PAYMENT, CLEARING AND SETTLEMENT SYSTEMS IN INDONESIA

PAYMENT, CLEARING AND SETTLEMENT SYSTEMS IN INDONESIA

PAYMENT, CLEARING AND SETTLEMENT SYSTEMS IN INDONESIA

Indonesia CONTENT LIST OF ABBREVIATIONS . . 7 INTRODUCTION . . 1 1. Institutional aspects . . 1 1.1. Legal and Regulatory Framework . . 1 1.1.1. Payment and Settlement System . . 2 1.1.2. Securities Settlement System . . 3 1.1.3. Other form of rules and regulations . . 4 1.2. Roles of Bank Indonesia . . 4 1.2.1. Regulator and overseer of payment systems . . 4 1.2.2. Provision of Settlement Account . . 5 1.2.3. Operator of Interbank Payment Systems and Securities Settlement System .

. 5 1.2.4. Facilitator of Development in Payment Systems . . 5 1.3. The role of other private and public sector bodies . . 6 1.3.1. BAPEPAM-LK . . 6 1.3.2. Providers for payment services . . 6 1.3.3. Providers for Clearing, Guarantee, Settlement, and Depository Services of Securities Transactions . . 8 1.4. Recent developments . . 8 1.4.1. The Indonesian act on funds transfer . . 8 1.4.2. Self Regulatory Organization (SRO . . 8 2. Payment media . . 9 2.1. Cash . . 9

Indonesia 2.2. Non-cash . 9 2.2.1. Credit funds transfer . 9 2.2.2. Cheque and bilyet giro . 9 2.2.3. Direct debit . 10 2.2.4. Card-based . 10 2.2.5. Electronic Money (e-money . 11 2.2.6. Non cash terminals . 11 2.3. Recent developments . 12 2.3.1. National standard of chip card specification for Indonesia ATM/debit cards . 12 2.3.2. Interoperability of e-money . 13 2.3.3. National Payment Gateway (NPG . 13 3. Payments and settlement systems . 14 3.1. Overview . 14 3.2. Large value Payment System . 16 3.2.1. Institutional framework . 16 3.2.2. Participation . 17 3.2.3. Types of transactions .

18 3.2.4. Operating hours . 18 3.2.5. Sources of liquidity . 19 3.2.6. Management of credit risk of FLI . 20 3.2.7. Settlement mechanism and management of risk . 20 3.2.8. Technical aspect . 21 3.2.9. Pricing policy . 22

Indonesia 3.3. Interbank Retail Payments Systems . . 22 3.3.1. SKNBI for interbank retail payments . . 22 3.3.2. Shared ATM networks/switching services . . 25 3.3.3. EFT POS networks/switching services . . 26 3.4. Bank Indonesia Government Electronic Banking (BIG-eB . . 26 3.5. Major ongoing and future projects . . 27 3.5.1. Enhancements in Indonesia LVPS: 2nd Generation BI-RTGS System . . 27 4. Post-trade processing, clearing and securities settlement in Indonesia . . 30 4.1. General Overview . . 30 4.2. Post Trade Processing Systems . . 30 4.2.1. Trading and Confirmation . . 30 4.2.2.Trade Repository .

. 32 4.3. Central Counterparties and Clearing System . . 32 4.3.1. Clearing System . . 32 4.4. Securities settlement systems . . 33 4.4.1. Settlement system for the government securities and instruments of Bank Indonesia open market operations . . 33 4.4.2. Settlement system for securities issued by the private sector . . 34 4.5. Recent development . . 35 4.5.1. Enhancements in BI-SSSS: 2nd Generation BI-SSSS . . 35

Indonesia

Indonesia LIST OF ABBREVIATIONS ABS Automatic Bidding System ASPI Asosiasi Sistem Pembayaran Indonesia (Indonesia Payment Systems Association) ASBANDA Asosiasi Bank Daerah (association of regional/provincial banks) ATM Automated Teller Machine BAPEPAM-LK Badan Pengawas Pasar Modal dan Lembaga Keuangan (Indonesia Capital Market and Non Bank Financial Institution Supervisory Agency) BEI Bursa Efek Indonesia (Indonesia Stock Exchange/IDX) BI Bank Indonesia BidCC Bidding System Central Computer BIG-eB Bank Indonesia-Government Electronic Banking BI-RTGS Bank Indonesia-Real Time Gross Settlement BIS Bank for International Settlement BI-SSSS Bank Indonesia-Scripless Securities Settlement System C-BEST Central Depository and Book Entry Settlement System CCP Central Counterparty CP SIPS Core Principles for Systemically Important Payment System CSD Central Securities Depository DVP Delivery Versus Payment EFT POS Electronic Funds Transfer at Point of Sale FAFO First Available First Out FIFO First In First Out FLI Fasilitas Likuiditas Intrahari (intraday collateralized liquidity facility) FOP Free of Payment FSAP Financial Sector Assessment Programme FTS Failure to Settle HIMBARA Himpunan Bank Pemerintah (association of state-owned banks) IC Integrated Circuit KPEI Kliring penjamin Efek Indonesia (Indonesia Clearing and Guarantee) KSEI Kustodian Sentral Efek Indonesia (Indonesia Central Securities Depository) LPEI Lembaga Penjamin Ekspor Indonesia (Indonesia Export Financing Institution) LVPS Large Value Payment System MoF Ministry of Finance NPG National Payment Gateway

Indonesia NSICCS National Standard of Chip Card Specification OMO Open Market Operation OTC Over the Counter PBI Peraturan Bank Indonesia (Bank Indonesia Regulation) PERBANAS Persatuan Bank Swasta Nasional (association of private national banks) PIN Personal Identification Number PVP Payment Versus Payment SBI Sertifikat Bank Indonesia (Bank Indonesia certificate/the central bank bills) SBN Surat Berharga Negara (the government securities) SBSN Surat Berharga Syariah Negara (the government sharia securities) SCC BI-SSSS Central Computer SEBI Surat Edaran Bank Indonesia (Bank Indonesia Circular Letter) SRO Self Regulatory Organization SSS Securities Settlement System SSTS Scripless Securities Transfer System ST BI-SSSS Terminal STP Straight Through Processing SUN Surat Utang Negara (the government conventional securities) SWIPS System Wide Important Payment System TSA Treasury Single Account VPN Virtual Private Network

1 Indonesia INTRODUCTION Indonesia Rupiah (IDR) payment services in Indonesia are provided by the central bank, commercial banks and non-bank institutions. With respect to payment systems, the central bank provides Bank Indonesia Real Time Gross Settlement (BI-RTGS) system and Bank Indonesia National Clearing System (Sistem Kliring Nasional Bank Indonesia (SKNBI), in Bahasa). For transferring and settling transactions of domestic securities, there are 2 (two) securities settlement systems in the country handling such services; one is operated by Bank Indonesia and the other is operated by Indonesia Central Securities Depository Corporation (i.e.

PT. Kustodian Sentral Efek Indonesia (PT. KSEI)).

BI-RTGS system was put into operation in 2000 to make settlements of the large value interbank credit funds transfers1 , monetary operations conducted by Bank Indonesia, and net figures from the retail interbank payment systems in the country. Participants of BI-RTGS system are mostly the commercial banks and a few selected non-bank institutions. Further developments in BI-RTGS system, known as the 2nd generation BI-RTGS system, will incorporate offsetting features of bilateral and multilateral netting with the purpose of economizing on the use of liquidity for settlement.

SKNBI launched in 2005 is a deferred multilateral net settlement system for retail interbank credit funds transfers and payments by check and other debit instruments.

Since the end of 2010 SKNBI has been linking 109 local clearing houses throughout the country, 39 of which are operated by Bank Indonesia head and regional offices and the remaining by branches of appointed commercial banks. Commercial banks are the basis in providing payment services to the public. Commercial banks provide payment services through their own intra-bank on-line funds transfer network and interbank payment switching services2 in the country.

Non-bank institutions which provide payment services can generally be divided into institutions authorized to conduct payment services by law, or licensed by Bank Indonesia. They provide the alternative services for people not yet covered by banking services. In the end of 2006, Bank Indonesia issued the regulation on money remittance services covering remittance services conducted by non-bank institutions so as to assure the implementation of consumer protection principles and to fulfill recommendation from international agencies with regard to the anti money laundering concern.

1.

Institutional aspects 1.1. Legal and Regulatory Framework 1 i.e. settlement of payment obligations from financial markets in the country and time-critical interbank credit funds transfers. 2 Switching services are companies that provide the routing and clearing of data among banks in the interconnected ATM network.

2 Indonesia Bank Indonesia has legal power to play the role as regulator, operator, and overseer of payment systems in Indonesia. 1.1.1. Payment and Settlement System 1.1.1.1 Bank Indonesia Act Bank Indonesia Act (BI Act), the Act number 23 of 1999 on Bank Indonesia as lastly amended by the Act number 6 of 2009 (hereinafter referred to as BI Act), is the main source of stipulations regarding payment systems in Indonesia. Under BI Act, Bank Indonesia has solitary objective to achieve and maintain the stability of IDR.  In regulating and safeguarding the smoothness of payment systems, Bank Indonesia is authorized to operate, grant approval and license to operate payment systems services;  require operators of payment systems services to submit reports on their activities; and  determine the use of payment instrument.

With those authorities, Bank Indonesia plays strategic roles as operator, regulator, facilitator and overseer of payment systems.3 BI Act also provides the basis for Bank Indonesia to:  regulate and operate clearing system for interbank payments;  approve the operation of clearing systems for interbank funds transfers that is conducted by parties other than Bank Indonesia;  conduct settlement services for interbank payments; and/or  approve the operation of settlement services for interbank payments that is conducted by parties other than Bank Indonesia.

1.1.1.2 Other related Acts Act 7 of 1992 on Banking, as amended by Act 10 of 1998 (hereinafter referred to as Banking Act), sets out general stipulations on banking activities.

Under Banking Act, there are 2 (two) types of banks, commercial banks and rural banks. Article 6.e of Banking Act stipulates that commercial banks can conduct fund transfers, whether on its own behalf or on their customers’. For rural banks, there are some limitations regarding their participation in payment systems. 3 BI Act provides authority for BI to regulate, operate and oversee payment systems in Indonesia.

3 Indonesia Act 8 of 2010 on the Prevention and Eradication of the Crime of Money Laundering aims at minimizing the relevant financial crime involving great amounts of assets (currently the requirement is above 100 million by reducing the possibility of money laundering activities, with the final goals to safeguard national economic stability and state security. Under this act, operators of card-based payment instruments, e-money and money remittance are defined as “provider of financial services” and must meet the requirements regarding anti-money laundering. Act 37 of 2004 on Bankruptcy and Suspension of Obligation for Payment of Debts provides the legal basis for the exclusion of “zero hour rules” for payment transactions.

This Act states the finality of settlement in the case of bankruptcy or liquidation in Article 24 paragraph (3) by regulating that funds transfer made before the pronouncement of bankruptcy shall be completed. Article 10 of Act 24 of 2004 on Deposit Insurance Agency and its elucidation states that customers’ funds which are going to be transferred out of the bank, but are still under such bank’s bookkeeping, shall be deemed as customers’ deposits. And likewise, incoming transfers for customers received by the bank but not yet credited to respective customers’ accounts, shall also be deemed as customers’ deposits.

Act 21 of 2008 on Sharia Banking stipulates sharia banking activities. Similar to Banking Act, the Sharia Banking Act divides sharia banks into 2 (two) types, namely sharia commercial banks and sharia rural banks. Conducting sharia-based transfers, whether on its own behalf or their customers’, is viewed as one of the business activities of sharia commercial banks in the Sharia Banking Act. As for sharia rural banks, similar limitations are also put in place as the ones applied to rural banks under Banking Act.

Act 11 of 2008 on Electronic Transaction and Information serves as the legal basis for the validity of electronic signature and for the acceptance of electronic information/documents as a lawful means of evidence.

This Act facilitates the industry to take advantage of the latest technology in developing new payment mechanism. 1.1.2. Securities Settlement System 1.1.2.1 Capital market act Act 8 of 1995 on Capital Market (Capital Market Act) is the main legislation that regulates operations of securities exchange, clearing and guarantee for settlement of exchange traded securities, as well as central securities depository. Under Capital Market Act, the clearing, guarantee, settlement, depository services are conducted by Indonesia Clearing and Guarantee Corporation (PT Kliring Penjaminan Efek Indonesia (PT.

KPEI)) and PT. KSEI. These institutions obtain licenses from Indonesia Capital Market and Non Bank Financial Institution Supervisory Agency (Badan Pengawas Pasar Modal dan Lembaga Keuangan (BAPEPAM-LK)) before conducting their services. By the end of 2010, BAPEPAM-LK had only licensed PT. KSEI as Indonesia central securities depository (CSD), and PT. KPEI as the central counterparty (CCP). 1.1.2.2 Government securities acts

4 Indonesia Act 24 of 2002 on Government Securities stipulates the issuance of government securities and gives mandate to Bank Indonesia as the auction agent and registrar of the government securities. Similarly, Act 19 of 2008 on Government Sharia Securities provides stipulations regarding the issuance of the government sharia securities and gives mandate to Bank Indonesia as the auction agent and registrar of the government sharia securities. BI Act stipulates that in the event that the government intends to issue the government securities, the government shall hold prior consultations with Bank Indonesia.

BI Act also authorizes Bank Indonesia to implement monetary policies and operations, including issuance of Bank Indonesia Certificate as a monetary instrument.

These 3 (three) pieces of legislations provide the legal framework for Bank Indonesia to regulate and operate Bank Indonesia Scripless Securities Settlement System (BI-SSSS). 1.1.3. Other form of rules and regulations To complement regulations issued by Bank Indonesia and other relevant authorities, the interbank payments activities in Indonesia are also regulated by rules formulated by the relevant industries or participants themselves. These rules are generally issued in the form of bye-laws or other similar “club rules”, and basically cover more detailed and specific aspects of particular payment activities.

These are usually the area which are not covered by authorities’ regulations and mostly related with common procedures of certain parts of day-to-day activities. \ 1.2. Roles of Bank Indonesia As payments and settlement systems support functioning monetary and financial systems as well as economic activities and development, Bank Indonesia has taken a leading function in developing Indonesia payments and settlement systems to reach the higher stage of both safety and efficiency. Under BI Act, Bank Indonesia has solitary objective to achieve and maintain the stability of Rupiah (IDR). One of 3 (three) tasks that Bank Indonesia assumes to meet such an objective is to regulate and safeguard smoothness of payment systems in the country.

In doing such a task, Bank Indonesia plays the roles as the regulator, overseer, facilitator, and operator. 1.2.1. Regulator and overseer of payment systems As the regulator, Bank Indonesia issues the regulations with the purpose of achieving higher stage of safety and efficieny in the payment systems as well as promoting the consumer protection in the payment industry. Bank Indonesia plays the role as the overseer in order to control risks in the payment systems and to promote efficiency in the payment systems.

According to BI Act, Bank Indonesia has the power to issue regulations, including the Bank Indonesia Regulation (Peraturan Bank Indonesia/PBI) and Bank Indonesia Circular Letter (Surat Edaran Bank Indonesia/SEBI). These regulations, covering the system of making transfers (i.e BI- RTGS and SKNBI), payment instruments (i.e. Card-based Payment Instruments and Electronic

5 Indonesia Money) and other transfer mechanism (i.e. Money Remittance), are incorporated in the State Gazette. 1.2.2. Provision of Settlement Account As stipulated in PBI, Bank Indonesia provides settlement account services for the commercial banks, government, international monetary/financial institutions and other institutions.

The settlement account is basic current account. The settlement accounts must be in funds at all times with no credit provided by BI. Institutions shall provide securities in the form of Sertifikat Bank Indonesia (SBI) and the government securities as the collateral in order to obtain liquidity facilities from Bank Indonesia. The goal of Bank Indonesia’ settlement account policy is to promote the national payment system to a higher level of efficiency, safety, integrity, and robustness in the face of financial crises. When opening the settlement account for an applicant, Bank Indonesia considers, among other things: whether the applicant fits the definition of commercial bank in related banking Acts, whether provision of settlement account to the applicant might jeopardize the soundness and efficiency of the financial system, whether there is a legitimate business interest that can be served by the settlement account, and whether provision of settlement account would adversely affect the reputation of Bank Indonesia.

1.2.3. Operator of Interbank Payment Systems and Securities Settlement System Currently, Bank Indonesia is the main operator of clearing and settlement systems for interbank payments in Indonesia. Bank Indonesia operates 2 (two) national core interbank payment systems, i.e. BI-RTGS system as Indonesia systemically important payment system (SIPS) and processing large-value interbank payments in the country, and SKNBI for retail interbank payments. SKNBI settles the interbank payments on a deferred multilateral net basis. Since the implementation of SKNBI, all retail interbank credit funds transfers settled through it are processed paperless allowing Bank Indonesia to end the use of the paper-based credit note as the payment instrument for retail interbank credit funds transfers.

Bank Indonesia operates as well BI-SSSS for settlement and depository of securities issued by the government and for settlement of instruments of OMO by Bank Indonesia. 1.2.4. Facilitator of Development in Payment Systems As the facilitator, Bank Indonesia guides the development of the national payment systems and supports the developments of payment systems operated by other players. Bank Indonesia plays its role as the facilitator or catalyst mainly in the development of the retail and micro payments systems conducted by players of the retail and micro payments industry, such as the standardization of payment cards (e.g.

ATM/debit cards) and e-money issued by the industry players and the development of a National Payment Gateway (NPG) for the retail and micro payments. Bank Indonesia could promote and coordinate with the relevant stakeholders to implement the relevant initiatives. The general objective is to address specific problems regarding retail/micro payment system, the solutions of which may be compromised but acceptable for the relevant individual stakeholders, including Bank Indonesia itself. These solutions could also help

6 Indonesia encourage follow-up innovations and institutional reforms within the retail and micro payments industry. 1.3. The role of other private and public sector bodies There are several public sector authorities that relates closely with the provision of payment and settlement system services, namely BAPEPAM- LK, commercial banks and rural banks, non bank institutions and also other government authorities such as Ministry of Communication and Information and Ministry of Trade. 1.3.1. BAPEPAM-LK BAPEPAM-LK is responsible for regulating and supervising Indonesian capital market, including the securities transactions in the primary and secondary markets as well as operation of the securities clearing, settlement and custodian services.

1.3.2. Providers for payment services Institutions that provide payment services in Indonesia can be grouped into banks and non-bank institutions. 1.3.2.1. Banks The Indonesian banking system consists of Bank Indonesia, commercial banks and rural banks. However, only the first two types of institutions are allowed to provide payment services in a broad sense, whilst functions for providing payment services of rural banks are limited. The commercial banks are the largest group of financial institutions providing the payment services. For the interbank payments, they can be processed through either BI-RTGS System, SKNBI or the domestic interbank payment switching services4 , and the settlement takes place through either their settlement account (giro account) held at BI-RTGS system or their settlement account held at the designated commercial banks.

There are now 143 commercial banks (including the sharia banks and sharia units of the conventional banks) with 14,847 offices. Meanwhile, rural banks, even though they are part of the Indonesian banking system, according to the regulation they cannot participate in interbank clearing and settlement. They are also limited to take deposit (i.e. only in the form of saving and time deposit accounts) and provide loan (i.e. only in a limited area such as in a sub-district/sub-municipality), as well as not permitted to provide interbank payments since they are not allowed to provide their customers with giro accounts so they cannot issue checks and bilyet giros5 .

Nevertheless, there are rural banks operating in suburb areas of big cities as well as in small cities and sub-districts/sub-municipalities that have provided 4 They are ATM Bersama, ATM Link, ATM Prima, and Alto. 5 Bilyet giro is a non-negotiable debit instrument, which is very similar in nature to cheque. The main differences are that bilyet giro can not be cashed by its holder and it can be post dated.

7 Indonesia their customers, especially merchants, with Point Of Sale (POS) devices to provide payment points for merchants’ customers. Services provided by these payment points are limited to only bill payments, and merchants cannot accept cash deposits or provide cash withdrawals. There are also 2 big rural banks operating ATM located in their offices with the purpose of providing their customers with 24ⅹ7 cash withdrawals as well as intra-bank funds transfers and billing payments. Moreover some rural banks acting as the recipients provide international money remittance services for Indonesian migrant workers.

Until 2010, there are 1,706 rural banks in Indonesia. 1.3.2.2. Non-bank institutions The involvement of non-bank institutions in Indonesia payments system has been growing consistently. Their involvements are in the forms of providing payment instruments (such as issuing credit card, e-money and money transfers), remittance services, and switching services for inter-bank payments and funds transfers.

With regard to the card-based payment instruments, there is 1 (one) non-bank financial institution issuing credit card, and the non-bank institutions taking part in the card-based (credit card and debit/ATM card) payment industry conduct their businesses as the principals6 , acquirers7 , and operators8 of switching, clearing and settlement services. As for e-money, being the newer type of payment instruments in Indonesia, it is recorded that there are 9 (nine) institutions issuing e-money at the end of 2010. 4 (four)9 of them are non-bank institutions, with 3 (three) of them telecommunication companies.

Particularly for these telecommunication companies, it is believed that they will be the frontrunners in providing payment services via mobile phones for population uncovered by banking services, as the number of mobile phone’s users in the country is far greater than the number of bank account’s holders. In relation to money remittance services, besides commercial banks, there are more than 60 non- bank money remitters providing domestic remittance services, which include Indonesia postal company (PT. Pos Indonesia) and Indonesia state-owned pawn-shop company (PT. Perum Pegadaian). Money remittance is of great importance for Bank Indonesia as Indonesia has a great number of migrant workers, who regularly remit money to their families in their hometown.

The number of these remittances has been growing steadily and it starts to play a worth-to-noted contribution to the national economy. Justifiably, Bank Indonesia also holds great interest to assure that consumer protection principles are being applied in the money remittance services. Those were the rationales Bank Indonesia had issued the regulation on money remittance in 2006, which in turn triggered the increase in the number of money remitters being licensed or registered in Bank Indonesia.

6 American Express, Japan Credit Bureue (JCB) Nusantara, Mastercard Internasional Indonesia, Visa Internasional (Asia-Pacific) Ltd, China Union Pay, PT. Artajasa Pembayaran Elektronis (ATM Bersama), PT. Rintis Sejahtera (ATM Prima/ATM BCA), PT. Alto Network (ALTO) 7 PT. Finnet Indonesia 8 Japan Credit Bureau (JCB) Nusantara, Mastercard Internasional Indonesia, Visa Internasional (Asia- Pacific) Ltd, PT. Artajasa Pembayaran Elektronis (ATM Bersama), PT. Rintis Sejahtera (ATM Prima/ATM BCA), PT. Alto Network (ALTO) 9 PT. Telekomunikasi Indonesia, PT. Telekomunikasi Selular, PT. Indosat, PT. Skye Sab Indonesia

8 Indonesia 1.3.3. Providers for Clearing, Guarantee, Settlement, and Depository Services of Securities Transactions 1.3.3.1. Central securities depository (CSD) There are 2 (two) CSDs in Indonesia, i.e. PT. KSEI operating its depository and settlement system called C-BEST and Bank Indonesia operating its depository and settlement system called BI-SSSS. PT. KSEI is established for the purpose of performing CSD functions by providing custodian services as well as orderly, fair and efficient settlement services of securities transactions. PT. KSEI makes rules on the central custodian services and settlement services, as well as the fees of its services.

The rules of PT. KSEI amendments thereof, will only become effective when approved by BAPEPAM-LK.

1.4. Recent developments 1.4.1. The Indonesian act on funds transfer The Act covers wide aspects of payment systems, among others: the basic principles of funds transfer activities, commencement of funds transfer activities, licensing requirement for non-bank institutions, oversight, and sanctions. The enactment of this Act will make the operation of payment systems services in Indonesia more secure and efficient. 1.4.2. Self Regulatory Organization (SRO) Payment System in Indonesia has undergone significant changes for current decade. The significant changes include the move toward the increasing reliance on the use of newly developed technologies to enable e-payment.

This condition requires the central bank to be able to responsive to the development of technology.

The establishment of Indonesian Payment system’s SRO in 2011 is one of Bank Indonesia’s policy to increase the role of industry in developing a payment system in accordance with market demand. This SRO, which regulated the technical and micro policy for payment and settlement industry, will be strategic partner of BI in managing and improving efficient, smooth and reliance payment systems. This institution will become an independent and professional institution which represents the various players in payment industry and has the ability to accommodate various changes and progresses that occurred in this industry.

Thus, BI can be more focused on macro regulation and policy and SRO will have the authority to regulate themselves in term of technical aspects such as standardization, code of conduct etc.

9 Indonesia 2. Payment media 2.1. Cash The Indonesia currency is Rupiah. Under Bank Indonesia Act, any activities involving money or having a purpose of payment or any obligation which has to be fulfilled by money, if it is conducted in the territory of the Republic of Indonesia, shall be settled in Rupiah currency, except otherwise prescribed by Bank Indonesia regulation. Bank Indonesia has the sole right to issue bank notes and coins. Bank notes in circulation are in denominations of IDR 1,000; 2,000; 5,000; 10,000; 20,000; 50,000; and 100,000, while coins issued in circulation are in denominations of IDR 1; 50; 100; 200; 500; and 1,000.

Bank notes and coins in circulation reached IDR 318 trillion in the end of 2010, increasing 44.3% compared to bank notes and coins in circulation in 2007.

2.2. Non-cash Non-cash payments in Indonesia are mostly provided by the banking system. Commercial banks offer a variety of accounts (e.g. saving, checking and time deposit accounts) to their customers, while rural banks may only offer saving and time deposit accounts. Most commercial banks provide their customers with ATM services allowing their customers to access directly their saving accounts at anytime along with the provision of cheque and bilyet giro for checking accounts. Payments using cards (credit and debit/ATM cards) as well as e-money have been gaining larger popularity.

2.2.1.

Credit funds transfer Banks provide credit funds transfer services in their offices and via their delivery channels (ATM, internet and mobile banking). For inter-bank funds transfers ordered by banks’ customers, they can be processed via shared ATM networks/payments switching services, SKNBI and BI-RTGS system. There is a threshold for inter-bank credit funds transfers processed through SKNBI, i.e. up to maximum of IDR100 millions that can be processed via SKNBI. Any amounts of interbank credit funds transfers can be processed through BI-RTGS system. There is a limit of total IDR25 millions per day per account of banks’ customers for inter-bank credit funds transfers processed via the shared ATM networks.

2.2.2. Cheque and bilyet giro It is a common banking practice for commercial banks to provide their customers with cheque and bilyet giro facilities. Although use of those debit payment instruments tends to decrease recently due to rapidly growing use of others means of payments, there are customers of banks keeping on to use them. Cheque and bilyet giro are usually used for payments of regular purchases of goods and services among businesses and for bill payments.

10 Indonesia To maintain confidence of the society in using cheque and bilyet giro, Bank Indonesia issued a strict rule with regard to dishonored10 use of cheques and bilyet giro.

If three small amount cheques and bilyet giros are dishonored within six months, or one cheque or bilyet giro above amount of IDR 500 millions is dishonored, the customer is “blacklisted” and prohibited from holding cheque at any banks for a period of one year. 2.2.3. Direct debit Usage of direct debit is still limited as intra-bank payments. With the lack of an interbank giro (direct debit) system, utility companies do not yet have alternative for collection of their bill payments. The available alternative is to make direct debit arrangements with many commercial banks for collection of their bill payments.

2.2.4. Debit Note Debit Note is a document submitted by a bank or BI for the purpose of collection from another bank with maximum amount IDR 10 millions. 2.2.5. Card-based Card-based payments, with both credit and debit/ATM cards, have been increasingly used in the local market. 2.2.4.1. Credit card Major international credit card brands such as VISA, Mastercard, Amex and JCB are widely accepted for payments goods and services purchases in the country. There is 1 (one) domestic commercial bank, i.e. Bank Central Asia (BCA), issuing a proprietary credit card called BCA card. Credit card issuance by commercial banks and non-bank financial institutions must be certified by respective brand-owners (the principals) and licensed by Bank Indonesia.

Use of credit cards have grown very fast: during 3 years, credit card has grown 51.79 % whereas in 2007 attaining 129.29 million transactions, in 2010 achieving 180.55 million transactions. On the other hand total value in the last 3 year also upsurges to 119.44 % from IDR 72.60 billions in 2007 up to IDR 147.22 billions in 2010. There are about 13.22 million cards in circulation in 201011 .

2.2.4.2. Debit/ATM (cash) card In the last 5 years, debit/ATM card payments have been growing significantly from 1,103.23 million transactions in 2007 to 1,641.40 million transactions in 2010, increasing 48.8%. 10 i.e. payments using check or bilyet giro that do not cover with sufficient balance of funds in account of banks’ customers paying with those debit payment instruments 11 Data until November 2010

11 Indonesia Nevertheless, compared to Indonesian population, use of debit/ATM cards is still insignificant, averaging at 6 transactions per person per year in 2010.

There are 3 (three) domestic shared ATM networks (ATM Bersama, ATM Prima/ATM BCA and Alto) and two international shared ATM networks (Cirrus of Mastercard and Plus of Visa International) existing at the moment. The domestic shared ATM networks are not yet linked to each other forcing some banks to become members of more than one networks. ATM cards are used not only for withdrawals and account balance inquiries, but also for intra and interbank funds transfers as well as utilities payments such as payments for telephones/mobile phones bills, credit card bills, electricity bills, tax bills, etc.

Debit card payments at point of sale (EFT POS) have been becoming more popular, mostly in big cities. Some domestic banks have issued debit cards with the brands of Maestro of Mastercard and Visa Electron of Visa International. The other banks issue proprietary debit cards with a current large number of POS devices at merchants’ sites. The lack of business agreements among the various parties seems a major obstacle to achieve a “one POS terminal per merchant” vision. There are currently 46 commercial banks offering debit cards to their customers. In 2010, there are about 51.8 million cards in circulation.

2.2.6. Electronic Money (e-money) E-money in Indonesia is categorized into two types. One is the chip-based in which the value of money is stored in an integrated circuit (IC) chip embedded in devices such as plastic cards, and the other is the server-based in which the value is stored centrally in servers of the providers of e- money services. There are currently 9 (nine) e-money issuers, i.e. 5 (five) commercial banks and 4 (four) non-bank institutions. Such a newer payment instrument offers the society a cashless payment, especially micro payments, such as for transportation, gasoline purchases, purchasing goods at convenient stores and vending machines, as well as payments for toll and parking charges.

Under a Bank Indonesia regulation, the maximum value that can be stored in e-money is IDR 1 million for unregistered e-money and IDR 5 millions for registered e-money. Moreover, the total value of payments in one calendar month shall not exceed IDR 20 millions.

2.2.7. Non cash terminals 2.2.6.1. Automated teller machine (ATM) ATM is one of delivery channels allowing banks’ customers to perform routine banking transactions without having to visit banks’ offices. Initially, ATM was used only for cash withdrawal and balance inquiry. Since operation of ATM switching services, ATM provides as well inter-bank funds transfers and bill payments services. As per December 2010, there were approximately 30 thousand ATMs in Indonesia which has the significant increase of 37% from 2007.

2.2.6.2. Electronic funds transfer at point of sale (EFT POS)

12 Indonesia Payments via EFT POS have been growing steadily in line with the increased acceptance of merchants for such an electronic payment.

EFT POS is the delivery channel allowing ATM/debit card holders to pay merchants for their purchase of goods and services through online funds transfers from cardholders’ account to merchants’ account. 2.2.6.3. Phone banking Phone banking offers services such as orders for funds transfers, account balance enquiries and billing payments over telephones. With regard to security purpose of using such a delivery channel, operators of banks providing phone banking services will ask their customers for unique information of the customers as a means of the authentication. 2.2.6.4. Mobile/SMS banking Due to rapid growth in mobile phones industry, banks’ customers in these days are able to manage their payment activities through their mobile phones.

The features are similar tothose in phone banking such as account balance inquiries, billing payments and orders for funds transfers over mobile phones. For the security purpose, banks’ customers are required to register their mobile phone number to the banks prior to the provision of electronic payments via such a delivery channel. Moreover, banks’ customers use unique information of personal identification number (PIN) for the authentication.

2.2.6.5. Internet banking Similar to phone and mobile banking, the use of internet banking have been boosting electronic payment activities as well. Through internet banking, banks’ customers are able to conduct account balance enquiries, orders for funds transfers and billing payments and to some extent the internet banking services provide the customers with services for deposit placements, applications for banks’ loans, etc. A number of banks have also launched internet payment services that enable their customers to pay for their internet-through purchases of goods and services.

2.3.

Recent developments 2.3.1. National standard of chip card specification for Indonesia ATM/debit cards With regard to more secure used of ATM/debit cards for electronic payments, Bank Indonesia and the ATM/debit card payments industry had agreed to implement use of chip in ATM/debit cards issued in Indonesia, and in the early of 2009 issued the national standard of chip card specification (NSICCS) for ATM/debit cards. Use of the standard chip will support technical interoperability among ATM/debit cards in the country, and, thus, facilitate implementation of interlinking the infrastructures (i.e.

ATM and POS networks) of the issuers of ATM/debit cards and the providers of shared ATM/POS networks.

13 Indonesia 2.3.2. Interoperability of e-money In order to increase efficiency in operations of e-money services, since 2009 Bank Indonesia has been facilitating the initiative to promote interoperability of e-money services provided by various providers. The industry will set up the interoperability schemes for both the chip-based and server- based e-money. 2.3.3. National Payment Gateway (NPG) Currently Bank Indonesia and the payments system industry have been working together to set out a NPG for Indonesia. Basically, NPG is needed to improve efficiency of the payments system industry as a whole.

However, the immediate milestone chosen to be set is the existence of NPG for retail and micro payments.

Focus on retail and micro payments is derived from the existing condition of various front end delivery channels (e.g ATMs and POS devices) offered by the industry players and no convergence in using a common (shared) infrastructure for switching retail and micro payments (e.g. card-based, internet and mobile payments). Through NPG, reduction in duplicative investments on the delivery channels (i.e. ATMs and POS devices) and efficient operation of switching services for retail and micro payments in the country can be achieved. Moreover, it will provide the high efficient, convenient, swift and safe retail payments system for consumers of all banks and non-banks providing retail and micro payments services all over the country.

NPG will require interoperability of delivery channels and instruments of retail and micro payments in the country, common and scalable standards for payments messaging exchange, protocol as well as system/network security and reliability, and financial and operational risk management tools.

14 Indonesia 3. Payments and settlement systems 3.1. Overview There are 2 (two) payments and settlement systems in the country: interbank large-value payments system and retail and micro payments system. In the retail and micro payments system, most retail and micro payments services are provided by commercial banks through some payment instruments: cheque and bilyet giro, electronic payment instruments and banker acceptance (bank draft). Interbank payments with cheques and bilyet giros are processed through SKNBI. SKNBI is a deferred multilateral net settlement system, in which settlement of net figures from SKNBI is conducted at the designated time in the same day through BI-RTGS system.

For card-based payment instruments (credit and debit/ATM cards), settlement for the interbank level is also conducted on multilateral net basis using the central bank money (through BI-RTGS system) or commercial bank money (through the accounts at commercial banks appointed as the settlement banks).

For large-value and time-critical interbank payments, settlement of those payments in BI-RTGS system is performed on a gross basis. Until nowadays, BI-RTGS transactions account for around 90% of total value of the interbank payments in the country. Table 1: Interbank payments system in Indonesia Types of payment Payment systems Settlement Name Method of settlement Central bank money Commercial bank money Interbank large-value credit funds transfer BI-RTGS Gross V - Interbank retail credit funds transfer SKNBI Net V - Interbank paper-based debit payments with the instruments of cheques, bilyet giro and other debit notes SKNBI Net V - Shared ATM network (domestic) ATM Bersama Net V - PRIMA /ATM BCA Net - V

15 Indonesia Types of payment Payment systems Settlement Name Method of settlement Central bank money Commercial bank money ALTO Net - V ATM Link Net V Shared ATM network (international) Cirrus Net - V Plus Net - V Shared debit-card network (domestic) Debit PRIMA Net - V Shared debit-card network (international) Maestro Net - V VISA Electron Net - V Propriatery debit-card network (domestic) Debit BCA Overbooking V Credit card Visa Net - V Mastercard Net - V JCB Net - V BCA Net - V Propriatery credit-card network (domestic) BCA - - V Electronic Money internal system of the issuers - - - Remittance (domestic) internal system of the operators (i.e.

postal co., telco. co’s and others) - - - Remittance (international) internal system of the operators (i.e.

Western Union and MoneyGra m) - - - Funds legs of securities transactions on IDX or OTC PT. KSEI and its settlement banks Net or Gross - V

16 Indonesia LARGE VALUE PAYMENT SYSTEM The implementation of BI-RTGS system since year 2000 started as a response to the growing awareness of the need for sound risk management in settlement of large-value funds transfers in Indonesia. BI-RTGS system operated by Bank Indonesia offers a powerful mechanism for limiting settlement and systemic risks in settlement process of Indonesian Rupiah (IDR) interbank large- value funds transfers through its settlement mechanism taking place on a gross basis and in real time.

.

With regard to Bank Indonesia’s functions in the monetary policy implementation, BI-RTGS system has enabled Bank Indonesia to monitor, in real time, the liquidity condition of all commercial banks in the country. Accordingly, it makes Bank Indonesia open-market operations in the domestic inter-bank money market much more effective. BI-RTGS system can provide:  delivery-versus-payment (DVP) settlement mechanism which has been implemented since 2004 via its DVP link to BI-SSSS; and  payment-versus-payment (PVP) settlement mechanism which has been in operation since early 2010 via its PVP link to USD RTGS system in Hong Kong (that is, USD CHATS), which could in turn contribute to the reduction of settlement risk in settlement of both transactions of securities held with BI-SSSS and domestic interbank USD/IDR FX trades which is the largest domestic FX market.

According to the results of the financial sector assessment programme (FSAP) on BI-RTGS system conducted in October 2009 by the assessors from the International Monetary Funds (IMF) and World Bank (WB), there are 6 (six) core principles12 which are already observed, and 3 (three) core principles13 which are broadly observed. The average daily value of BI-RTGS transactions in 2010 is around IDR 218 trillions (approximately USD 23.9 billion), with daily volume averaging at 56 thousand transactions. 3.2.1. Institutional framework BI-RTGS system is fully operated, governed and overseen by Bank Indonesia.

BI-RTGS System is an electronic fund transfer system for IDR in which the settlements are performed in a real-time per individual transaction basis. The BI-RTGS system consists of three main components, which are the RTGS Central Computer (RCC) in Bank Indonesia, RTGS Terminal (RT) in participants, and communication network. RT consists of central department and subsidiary department. The operating rules of BI-RTGS System cover areas such as general duties and responsibilities of the participants, minimum requirements, and backup requirements.

As the regulator of payments and settlement systems in Indonesia, Bank Indonesia has set a well- founded legal basis for implementation of BI-RTGS, which is in accordance with core principles 12 CP II, CP III, CP IV, CP VI, CP VII, and CP VIII 13 CP I, CP IX and CP X

17 Indonesia for systemically important payment system (CP SIPS) of Bank for International Settlements (BIS) and in the forms of PBI and SEBI. The regulation prescribes general provisions with regard to the legal basis, the rules and procedures, management of risks in the operation of BI-RTG system, the finality of settlement, the security and reliability of BI-RTGS system, efficiency in the operation of BI-RTGS, the participation, good governance in the operation of BI-RTGS, the oversight of BI- RTGS system, and the sanctions.

The technical rules for implementation of Bank Indonesia Regulation are set out in: - circular letter concerning principles for the operation and oversight of BI-RTGS system (i.e. the circular letter issued by Bank Indonesia as the regulator of of payments and settlement systems in Indonesia); - circular letter concerning the operation of BI-RTGS system (i.e. the circular letter issued by Bank Indonesia as BI-RTGS operator); - circular letter concerning processing of payments in BI-RTGS system as concerns for protection for customers of BI-RTGS participating banks; and - circular letter concerning the usage fees for BI-RTGS system.

In order to ensure the uniformity for inter-bank funds transfers’ practices among BI-RTGS participating banks, the participating banks have developed a set of BI-RTGS Bye-laws. The participating banks, when making inter-bank funds transfers through BI-RTGS system, have to conform to the Bye Laws. The Bye-Laws was created by all banking associations consisting of HIMBARA (Himpunan Bank Pemerintah or association of state-owned banks), PERBANAS (Persatuan Bank Swasta Nasional or association of private national banks), association of foreign banks, association of joint venture banks and ASBANDA (Asosiasi Bank Daerah or association of regional/provincial banks).

As the follow up to the Bye Laws, the banking associations have formed a Committee (i.e. the Bye-Laws Committee) to resolve disputes and/or problems that may arise between BI-RTGS participating banks with respect to interbank funds transfers settled through BI-RTGS system, and/or to resolve non-compliance actions of any bank. The Bye-Laws specifies as well certain codes of conduct of interbank funds transfers settled through BI-RTGS system for the purpose of avoiding gridlock. Furthermore, the committee is also responsible to make, repeal and/or amend the Bye-Laws.

The committee has also issued a Bye-Law for PVP settlement of IDR-legs of domestic interbank USD/IDR FX trades settled through USD/IDR PVP settlement mechanism of BI-RTGS system. It is the uniform custom of practices for BI-RTGS participating banks settling their interbank USD/IDR FX transactions through USD/IDR PVP settlement mechanism of BI-RTGS system. 3.2.2. Participation All commercial banks required to hold current account with Bank Indonesia are BI-RTGS participants. There are 5 (five) non-bank institutions which are also BI-RTGS participants, i.e. Indonesia Postal Company (PT. POS), Indonesia Central Securities Depository Corporation (PT.

KSEI), Indonesia Export Financing Institution (LPEI), and 2 (two) domestic interbank ATM

18 Indonesia switching/network providers14 , since their services requires settlement services at the inter-bank level, and Bank Indonesia considers that the final settlement of their payment services have to take place in the central bank money There are 2 (two) types of the participant, i.e. the direct participants which have BI-RTGS terminal at their premises and the in-direct participants which do not have BI-RTGS terminal at their bank. Both types are required to have the current/settlement account held at BI-RTGS Central Computer. As of April 2009, there are 154 banks and non-bank institutions participating in BI-RTGS.

3.2.3. Types of transactions BI-RTGS system handles all IDR large-value payments including: - for settlement of interbank IDR money market transactions; - for settlement of payment-legs of transactions of IDR denominated securities held with BI- SSSS; - for settlement of IDR-legs of domestic interbank FX against IDR trades; - for settlement of Bank Indonesia monetary operations; - payments of large and time critical government transactions; as well as - funds transfers of large and time critical transactions of commercial banks’ customers. BI-RTGS system also settles the net figures from SKNBI and the clearing results from a domestic inter-bank ATM switching15 in the country.

BI-RTGS system applies FIFO with Priority principle. The priorities range from 01 to 99. All inter-bank funds transfers, either purely inter-bank funds transfers including for settlement of all inter-bank financial markets’ transactions or of commercial banks’ customers, are assigned with the priority level 99, which is defined as the normal payment, while the priority payments are payments between the participating banks and Bank Indonesia for, such as, settlement of the net figures from SKNBI, commercial banks’ cash withdrawals, settlement of Bank Indonesia monetary operations, as well as payments of the government transactions in which accounts of the government are held with Bank Indonesia accounting system.

3.2.4. Operating hours BI-RTGS System operates in daily basis for working days and several non working days with limited services. The operating hours are as follow: Table 2: Operating hours of BI-RTGS system 14 PT Artajasa operating called “ATM Bersama” ATM switching whose members are 72 commercial banks including 4 stated owned commercial banks, and PT Finnet Indonesia operating called “ATM Link” ATM network whose members are only 4 stated owned commercial banks 15 It is ATM Bersama operated by PT. Artajasa

19 Indonesia No. Activities Window Time (Western Indonesia Time) 1 BI-RTGS Central Computer opens 06:30 2 Window times of settlement of BI-RTGS transactions a.

Funds transfers for SKNBI pre-funds b. Funds transfers for topping up SKNBI pre-funds c. Funds transfers for commercial banks’ cash withdrawals d. Funds transfers from commercial banks for transferring tax payments collected from tax payers to the government account held with BI accounting system e. Customers’ interbank funds transfers f. Interbank funds transfers g. USD/IDR PVP’s settlement of IDR-legs h. Settlement of net figures of SKNBI i. Settlement of BI monetary operations 06:30 – 08:00 08.15 – 16.00 06:30 – 11:00 06:30 – 16:30 06:30 – 16:30 06:30 – 17:00 06:30 – 16:30 11.00 – 17.00 06.30 – 17.00 3 Cut-Off Warning 17:00 4 Interbank Cover Position Transactions 17:00 – 18:00 5 Pre Cut-Off Time 18:00 6 Cover Position Transactions with Bank Indonesia 18:00 – 18:30 8 Cut-Off Time 19:00 3.2.5.

Sources of liquidity The main sources of liquidity in BI-RTGS system during the operating hours are: - opening balances of BI-RTGS participants; - funds received from other BI-RTGS participants during the operating hours; and - intra-day collateralized liquidity facility from Bank Indonesia (called FLI16 ).

16 It is called in Bahasa Fasilitas Likuiditas Intrahari

20 Indonesia 3.2.6. Management of credit risk of FLI FLI is an intra-day liquidity funding provided by BI-RTGS operator in order to smooth settlement of BI-RTGS transactions. It is required that BI-RTGS participating banks that need FLI must provide suitable collateral as being liquid should a default happens. Such suitable collateral can be in the forms of SBI or SBN, in which the value of such collateral is marked to market on a daily basis, and the haircut is applied. The use of FLI is charged according to hours of the use of FLI and based on the business day’s morning rate of the inter-bank overnight money market.

If FLI can not be repaid by the end of BI-RTGS operating day, FLI will be transformed into Bank Indonesia overnight lending facility which is charged at Bank Indonesia lending rate. 3.2.7. Settlement mechanism and management of risk BI-RTGS system settles all payments on a gross basis and in real time, subject to availability of covering funds of the paying-participating banks, during the settlement hours. BI-RTGS system accepts the future-dated payment instructions for settlement on the designated value date. In BI-RTGS system, the payment orders are temporarily held in the centrally located queue if covering funds of the paying-participating banks are insufficient, and processed on the basis of the “FIFO” rule subject to the assigned priorities upon availability of the covering funds (i.e.

no queued payments of a particular priority will be settled until all those of a higher priority have been settled).

BI-RTGS provides its participants and users of BI-RTGS operator with the queue maintenance facility for: - reordering sequences of queued payments within a priority level; - changing priority codes of queued payments; and - Cancelling payments in queue. Assigned users of BI-RTGS operator can perform the queue maintenance for both priority payments as well as (normal) inter-bank funds transfers in queue. BI-RTGS participating banks can only reorder sequences of their outgoing (normal) inter-bank funds transfers in queue or cancel them. Should BI-RTGS participating banks need to perform queue maintenance intervene on their priority payments, i.e.

cancelling their cash withdrawals, they can contact BI-RTGS operator to perform requested queue maintenance on their priority payments.

Moreover, BI-RTGS system has a feature to detect and resolve grid locked payments in queue. The gridlock resolution, which applies “FAFO” offsetting/optimization algorithm while keeps on

21 Indonesia respect the priority payments17 , can be performed automatically or upon command by authorized users of BI-RTGS operator. In addition, BI-RTGS system provides its participants with the parameterized facility to monitor the payments in queue, both the outgoing funds transfers in queue and the incoming payments in queue. However, in order to prevent a moral hazard problem (i.e.

not providing BI-RTGS participating banks with incentives to deliberately delay the submission of funds transfer instructions to the system in order to economize on the use of their own liquidity by relying on the incoming funds transfers from other participants, which in turn could lead to “gridlock” with multiple participants holding back their payments until they receive payments from others), BI- RTGS only provides its participating banks with the facility for monitoring their outgoing funds transfers in queue.

In a SEBI regarding Principles for the Operation and Oversight of BI-RTGS system, BI-RTGS participants are encouraged to follow the graduated payment schedule in order to prevent an accumulation of the payments submitted to BI-RTGS system closing to the end of BI-RTGS operating hours. The graduated payment schedule specifies a certain percentage of the payments volume submitted within certain time intervals during BI-RTGS operating hours. 3.2.8. Technical aspect The technical aspects of BI-RTGS Systems are as follow: Technical item Description Connection between the system and participant CPU to CPU connection Message format Proprietary message format Application Layer Proprietary Presentation and layers Message oriented proprietary Transmission layers SNA (LU6.2) Network layers SNA Data-link layers SDLC Physical layers Leased line Back up system at primary site Hot standby Back up system at back site Hot standby Time it takes to switch over from the production system to the 2 hours 17 With the exception that settlement of the normal funds transfer(s) in queue increases the liquidity position of the participant(s), thus making the participant(s) “better off” and increasing its/their ability to settle their priority payment(s) in queue

22 Indonesia Technical item Description backup system/site Average online availability for last year (2009) 99.99% The routine procedure for periodical BI-RTGS data back-up is in place. BI-RTGS system has the fully equipped alternate processing site, documentation of the business continuity plan including procedure for the crisis management and information dissemination. The business contingency arrangements are regularly tested. BI-RTGS operator provides BI-RTGS terminals at its premises should there are the participating banks having a communication network problem from their site to BI-RTGS Central Computer.

BI-RTGS system has been audited by an independent international security auditor to ensure high degree of the security features of BI-RTGS system. Bank Indonesia adopts a policy to have the system re-tested at least once a year.

3.2.9. Pricing policy BI-RTGS system applies a time-varying tariff in order to encourage early submission of the funds transfers, charging half price for the funds transfers sent before 15:00 pm (local time). 3.2. Interbank Retail Payments Systems 3.3.1. SKNBI for interbank retail payments SKNBI which was put into operation in 2005 is an Indonesia system-wide important payment system (SWIPS) connecting directly 109 local clearing houses throughout Indonesia. It is an inter- bank retail payments system in the country, which applies a deferred multilateral net settlement mechanism.

The daily average number and net amount of interbank retail payments cleared in SKNBI in 2010 reached about 366 thousand payments and IDR 7 trillion respectively.

3.3.1.1. Institutional framework Besides operating SKNBI, Bank Indonesia also operates 39 clearing houses located in big cities in Indonesia. There are other clearing houses in 70 cities operated by the branches of commercial banks, as appointed by Bank Indonesia, in which Bank Indonesia provides them with the computers and financial aid to cover the overhead cost.

3.3.1.2. Participation

23 Indonesia Membership in SKNBI is for branch and sub-branch offices of commercial banks. There are 2 (two) types of connectivity for SKNBI members, i.e. the on-line connectivity and the off-line connectivity, with regard to types of the participant’s clearing terminal connectivity to SKNBI central computer. For the on-line participants they send their data of outgoing transfers to SKNBI central computer directly, while for the off-line participants they send their outgoing transfers to SKNBI central computer through the local clearing house.

SKNBI participants in year 2009 consisted of 2,193 offices of the commercial banks in Indonesia. 3.3.1.3. Types of transactions SKNBI has 2 (two) clearing processes, i.e.: - the multilateral netting for the interbank debit payments (i.e. the debit clearing); and - the multilateral netting for the interbank credit funds transfers (i.e. the credit clearing). The debit clearing is conducted in each local clearing house along with the exchange of the “paper-based” debit instruments (i.e. cheques, bilyet giros, and debit notes18 ), and SKNBI provides the inter-city clearing services for the debit clearing.

The credit clearing runs the multilateral netting for the “paperless” interbank credit funds transfers on a nationwide basis. From 2002-2010, the debit instruments (i.e. cheques, bilyet giros and debit notes) accounted for the biggest share of the SKNBI volume (58%), while the electronic credit funds transfers accounted for 42% of the SKNBI volume. Bilyet giro has the biggest share of the debit instruments used and processed in SKNBI amounting to 47%, followed by checks (11%). All these documents had to be expressed in Rupiah currency with 100% face value and had to have matured by the time of clearing.

3.3.1.4. Operating hours SKNBI operates in normal working days and several holidays with limited services. Window Time of SKNBI No. Activities Window Time (Western Indonesia Time) 1 SKNBI Central Computer opens 6:30 2 Window times of processes in SKNBI A. Clearing for electronic interbank credit funds transfers 18 Debit Note is a document submitted by a bank for the purpose of collection from another bank, in which since 1998, its value for the inter-bank debit payments has been limited to IDR10 millions.

24 Indonesia No. Activities Window Time (Western Indonesia Time) Morning  Submission of prefund  Submission of toping up of prefund  Submission of electronic interbank credit funds transfers  Early warning of the national net positions  Settlement (interfacing the net positions to BI- RTGS for posting to the participating banks’ settlement account held at BI-RTGS system) Afternoon  Submission of electronic interbank credit funds transfers  Submission of toping up of prefund  Early warning of the national net positions  Settlement (interfacing the net positions to BI- RTGS for posting to the participating banks’ settlement account held at BI-RTGS system) 06:30 - 08:00 08:15 - 12:00 08:15 - 11:30 08:15 - 11:45 12:00 - 12:30 12:45 - 15:30 08.15 - 16.00 12:45 - 15:45 16:00 - 16:30 B.

Clearing for paper-based debit payments  Submission of prefund  Submission of electronic interbank debit transfers  Early warning of the national net positions  Submission of topping up of prefund  Settlement (interfacing the net positions to BI- RTGS for posting to the participating banks’ settlement account held at BI-RTGS system) 06.30 - 08.00 08:15 - 15:00 08:15 - 15:10 08.15 - 15.30 16.30 - 17:00 5 Cut Off 20:00 3.3.1.5. Settlement

25 Indonesia Prior to the settlement, SKNBI generates electronically the “early” national net positions of all SKNBI participating banks, in which each SKNBI participating bank can view via its SKNBI member terminal the national net positions of both its debit and credit clearing results and each SKNBI member (i.e. each branch/sub-branch office) of the participating banks obtain the report of its local debit clearing. Settlement of the net positions on a nationwide basis of both debit and credit clearing is performed at the pre-determined hours by interfacing data of the national net positions of all SKNBI participating banks (also as BI-RTGS participating banks) to BI-RTGS system for posting to SKNBI/BI-RTGS participating banks’ settlement account held at BI-RTGS system.

3.3.1.6. Risks and risk management measures According to Core Principle V of BIS CP-SIPS, in a payment system settling the inter-bank payments on a multilateral net basis, if the participant is unable to settle, the consequences for the system’s other participants are potentially complex and can create unexpected credit or liquidity risks. Accordingly, in order to mitigate the risks in such a system to take place including for preventing the settlement institution from the credit risk due to failure of the participant(s) to settle, the Core Principle V requires the systems to have a failure-to-settle (FTS) arrangement such as requiring more financial resources than are needed to complete settlement under normal conditions.

Such additional resources can be deposited by the participants with the settlement institution. Those deposits have the advantage that they can be readily available to complete the settlement quickly, which can be especially important in adverse circumstances when the prompt action may need to be taken.

Since its implementation, SKNBI applies a FTS mechanism in the form of pre-funds. Before participating in SKNBI in each business day, all SKNBI participating banks are required to provide the pre-funds for each debit clearing and credit clearing. For the debit clearing, besides the pre-funds in the form of cash (called “cash prefunds”), SKNBI participating banks can use their central bank bills, government securities or/and other securities determined by Bank Indonesia for their pre-funds (called “collateral prefunds”). The pre-funds can be topped up/added which can be performed by each SKNBI participating bank at the pre-determined hours before the settlement to BI-RTGS system.

3.3.2. Shared ATM networks/switching services Most commercial banks in Indonesia operate their own ATM network which connect to one, two or three domestic interbank (shared) ATM networks and one or two international ATM networks. The three domestic shared and two international ATM networks are: - ATM Bersama which is operated by PT. Artajasa Pembayaran Elektronis and provides the switching services (i.e. for cutomers’ interbank credit funds transfers, billing payments and cash withdrawals) for ATMs of 70 commercial banks and 2 rural banks. All transactions performed through ATMs of the participating banks are effective immediately (i.e.

debiting and crediting accounts of the participating banks’ customers take place in real time), and the multilateral net settlement of the inter-bank positions is done through BI-RTGS system;

26 Indonesia - ATM Prima (ATM BCA) which is operated by PT. Rintis Sejahtera (a subsidiary of the biggest private domestic bank, i.e. Bank Central Asia (BCA)) and provides the switching services for ATMs of 33 commercial banks. All transactions done through ATMs of the participating banks are also effective immediately at the customer level, and settlement of the interbank multilateral net positions takes place through the participating banks’ account held at the appointed commercial bank (i.e. BCA); - ALTO which is operated by PT. Daya Network Lestari and provides the switching services for ATMs of 14 commercial banks and 1 rural bank.

All transactions performed through ATMs of the participating banks are effective immediately at the customer level, and settlement of the interbank multilateral net positions uses the commercial bank money (through the participating banks’ account held at Standard Chartered Bank in Indonesia); - Cirrus, an international ATM network of Mastercard having member of 13 commercial bank and PT Artajasa; - Plus, an international ATM network of Visa International which has member of 26 commercial banks.

Not all of the shared ATM networks are yet interlinked. For transaction using the ATM Network, when cardholder performs a transaction at an ATM of another bank in the same network, ATM Network switches the transaction to the issuing bank for authorization, which involves verification of the PIN, checking that sufficient funds are available and authentication of the transaction. The issuing bank then sends its response back via ATM Network which switches it to the ATM being used and the transaction is completed. If a cardholder performs a transaction at his own bank’s ATM, the transaction does not require any switching, as the issuing bank is able to directly approve the transaction.

For Cirrus and Plus, the transactions are respectively cleared by Mastercard and Visa on a similar principle as Indonesia ATM network. When currency conversions are necessary, the London Interbank Rate is used. Settlement for these transactions is conducted through the respective card schemes’ bank. 3.3.3. EFT POS networks/switching services EFT POS transactions acquired on EFT POS Network terminals is routed for processing. The routing arrangements will vary depending on the card type used in transaction: - For debit cards issued in Indonesia, EFT POS networks dispatches the transaction for authorization to the issuing bank.

The issuing bank verifies the PIN, checks the availability of funds, verifies that the transaction is not fraudulent, debits the cardholder’s account and informs the merchants of the successful transaction, who in turn delivers the goods/services to the cardholder.

- For maestrocards and visa, those EFT POS network routes the transaction to the card processor. The card processor on behalf of the issuing bank, check the payment limit, verifies that transaction is not fraudulent and authorizes the merchant to deliver the good/services. 3.3. Bank Indonesia Government Electronic Banking (BIG-eB)

27 Indonesia Bank Indonesia Act stated duty of Bank Indonesia related to the government i.e. Bank Indonesia holds government cash (treasury) and maintains government accounts. Based on the Act, Bank Indonesia has a role as the Government’s Banker providing banking services to the government covering mechanisms of government receipts, expenditures and debt.

With regard to providing banking services to the government, Bank Indonesia implemented Government electronic banking application on December 2007 namely BIG-eB. BIG-eB is an electronic banking system provided by Bank Indonesia to the government (Ministry of Finance/MoF) to facilitate MoF in accessing information and perform transactions online and electronically over government accounts in Bank Indonesia.

The objectives of implementing BIG-eB are to provide online and real-time information on government accounts held at BI to support implementation of Treasury Single Account (TSA), to support prompt report generation and back office processing in MoF, to speed up settlement of government transactions, to accommodate transaction interfaces between system in MoF and Bank Indonesia, and to support coordination between fiscal policy in MoF and monetary policy in BI. As an electronic banking, BIG-eB is an extension of core banking application in Bank Indonesia called BI-SOSA 19 which maintains and processes transactions of Bank Indonesia non-bank customer.

Payment instructions from BIG-eB (for inquiry, report, financial transactions) are routed to BI-SOSA for further processing, including interfaces with other systems e.g. BI-RTGS, SKNBI and SWIFT.

3.4. Major ongoing and future projects 3.5.1. Enhancements in Indonesia LVPS: 2nd Generation BI-RTGS System While current BI-RTGS system has achieved its objective of mitigating settlement risk by providing its participants with a means of settling their large-value payments in real time with finality, settlement of the funds transfers on such a gross basis settlement system imposes relatively high liquidity requirements on the participants. It has resulted in an increase in value of the funds transfers settled through BI-RTGS system since new financial products settled through BI-RTGS system increased, accompanied by more active inter-bank financial markets, such as the bond market, as well as growth in the economic activities,.

Accordingly, it is more likely to lead to “higher and higher” liquidity requirements for settlement in BI-RTGS system in upcoming years. According to statistics of the payments settled through BI- RTGS system from year 2004 until 2009, the average annually growth rate of volume and value of the payments settled through BI-RTGS system reached by 17,6% and 15.6% respectively. 19 Bank Indonesia Sentralisasi Otomasi Sistem Akunting (BI-SOSA) or Bank Indonesia Automated Centralized Accounting System is an application for book keeping in Bank Indonesia that record the general ledger of Bank Indonesia.

However, it also record the balance of Government accounts in Bank Indonesia as part of the book keeping function.

28 Indonesia In addressing such “higher and higher” liquidity needs for settlement in BI-RTGS system, It is important to improve the efficiency in liquidity use and management of BI-RTGS system. Moreover, since there have been new developments in large-value payments systems in some economies20 , such as incorporation of “efficient use of liquidity” features of “net settlement systems” into “RTGS systems” in order to economize on use of liquidity for settlement in RTGS systems, such developments become also one of the key drivers of enhancing settlement arrangements in BI-RTGS system with the objectives: - lowering liquidity requirements for settlement in 2nd Generation BI-RTGS system, but - keeping on achieving the “settlement risk reduction benefits of RTGS systems” in 2nd generation BI-RTGS system.

Adoption of such liquidity saving mechanisms in BI-RTGS system will be undertaken by incorporating offsetting mechanisms. The objective of liquidity saving mechanisms is to provide 2nd Generation BI-RTGS system with a means for immediately releasing as many as the payments in queue. There will be 2 (two) offsetting mechanisms to be adopted. Firstly,bilateral offsetting will offset inter-bank funds transfers in queue of the pair of BI-RTGS participating banks. The offsetting will run continuously as long as there are the events to trigger the bilateral offsetting. The events could be “entering a new inter-bank ‘normal’ funds transfer into the system” or “an increase in balances of BI-RTGS participating banks”.

Since 2nd Generation BI-RTGS system still will apply “FIFO with Priority” principle, bilaterally offsetting inter-bank “normal” funds transfers will not be settled in the case that “priority” payment(s) is(are) queued. The only exception is that those offsetting inter-bank “normal” funds transfers can be executed before if and only if this will allow those offsetting funds transfers to be settled and the overall effect of this bilateral offsetting will be a liquidity increase for the participant/the pair of participants that can be used for settlement of “priority” payments in queue. Secondly, multilateral offsetting mechanisms will offset inter-bank funds transfers in queue of multiple BI-RTGS participating banks.

Since 2nd Generation BI-RTGS system still will apply “FIFO with Priority” principle, multilateral offsetting algorithms will respect priority levels and sequences of payments in queue. The multilateral offsetting will run from time to time at short intervals (or at pre-determined times). The multilateral offsetting will consist of more than one algorithms (for instance “all-or-nothing multilateral offsetting” and “partial multilateral offsetting”) that will perform in sequence at the pre-determined times when the multilateral offsetting will run. The multilateral offsetting will also offset payments in queue which cannot be processed or failed to be processed with bilateral offsetting.

20 Through the incorporation of “liquidity saving mechanisms” into RTGS systems, i.e. “offsetting mechanisms” (bilaterally or/and multilaterally), which have been applied in: Euro area RTGS system (TARGET 2), Japan BOJ-RTGS Next Generation, Canada RTGS system (LVTS), Switzerland RTGS system (SIC), Australia RTGS system (RITS), New Zealand RTGS system (ESAS), South Korea RTGS system (BOK Wire), and Hong Kong RTGS system (CHATS)

29 Indonesia Both bilaterally and multilaterally offsetting payments will proceed for settlement as long as the net balances steamed from the offsetting mechanisms could be covered with the debtors’ available funds.

The settlement will take place on a gross basis, and notification message of settlement for each individual offsetting payment will be generated. The other enhancement in 2nd Generation BI-RTGS system is to provide BI-RTGS participating banks, which are already SWIFT member and have SWIFT terminal at their premises (i.e. 66 commercial banks), with SWIFT access to the host computer of 2nd Generation BI-RTGS system.

However for the small sized banks, which are not SWIFT members, there will be secure Virtual Private Network (VPN) access to the host computer of 2nd Generation BI-RTGS system. The user interface at banks’ site to access 2nd Generation BI-RTGS system, will be web-browser, and the message format of BI-RTGS payments transmitted through the secure VPN is SWIFT message format. Such advantages as using the worldwide communication network with standard financial message formats are the key driver of providing SWIFT access in 2nd generation BI-RTGS system.

30 Indonesia 4.

Post-trade processing, clearing and securities settlement in Indonesia 4.1. General Overview Trading in Indonesian capital market could be performed through exchange or over the counter. Trading through exchange is administered and managed by Indonesian Stock Exchange (IDX) with Jakarta Automated Trading Systems Next G (JATS). The clearing for securities transactions in Indonesia is processed by PT. Kliring Penjaminan Efek Indonesia (KPEI). The central securities depository for government securities is Bank Indonesia, while for corporate securities is PT. Kustodian Sentral Efek Indonesia (KSEI).

In Indonesia, IDX is the sole trade repository for all of securities transactions.

4.2. Post Trade Processing Systems 4.2.1. Trading and Confirmation 4.2.1.1. Institutional Framework IDX provide several systems for trading and trade confirmation such as JATS for equity trading, Fixed Income Trading System (FITS) for fixed income debt securities. The trading of securities is regulated by Capital Market Act, Government Securities Act, and Sharia Government Securities Act. 4.2.1.2. Participation All of exchange members could become direct participant in the systems. The exchange members consists of securities companies that already obtain permission from BAPEPAM – LK. 4.2.1.3.

Type of Transactions With the two systems, IDX could provide services for stock trading and bond trading through exchange floor for regular market, cash market, negotiation market, and over the counter transactions.

4.2.1.4. Operation of The Systems All transactions in the Exchange are processed in JATS. Only the Exchange Members, who also become the members of the Indonesian Clearing and Guarantee Corporation (KPEI), can input the orders into the JATS. The Exchange Members are responsible for every transaction they make in the Exchange. Exchange Members have the responsibility to settle all the transactions they've made, as stated in the Exchange Transaction List (DTB), including the transactions that occur because of (i) the errors made by the supporting equipment or Remote Trading applications of the Exchange

31 Indonesia Member, except for the errors made by the JONEC software that was provided by the Bourse; and/or (ii) the mistakes caused by the carelessness of the traders when inserting the purchase and sell orders into the JATS; and/or (iii) the mistakes caused by the carelessness of the IT Officer-RT when operating their supporting equipments or applications; an/or (iv) the invalid access into the Exchange Member’s supporting equipments or applications. Securities Trading in Regular, Cash and Negotiation Markets are opened during the trading hours on every business day by reffering to the JATS Timer.

The buying and selling price orders entered into the JATS have to be in a certain price range. If a Broker inputs a price order above or below the stock's price range, the JATS will automatically reject the price order. JATS will automatically do the Auto Rejection to the price orders input into the JATS at the Regular and Cash Markets if: 1. The selling or buying order is smaller than Rp 50 (fifty rupiah); 2. The selling or buying orders input into the JATS are more than 35% (thirty five percent) above or below the Reference Price for stock price that ranges from Rp 50 (fifty rupiah) to Rp 200 (two hundred rupiah); 3.

The selling or buying order input into the JATS are more than 25% (twenty five percent) above or below the Reference Price for stock price that ranges from above Rp 200 (two hundred rupiah) to Rp 5,000 (five thousand rupiah); 4. The selling or buying order input into the JATS are more than 20% (twenty percent) above or below the Reference Price for stock price that is more than Rp 5,000 (five thousand rupiah). The settlement period for equities market transactions are as follow: Market Segmentation Settlement Period Regular market The third Exchange day after the trade is executed (T+3) Cash Market The same day as the trade (T+0) Negotiated Market Based on the agreement between the Seller and the Buyer 4.2.1.5.

Pricing For every transaction, the Exchange Members have to pay fees to the IDX, KPEI and KSEI based on the value of each transaction: Type of Transaction Transaction Fees Guarantee Fund Tax Regular Market and Cash Market 0.03% 0.01% VAT and other tax obligation Negotiated Market 0.03% or pursuant to the Exchange Policy Bond 0.005%

32 Indonesia 4.2.2. Trade Repository 4.2.2.1. Institutional Framework BAPEPAM-LK appointed IDX as the trade repository for securities market in Indonesia. Based on the appointment, IDX prepare the required systems as the trade repository for all of equity and debt securities transactions. 4.2.2.2. Participation All of equity and debt securities transactions shall be reported to IDX as the appointed trade repository. Therefore, all securities companies and custodian banks are direct participants of the trade repository system.

4.2.2.3. Type of Transactions All equity and debt securities transactions shall be reported to the trade repository except for exchange trading which is automatically captured from the trading system (JATS Next G).

Based on BAPEPAM-LK regulation, he transactions of debt instruments that should be reported to the trade repository including outright, donation, inheritance, barter, legal transfer, merger and acqusition, lending and borrowing, repurchase agreement/repo, in house transfer, buy back, redeem, convertion, and guaranty.

4.2.2.4. Operation of The Systems Penerimaan Laporan Transaksi Efek (PLTE) system or Securities Transactions Reporting System is used to obtain report from exchange members, securities companies, and custodian banks. For transactions performed through exchange floor, the information is obtained directly from the exchange. While for transactions performed outside the exchange floor should be reported by the parties to the trade repository using the PLTE. 4.3. Central Counterparties and Clearing System 4.3.1. Clearing System 4.3.1.1. Institutional Framework Clearing and Guarantee Corporation Inc.

(PT. KPEI) is the appointed clearing and central counterparty for Indonesian capital market. PT. KPEI is established for the purpose of performing CCP functions by providing clearing and guarantee for settlement of Indonesia Stock Exchange (IDX) traded securities. PT. KPEI makes rules on the clearing and guarantee for settlement of on- IDX traded securities, as well as the fees of its services. The rules of PT. KPEI amendments thereof, will only become effective when approved by BAPEPAM-LK.

33 Indonesia PT. KPEI is the only Indonesia CCP that performs the following functions: - recording the securities trades performed through IDX (Bursa Efek Indonesia/BEI) securities exchange system; - computing the net positions of each participant of BEI/PT. KPEI; - applying adequate risk management measures with regard to the positions of each participant; - ensuring novation by substituting itself to sellers and buyers and taking on their respective obligations; and transferring the net settlement positions to depository and settlement system of PT. KSEI (i.e. Central Depository and Book Entry Settlement System/C-BEST) for the settlement, in which settlement of the cash-legs takes place in the payment settlement banks (i.e.

4 (four) commercial banks).

4.3.1.2. Participation Currently, KPEI apply direct clearing member (DCM) for all exchange members that runs securities brokerage services. 4.3.1.3. Type of Transactions KPEI provides clearing and central counterparties services for exchange trade transactions, novation, guarantee, and securities lending and borrowing. 4.3.1.4. Operation of The Systems KPEI operates electronic Clearing and Guarantee System (e-CLEARS) for clearing of equities and Electronic Bonds Clearing System (e-BOCS) for clearing of debt instruments. Also, to monitor the risk profile of clearing members, KPEI uses Automated Risk Management System (ARMS).

4.3.1.5. Pricing The fees for clearing services are as follow: Type of Transactions Transaction Fees Guarantee Fund Stock Exchange Transaction for stock and regiustered bonds 0.009% 0.01% Stock Exchange Transaction for bearer bonds 0.000% Stock Exchange Transaction for warrants and rights issues 0.0045% 4.4. Securities settlement systems 4.4.1. Settlement system for the government securities and instruments of Bank Indonesia open market operations

34 Indonesia Settlement and depository of securities issued by the government and settlement of instruments of open market operations by Bank Indonesia is undertaken in BI-SSSS which is operated by Bank Indonesia. Besides functioning for matching and settlement of the securities transactions as well as for the securities depository, BI-SSSS also provides the facilities for transactions with Bank Indonesia, i.e. for: - Open Market Operations (OMO); - Bank Indonesia’s collateralized liquidity/funding facilities for banks; and - Auction of the government securities in the primary market. Technically, BI-SSSS has 3 (three) main components: - Automatic bidding system central computer (BidCC) at BI-SSSS operator’s site that functions to conduct transactions with Bank Indonesia; - BI-SSSS central computer (SCC) at BI-SSSS operator’s site that functions for matching and settlement of BI-SSSS securities transactions as well as the securities depository; and - BI-SSSS terminal (ST), as the front-end system at BI-SSSS members’ site, containing automatic bidding (ABS) module and scripless securities transfer (SSTS) module, which are used by members to conduct transaction with Bank Indonesia and to settle their securities transaction.

There are 2 (two) methods of settlement in BI-SSSS, i.e.: - DVP settlement, in which settlement of the cash-legs of securities transactions takes place in BI-RTGS system; and - free-of-payment (FOP) settlement. Besides providing the settlement and custodial services, BI-SSSS provides services for coupons and principals payments. BI-SSSS participants include the ministry of finance, commercial banks, sub-registries, money market brokers, securities companies, and Bank Indonesia. MOF as issuer of the government securities uses BI-SSSS for monitoring the government securities auction as well as for monitoring the outstanding of the government securities.

4.4.2. Settlement system for securities issued by the private sector Settlement function for securities issued by the private sector, i.e. stocks and corporate bonds, and transacted on IDX or over the counter (OTC) is performed by PT. KSEI through its securities settlement and depository system, i.e. C-BEST. As the last stage in the securities processing chain21 , C-BEST ensures both the delivery and payment of the securities. C-BEST, as the central 21 The securities trading services is provided by IDX, and the multilateral netting and settlement guarantee functions for the on-exchange (IDX) traded securities is provided by Indonesian Clearing and Guarantee Corporation (KPEI)

35 Indonesia securities depository, holds the securities accounts, while the cash accounts used for settlement of the cash-legs are held with 4 (four) commercial banks as the payment settlement bank22 . For stocks, trading on IDX is divided into four markets: (i) the regular market, for which settlement takes place on T+3; (ii) the immediate market, for which settlement is conducted on T+1; (iii) the cash market, for which settlement is carried out on the same day (T+0); and (iv) the negotiated market, for which the timing of settlement is decided by the seller and buyer. Securities transactions are, by definition, “locked-in,” with the understanding that they are to be settled according to market category.

At the end of each business day, the trading data on IDX is delivered to PT. KPEI, where it performs the netting process. KPEI guarantees the trading outcomes, with the exception of those in the negotiated market. On the designated settlement date, PT. KSEI settles the net positions of the regular-market, immediate-market and cash market. PT. KSEI also settles on a gross basis the negotiated-market trades. Settlement of the cash legs of IDX traded stocks is conducted by the appointed 4 (four) settlement banks. For corporate bonds, the transactions are performed OTC, in which the computer system displays quotations for bid and offer, as well as the revised and cancelled quotations during trading hours.

Settlement of the transactions conducted two days after the trades (T + 2) is executed by PT. KSEI. 4.5. Recent development 4.5.1. Enhancements in BI-SSSS: 2nd Generation BI-SSSS As a securities settlement system, BI-SSSS functions for settlement and depository of the government securities and Bank Indonesia open market operations’ instruments as well as the collaterals for Bank Indonesia funding/liquidity facilities. Along with 2nd Generation BI-RTGS system, Bank Indonesia has been developing as well 2nd Generation BI-SSSS in order to increase the performance and contain the future increasing volume of BI-SSSS transactions , anticipate changes in the future policies and dynamics with regard to product developments in the securities markets, and enhance compliance of the system operation with the international standards and accepted best practice (e.g.

the related ISO standards and CPSS-IOSCO recommendations for securities settlement systems), as well as facilitate the cross border transactions efficiently. Accordingly 2nd generation BI-SSSS will have new features such as the securities lending and borrowing, collateral management and the variable account structure denominated other than IDR and able to be the central registration. 2nd Generation BI-SSSS will run on the same platform as 2nd Generation BI-RTGS system.

22 i.e. using commercial bank money (i.e. Bank Mandiri, BCA, CIMB Niaga, and Bank Permata) to settle the ultimate payment obligations

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