Indonesia

Posted By Steve On Thursday, October 15th, 2009 With 0 Comments

Settlements Cycle

Equities: T+3
Debt (Government): T+2 to T+3 depending on counter-party agreement
Debt (Corporate): T+2 to T+3 depending on counter-party agreement
OTC: T+2 to T+3 depending on counter-party agreement
Money Market: T+2 to T+3 depending on counter-party agreement

Over-the-Counter (OTC)
There is no formal OTC market, however all securities can be traded off-exchange and settled directly between trading counter-parties.

Settlement Procedures

Settlement at C-BEST – settlement at the Central Depository’s Book Entry Settlement (C-BEST) is conducted real-time throughout the specified operating time, provided the instructions are matched with the counter-party, and both parties have sufficient stocks and cash to settle the trades. At present, C-BEST does not have the capability to ‘link’ trades, which has an impact on turnaround transactions. The settlement time-frame is as follows:

T. The investor instructs their broker to execute the order and the broker executes trades on the Indonesia Stock Exchange (IDX). Trade confirmations are sent to investors.

T+1 to T+2. The investor sends settlement instructions to the custodian for pre-matching. The selling broker also contacts the seller’s custodian bank to pre-match the transaction.

T+2. For receipt versus payment transactions, the buyer must fund their account with custodian banks on T+2 to ensure availability of funds to be transferred to the payment bank with value T+3 morning. In Indonesia, overdraft facilities are not available to non-residents, therefore failure to fund on time will almost certainly lead to failed settlement and potential penalties.

T+3. Exchange of shares and cash will be executed by all the parties involved in the transaction through KSEI C-BEST system. Once these transactions are matched, the investor‘s C-BEST account will be updated with the shares. For the selling party, KSEI will credit the proceeds with the payment bank, where entries will be made to credit the investor‘s cash account held with the custodian bank on the same day. Confirmation of settlement will be sent to investors when the trades are confirmed as settled by KSEI and subsequently settled in the custodian operating system.

Failed and unmatched instructions in C-BEST system will remain pending for five days before being dropped by the system. C-BEST will continue to search for a matching order to settle failed and unmatched instruction during these five days. For OTC transactions there will be no penalties levied by KSEI (apart from transaction fees) for trades that fail; however, the possibility of consequential claims from counterparties will remain.

KSEI has appointed four payment banks (Bank Niaga, Bank Central Asia, Lippo Bank and Bank Mandiri) to assist their cash settlements. There will be a ‘re-alignment’ process between the three payment banks throughout the day. The process is intended to ‘square off’ cash positions between payment banks. The process is scheduled at 09:00, 11:00, 13:30 and 15:15 daily. This process will not be transparent to KSEI’s participants through their C-BEST terminal.

Settlement at BI-SSSS – settlement at the Bank Indonesia-Scripless Securities Settlement System (BI-SSSS) is conducted on a real-time basis. There is no fixed settlement period for the fixed income trades. Settlement is negotiated between the buyer and the seller, but generally on T+2 or T+3. The settlement timeframe is as follows:

T– Trade is executed.

SD-1 – Sub-registry receives instruction from client (i.e. in SWIFT format) and then pre-matches the trade with counter party. For a real-time vs payment (RVP) trade, cleared funds should be made available in the client’s account on SD-1 by 12:00.

SD – Sub-registry will input trade instruction in BI-SSSS for matching and settlement process. BI-SSSS will check securities holding and cash for matching instruction. Once matched, securities transfer will happen and cash payment will be made immediately through real-time gross settlement (RTGS) at BI-SSSS system. Fail and unmatched instructions in BI-SSSS will be dropped after four hours or on the cut-off time. While the government debt instrument (GDS) and Sertifikat Bank Indonesia (SBIs) are settled in SSSS, the payments are undertaken using the BI’s RTGS system with payment from the buyer’s to the seller’s sub-registry demand deposit accounts with BI. The SSSS and the RTGS systems are electronically linked.

Cash settlement – Payments for securities are made by RTGS.

Settlement of equities in the scripless market – For scripless settlement, netting applies for both equities and cash. In the netting system, KPEI is the central counterparty for all clearing members and is responsible for guaranteeing the obligations of the clearing member. Net settlement is conducted on T+3 for both selling and buying brokers, with KPEI instructing KSEI to debit net stock positions from the selling brokers, and then instructing the appropriate payment bank to debit the net cash position from the net buying broker’s cash account. KPEI will then transfer the stock position to the buying broker that has paid their cash obligation.

The netting settlement is conducted twice a day; in the morning between 07:00 and 09:30 (morning run) and in the afternoon between 12:30 and 13:30 (afternoon run). Brokers have to ensure positions are ready before the start of the run to be able to participate in the net settlement session. In the morning run, KPEI instructs KSEI to credit or debit the broker’s receiving or delivery stock accounts depending on their net obligation for that day. Any outstanding positions, due to the unavailability of stocks or funds in the morning, are re-processed in the afternoon. Brokers who fail to meet their obligations will be penalized.

The clearing and settlement procedures between brokers and KPEI are outlined as follows:

T. Brokers execute trades on the JSX. Trade confirmations are sent to investors.

T – 17:00. Securities and cash positions are netted by KPEI.

T+3 – 06:00 to 09:30. KPEI performs the morning run by instructing KSEI to debit net stock positions from the net-selling brokers. After instructing the payment bank to debit the net cash position from the net buying broker’s cash account, KPEI will transfer the stock position to the buying broker that has paid their cash obligation. Transfers will be conducted prioritizing the largest net transactions, and will depend on the availability of stock at that time.

T+3 – 12:30 to 13:30. KPEI performs the final net settlement process to complete settlement for that day. Brokers who have failed their obligations will be reported to KPEI who will initiate alternate cash settlement or utilization of guarantee funds plus broker suspension.

Custodians do not participate in the net settlement system. Settlement outside the net settlement system is conducted on a gross basis/trade-by-trade basis. KSEI has given the following settlement windows to settle these transactions:

* Against payment transactions 06:00 – 15:00.
* Free of payment transactions 06:00 – 17:00.

Physical – Unlisted Stock only
Physical securities are no longer tradeable on the exchange. The settlement of securities and cash will be conducted directly between the buying and selling broker (outside PT Kliring Penjaminan Efek Indonesia – KPEI, or the Clearing and Guarantee Corporation).

All listed stocks in Indonesia Stock Exchange (IDX) can only be traded in scripless form.

 

Registration

Book-Entry: in the scripless environment, registration is no longer applicable. Securities are held in accounts at PT KSEI that mirror the account structure at the local custodian and the ownership is recognized to be that of the account holder. Ownership is transferred automatically upon settlement.

Physical: There are very few securities which remain in physical form, which include some delisted shares and promissory notes. Registration is available only to certain stocks whereas promissory notes are in bearer form. Registration where possible is recommended to ensure recognition of entitlement. The following documents are required to complete registration, typically a three-week process:

* power of attorney (notarized)
* share certificates endorsed by brokers
* copy of the original transaction note
* transfer deed completed by the original registered owner, selling broker, buyer and buyer’s broker

Securities are typically registered in the name of the client, care of the sub-custodian. There are no trust laws in Indonesia, therefore nominee arrangements are not recognized.

Bank for International Settlements Model (BIS):

The depository in Indonesia follows models 1 and 3.

Model 1: a system in which there is a simultaneous transfer of securities and associated funds from the buyer to the seller. All transfers occur on a trade-by-trade (gross) basis with all transfers made via book entry. All transfers are final. This is the model followed for off-exchange transactions at KSEI, and BI-SSSS/

Model 3: a system in which securities transfers occur on a net basis, with final transfer of both securities and funds occurring at the end of settlement process. Used for on-exchange transactions.

Payment Systems
There is no specific order to process cash payments in the Indonesian market except that high value payments of IDR 100 million and above are processed through RTGS (Real Time Gross Settlement). Smaller values are normally processed through Inter Bank Giro (IBG). The RTGS system is an electronic real time payment system introduced in November, 2000. RTGS is available from 08:00 to 16:30.

Under BI Regulation No.3/3/PBI/2001, IDR transfer to non-resident accounts with local banks are only allowed against certain approved economic activities and supported by the appropriate documentation.

Scripless settlement payments – scripless settlement involves the movement of funds between the cash accounts of custodians/brokers held at the applicable payment banks. KSEI will credit/debit the appropriate participant’s cash account held at KSEI to facilitate trade settlement. The funds from scripless delivery transactions will be remitted back to clients cash account on SD.

Settlement under the net settlement system – a net settlement system exists for scripless transactions, particularly between clearing participants (i.e. brokers v.s. KPEI/Indonesian Clearing and Guarantee Corporation). Custodians are not directly involved in these systems, so transactions between custodians and brokers are settled on a trade-for-trade basis.

Overdraft: Not applicable

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