Free : 0800-100-KPEI (5734)

Email : customer.care@kpei.co.id

Website : www.kpei.co.id

In the future, the preparation for PEI operation will be undertaken by the newly-selected management. Looking ahead, PEI is expected to receive funding from the financial markets.

Client

Standardized Margin Transaction Margin Financing Loan

Margin Buying

Trade Order

Margin Requirement

Loan Application

Margin Requirement

Loan for securities purchase

Securities from the transaction as collateral

Exchange Member Securities Finance Company

Internal Matching

Margin Transaction

Margin Financing

System

MARGIN TRANSACTION FINANCING MECHANISM

3

Volume 1 I Quarter I l 2017

KPEI Newsletter

S P E C I A L A R T I C L E

It is imperative for every part in capital market to have resilience, recovery and resolution plans in order to

deal with failure of exchange transaction settlement. However, the Central Counterparty (CCP) around the

world are still struggling to come up with a resolution plan. KPEI, as Indonesia CCP, conducted a study that could

contribute in formulation of the final solution.

he 2007-2008 financial crisis made governments and global financial industry more aware

of the importance of risk management and of the need for solution for a syste-mic crisis. It also inspired the world’s capital markets industry to think in pre-venting and managing crisis that may occur. International Organization of Securities Commissions (IOSCO), a glo-bal capital markets regulatory organi-zation, in one of its principle requires that the Financial Market Infrastruc-ture, such as Central Counterparty must have the resilience against default of any participant or other extreme con-ditions. The CCP must have a recovery plan which enables it to accommodate uncovered losses caused by par-ticipant default or address un-covered liquidity shortfalls just at the right time. If the CCP’s re-covery plans is unable to return the participants to viabili ty, then entry into resolution should be possible.

CCP assumes a role in mana-ging risk by reducing market risk. The institution performs this task by performing risk calculations and risk mitiga-tion. Seeing the importance of

pave way for the Indonesia Financial Services Authority (IFSA) to prepare resolution plan.

Doni Irawan, Head of Research and Strategic Planning Unit at KPEI, said that in regard of resilience and recovery plan, KPEI has implemented standard measures to exchange tran-saction settlement if there is a failure, as outlined in Indonesia FSA Regu-lation (POJK) No.26/ POJK.04/2014 about Securities Exchange Transaction Settlement Guarantee. “Stages of re-silience and recovery is set in POJK above, from the use of collate ral in case of participant default, guaran-tee reserve, credit facility from banks, guarantee fund, to lastly the so-called credit ring, or line of credit from other participants that do not default,” said Doni Irawan.

Iding Pardi, Head of Research and Development Division at KPEI, said CCPs around the world have come to a concensus for standard formula at the level of the recovery plan. However, the same could not be said in regard of reso lution plan. “There are many sugestions and proposals to formulate standard resolution plan to ensure continuity of CCP’s business and ope-ration. At the global le vel, this process is still at consultation paper stage,” said Iding Pardi.

Because there is no standard for resolution plan, CCP in each country is expected to submit a proposal for the formulation of the policy. The tradi-tional method for resolution is a bail-out. But the concept of bailout itself

is prone to abuse of power, and even potentially lead to new problems. To that end, KPEI in concluding its study proposes several alternatives for resolu-tion plan that warrant further studies. The possible resoluti-on plans include stopping the clearing and guarantee services, insuring all the KPEI activi ties, or move the clearing and gua-rantee services to other CCP or institutions designated by the authority.F [TEAM EDITOR]

T addressing the potential risks of the market, CCP in various countries took the initiative to draw up recovery and resolution plan. This is in line with the recommendation in Principles for Fi-nancial Market Infrastructure (PFMI) issued by IOSCO. The Financial Sta-bility Board (FSB) has also published a guide for preparation of resolution plan in order to maintain stability of the financial sector.

Based on the IOSCO and FSB recom-mendations, CCP must coope rate with the authorities and stakeholders to develop a recovery and resolution plan in order to meet the standard as a PFMI. KPEI has adop ted and imple-mented a recovery plan, which should

Overcoming Risks With ‘Recovery and Resolution Plan’

Default CM Collateral

Guarantee Reserve

Credit Bank

Guarantee Fund

Credit Ring(Loss Distribution)

Res

ilien

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eco

very

KPEI STAGES OF RESILIENCE AND RECOVERY PLAN

KPEI Newsletter4

Volume 1 I Quarter I l 2017

GUARANTEE FUND POSITIONMARKET TYPE VALUE (Rp) PERCENTAGE

Equity 2,287,777,607,006 64.88%

Derivative - Futures 596,485,531 0.02%

Fixed Income 1,087,103 0.00%

Return of investment from guarantee fund (all market) 1,237,892,299,813 35.10%

Grand Total 3,526,267,479,453 100.00%

VALUE (Rp)

Guarantee Reserve 139,247,833,382

GUARANTEE RESERVE

* Until 30 December 2016

INSTRUMENT TYPE COLLATERAL VALUE (Rp) PERCENTAGE

Cash 479,431,717,713 4.10%Stock 10,922,912,738,858 93.33%Bonds 300,586,408,877 2.57%

Grand Total 11,702,930,865,448 100.00%

ONLINE COLLATERAL COMPOSITION

* As of 30 Desember 2016

INSTRUMENT TYPE COLLATERAL VALUE (Rp) PERCENTAGE

Bank Guarantee 5,142,122,000,000 65.62%Time Deposits 2,161,863,169,345 27.59%Minimum Cash Collateral 520,356,937,718 6.64%IDX Seat 11,400,000,000 0.15%

Grand Total 7,835,742,107,063 100.00%

OFFLINE COLLATERAL COMPOSITION

* As of 30 Desember 2016

USAGE (Rp) FEES PAID (Rp)

Total Usage 188,049,969,142,522 5,223,610,254

Monthly Average 15,670,830,761,877 435,300,855

Daily Average 770,696,594,846 21,408,239

INTRADAY FACILITY

* Until 30 December 2016

* Until 30 December 2016

ACS CLEARING MEMBERS(CM)

Volume (shares) Value (Rp) CM Deliver CM Receive

Grand Total 345,075,503 122,559,570,876 57 163

Daily Highest 116,823,700 37,383,584,000 3 21

Daily Average 2,184,022 775,693,487 0 1

Daily Lowest - - - -

ALTERNATE CASH SETTLEMENT (ACS)

* Until 30 December 2016

SECURITIES BORROWING AND LENDING TRANSACTIONS

MONTHTOTAL DAILY AVERAGE NUMBER

OF DAYSValue (Rp) Volume (shares) Frequency (times) Value (Rp) Volume (shares)

January 13,934,556,000 8,645,800 10 449,501,806 278,897 31February 9,182,783,000 5,893,200 13 316,647,690 203,214 29

March 10,049,055,000 1,544,700 10 324,163,065 49,829 31April 9,406,630,200 347,200 4 313,554,340 11,573 30May 6,602,756,000 1,803,400 6 212,992,129 58,174 31June 2,807,669,500 751,200 12 93,588,983 25,040 30July 3,610,911,500 1,264,700 4 116,481,016 40,797 31

August 68,099,140,300 27,387,100 19 2,196,746,461 883,455 31September 89,957,886,500 27,895,900 34 2,998,596,217 929,863 30

October 7,654,918,400 3,476,500 10 246,932,852 112,145 31November 1,026,722,000 725,100 9 34,224,067 24,170 30December 57,178,688,300 12,805,000 11 1,905,956,277 426,833 30

Grand Total 279,511,716,700 92,539,800 142 765,785,525 253,534 365

EXCHANGE TRANSACTION SETTLEMENT

* Until 30 December 2016

EXCHANGE TRANSACTIONS SETTLEMENTS EFFICIENCYFrequency

(times)Volume (shares)

Value (Rp)

Volume(shares)

Value (Rp)

Volume(%)

Value(%)

Grand Total 65,184,653 1,946,284,493,384 1,846,228,637,647,140 557,449,530,900 683,937,259,112,300 57.43 44.02

Daily Highest 433,892 36,112,553,728 189,168,979,219,084 7,719,129,900 5,882,714,100,200 76.85 55.20

Daily Average 264,978 7,911,725,583 7,504,994,461,980 2,266,055,004 2,780,232,760,619 54.66 43.97

Daily Lowest 167,677 2,775,034,553 3,442,627,882,620 1,040,929,000 1,454,152,213,400 43.43 36.41

S TAT I S T I C S