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ASEAN+3: Information on Transaction Flows and Settlement ... ... Indonesia Stock Exchange (IDX) IDX is the only stock exchange in Indonesia. IDX is a privately owned, limited company

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  • 121ASEAN+3 Information on Transaction Flows and Settlement Infrastructures ▌Part 2: Country Reports

    Indonesia (ID)

    Bond Market Infrastructure

    Overview of Bond Market

    T he Indonesian bond market comprises the over-the-counter (OTC) and exchange markets. Government bonds and corporate bonds are all listed on the exchange but traded mainly in the OTC

    market. A few bonds are traded on the exchange and they must be reported to the exchange through the Centralized Trading Platform (CTP) within 30 minutes after a trade is executed. According to the Asian Development Bank’s (ADB) AsianBondsOnline website, the amount of local currency (LCY) government bonds outstanding in Indonesia at the end of 1Q13 was US$98.45 billion, while LCY corporate bonds totaled US$20.18 billion.

    There are two central depositories: Bank Indonesia (BI) handles government bonds and the Indonesian Central Securities Depository (KSEI) handles corporate bonds. KSEI also provides depository and transaction settlement services for government bonds as a sub-registry for BI. Settlement of the government bonds is performed on Bank Indonesia-Scripless Securities Settlement System (BI-SSSS). Cash settlement of government bonds is conducted on Bank

    Indonesia Real-Time Gross Settlement (BI-RTGS). BI-SSSS and BI-RTGS are electronically linked. All corporate bonds and some government bonds are settled by KSEI (especially those traded by securities companies) using the Central Depository and Book Entry Settlement (C-BEST) system, with cash settlement conducted via the five appointed payment banks.

    Please refer to Part 3 ID01 (Government Bond Market Infrastructure Diagram) and Part 3 ID02 (Corporate Bond Market Infrastructure Diagram).

    Description of Related Organizations

    Ministry of Finance (MOF) The Government of Indonesia’s MOF is the apex body responsible for the administration of central government finances and all economic and financial matters affecting the country. MOF has authorization to issue government bonds. MOF also formulates and implements policies and technical standardization in the field of debt management.

    Otoritas Jasa Keuangan (OJK) OJK is an independent institution with authority to regulate, supervise, examine, and investigate the financial services sector in Indonesia. OJK is an autonomous agency designed to be free from

  • 122 ASEAN+3 Information on Transaction Flows and Settlement Infrastructures ▌Part 2: Country Reports

    interference. Its functions, duties, and powers include regulations, supervision, inspections, and investigations. The agency was established in 2012, fully replacing the roles of the Capital Market and Financial Institution Supervisory Agency, also known as Badan Pengawas Pasar Modal dan Lembaga Keuangan (Bapepam-LK), and partially replacing the role of BI in banking supervision.

    Bank Indonesia (BI) BI is the central bank of the Republic of Indonesia. BI acts as the central depository for the settlement and safekeeping of government bonds. Its role as the central registry of government bonds includes that of a registrar, settlement agent, and paying agent (PA) for interests and principal.

    Indonesia Stock Exchange (IDX) IDX is the only stock exchange in Indonesia. IDX is a privately owned, limited company whose shareholders are local broking firms. It came into existence through BAPEPAM-LK’s Capital Market Master Plan 2005–09, which stipulated the merger of the Jakarta Stock Exchange (JSX) and Surabaya Stock Exchange (SSX). All government bonds and corporate bonds are automatically listed on IDX.

    PT Kustodian Sentral Efek Indonesia (KSEI) KSEI was granted a permanent operational license as a depository and settlement institution by the BAPEPAM-LK on 11 November 1998. KSEI’s shareholders consist of IDX, KPEI, custodian banks, securities companies, and registrars. KSEI started the settlement operations in scripless form beginning July 2000. Participants in KSEI are custodian banks, securities companies, and other parties approved by Bapepam-LK. KSEI is a central depository for corporate bonds and sub- registry of BI for government bonds in BI-SSSS.

    The Indonesian Clearing and Guarantee Corporation (KPEI) KPEI, Indonesia’s central counterparty (CCP), was established in 1996 as a limited company to provide clearing and settlement, guarantee services for stock exchange transactions (equity, bonds and derivatives), and provide securities lending and borrowing.

    Indonesia Bond Price Agency (IBPA) IBPA conducts valuation and determines fair market prices of bonds. Sukuk and types debt

    securities, as well as provides debt market information

    Overview of Government Bond

    Trading

    OTC Trading There is no formal OTC market in the Indonesian bond market; however, all government bonds can be traded off-exchange directly between counterparties. Although all government bonds and corporate bonds are automatically listed on IDX, most trading is done OTC. These trades must be reported to the exchange through CTP within 30 minutes after a trade is executed. Price discoveries are made through theoretical prices by IBPA, bond price quotation by primary dealers, and active money brokers. The OTC market occupies a dominant position (100%) in bond trading). CTP is an electronic system established to facilitate the reporting of bond transactions. This system was introduced in September 2006 following the appointment of SSX as the Bond Transaction Reporting Center. Users of CTP are securities companies and banks, which are obliged to report all corporate and government bond transactions, as well as the transactions of their clients. Further development of CTP was conducted by IDX after the merger.

    Exchange Trading In June 2005, IDX introduced the Fixed Income Trading System (FITS) to facilitate the trading of bonds in the exchange. The clearing of bond trades in the exchange are handled through the Electronic Bond Clearing System (e-BOCS), including allocations.

    IDX provides exchange trade and OTC reporting as illustrated in Figure ID01 and described in detail below.

    (i) Bonds Exchange Trading System. Investor can order and trade bonds in this system via exchange member (currently only securities companies), though there was no

  • 123ASEAN+3 Information on Transaction Flows and Settlement Infrastructures ▌Part 2: Country Reports

    OJK

    Figure ID01: Secondary Market Flow

    transactions in the Bonds Exchange Trading System in 2011.

    (ii) Bonds Transaction Reporting System. IDX was appointed in 2006 by Bapepam-LK (currently OJK) and Indonesia SEC, as the bonds transaction reporting beneficiary. Market participants report their OTC transactions to this system via banks and securities companies. They have an obligation to report these transactions to OJK through the Bonds Transaction Reporting System within 30 minutes. Both systems can be used for both government and corporate bonds.

    CCP

    CCP is only for exchange-traded bonds. There is no clearing function in the OTC market.

    CCP for the Exchange Market KPEI acts as central counterparty for the exchange market. KPEI has operated e-BOCS since 2006, which is the system used to settle all bond transactions executed on IDX. This clearing mechanism shortens the settlement of bonds obligations and also increases the efficiency of settlement.

    Bond Settlement

    BI functions by law as the central registry to handle government bonds, while KSEI and other custodians are sub-registries under BI. Currently, BI maintains only one omnibus account for each sub-registry. Brokers and some custodians, which are not sub-registries of BI, settle and deposit their government bonds to KSEI as the central depository. The registry system of the Indonesian government bonds is presented in Figure ID02.

  • 124 ASEAN+3 Information on Transaction Flows and Settlement Infrastructures ▌Part 2: Country Reports

    Settlement of government bonds is done through BI-SSSS, which was first implemented in February 2004. Under BI-SSSS, settlement of government bonds can only be performed on a delivery- versus-payment (DVP) basis. This means that government bonds are not allowed to be settled on a free-of-payment (FOP) basis, unless it involves a transfer for the same beneficial owner, a grant, a settlement of court, or lending and borrowing. BI-SSSS adopts DVP Model 1 of the Bank for International Settlements (BIS) definition. BI- SSSS’s network is a proprietary network. The types of lines are leased line and dial-up. Its protocol is Systems Network Architecture (SNA), while its interfaces are proprietary (file transfer protocol [FTP]) and socket. The message format is proprietary.

    C-BEST enables the settlement of government bonds for all market players who have a security account with KSEI but are not sub-registries of BI-SSSS. There is no difference in the procedure for trading government bonds whether on the exchange market or the OTC market. KSEI participants have access only to C-BEST, but C-BEST is directly connected to BI-SSSS and automatically delivers or receives messages and instructions concerning settlement processes

    in BI-SSSS automatically delivers or receives messages concerning settlement processes in BI-SSSS; therefore, participants of KSEI can monitor transaction status, balance position, and obtain reports with C-BEST. Transaction status in C-BEST is available for viewing and may be downloaded every 15 minutes. C-BEST adopts DVP Model 2 of the BIS definition. Governmen

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