Settlement process - Indonesia

10.09.2019

Settlement cycles

Equities (scripless):T+2
Fixed income securities (scripless):Negotiable between buyer and seller, usually T+2 or T+3

Settlement flow

Equities and corporate bonds

Settlement at the KSEI’s Book-Entry Settlement System (C-BEST) is conducted on a real-time basis, provided that instructions are matched and sufficient funds and/or securities are available.

Although same-day turnaround of instructions is an accepted practice, it is not currently possible to link the two legs of the transaction in C-BEST and as a consequence, settlement of these types of transaction may require the additional support of local custodians.

KSEI has appointed four payment banks to assist in their cash settlements. A realignment process, implemented between the payment banks and run three times a day, “squares off” cash positions between the payment banks but is not transparent to KSEI participants.

T+0:Trades are executed on the IDX and trade confirmations are sent to the investors.
T+1 - T+2:Settlement instructions are sent to the custodian for pre-matching. Pre-matching is conducted on a "manual" basis between custodians and is not binding. The selling broker also contacts the seller’s custodian to pre-match the transaction.
T+2:For receipt against payment transactions, the buyer must have funds available in their account with the custodian to ensure that cash can be transferred to the payment bank on the morning of T+2.
T+2:The buying broker delivers the shares to the buyer’s custodian bank. The selling broker receives the shares from the seller’s custodian bank. For against payment trades, cash settlement takes place on a net basis at one of four Payment Banks and securities settlement takes place in C-BEST at the KSEI. Cash is transferred between custodian and KSEI Nostro accounts at the Payment Banks via BI's RTGS system. The transfer of securities and then cash for against payment transactions is completed by 12:00 for on exchange trades and by 15:00 for off exchange trades. Confirmation of settlement is sent when the trades are confirmed as settled by KSEI and subsequently settled in the custodian’s system.

Government bonds

Settlement at the BI Scripless Securities Settlement System (BI-SSSS) is conducted on a real-time basis.

T+0:Trade is executed.
SD-1:Sub-registry receives instructions and these are pre-matched with the counterparty.
SD:

Sub-registry inputs trade instructions into BI-SSSS for matching and settlement.
BI-SSSS checks availability of cash and securities. When matched, securities and then cash are transferred immediately on a real-time gross settlement basis.

While securities are settled via BI-SSSS, payments are effected in BI-RTGS system via payment from the buyer’s to the seller’s sub-registry demand deposit account with BI. BI-SSSS and BI-RTGS are electronically linked.

Cash settlement

Cash management

Payments in IDR and foreign currencies are restricted.

Non-resident investors are not permitted to hold overdrafts on their IDR cash accounts in Indonesia.

The rules for cash and foreign exchange transactions are as follows:

TransferTransfer
allowed?
Exceptions
Resident to resident
 YesUnless the resident account is with an offshore bank.
Non-resident to resident
 YesUnless the resident account is with an offshore bank.
Resident to non-resident
 NoUnless:
- To settle foreign exchange transactions with an onshore bank for the non-resident’s account with an onshore bank (subject to restrictions on derivative transactions);
- To settle IDR transfers to a non-resident account with an onshore bank related to underlying economic activities in Indonesiaa.
Non-resident to non-resident b
 NoUnless:
- Between two onshore accounts (not necessarily at the same onshore bank) of the same non-resident entity;
- To settle IDR transfers between non-resident accounts with onshore banks related to underlying economic activities in Indonesiac.
- To settle foreign exchange transactions with an onshore bank for a non-resident account with an onshore bank.

a. See “Economic activities for which resident to non-resident transfer of IDR is allowed” below.
b. See "Economic activities for which non-resident to non-resident transfer of IDR is allowed" below.
c. See “Documentary proof required for non-resident to non-resident transfer of IDR” below.

Economic activities for which resident to non-resident transfer of IDR is allowed

  • Payments related to direct participation in investments in Indonesia;
  • Payments related to trades in IDR securities/valuable papers issued by an Indonesian entity;
  • Payments related to offshore borrowings in IDR including debt restructuring;
  • Opening of import letter of credit in IDR with an onshore bank;
  • Opening of local letter of credit;
  • Purchasing of goods and service in Indonesia;
  • Cost of living for foreigners in Indonesia.

Economic activities for which non-resident to non-resident transfer of IDR is allowed

  • Payments related to acquisition of a direct investment in Indonesia;
  • Payments related to trades in IDR securities/valuable papers issued by an Indonesian entity;
  • Purchasing of goods and service in Indonesia;
  • Cost of living for foreigners in Indonesia.

Documentary proof required for non-resident to non-resident transfer of IDR

  • For transactions of value less than or equal to IDR 500 million, no documentation is required but a declaration or other information about the type of underlying transactions must be supplied.
  • For transactions of values greater than IDR 500 million, the following documentation is required:
    • Dividend payment: a copy of the results from the shareholders’ meeting;
    • Direct investment: copy of the sales/purchase contract.
  • For sale/purchase of securities, a copy of the sale/purchase confirmation1 of the broker or any authorised party is required.
  • For dividend / coupon payments, the following documentation is required:
    • Dividend payment: a copy of the dividend payment confirmation from the issuing company;
    • Interest payment: a copy of the payment notification from the security issuer.

Foreign exchange restrictions

The IDR is a managed floating currency for which the central bank intervenes to stabilise the exchange rate against the USD. The central bank quotes the USD buy and sell rates on a daily basis.

Foreign exchange controls require custodian banks report as follows, according to the size of the transaction:

  • Transactions of USD 10,000 or over: daily inward and outward remittance transactions by customers in IDR and foreign currency and local transactions in foreign currencies between local residents.
  • Transactions below USD 10,000: lump sum of movements.

Foreign exchange transactions prohibited for banks

  • Extending credit in IDR or foreign currencies unless through certain retail consumer loans;
  • Granting overdraft facilities, including temporary overdrafts and intraday overdrafts;
  • Placing IDR with non-residents, including any IDR transfers to offshore banks;
  • Purchasing securities in IDR issued by non-residents;
  • Inter-office transactions in IDR;
  • Equity participation in IDR with non-residents.

Summary of foreign exchange regulations

Outright Buy, value today, TOM and Spot

Underlying documentation is required, for example, a buy/receive against payment settlement instruction via SWIFT, tested telex, tested fax or Reuters Monitor Dealing System.

Forward Value and Swap

  • Minimum term is three months, but no longer then the time frame of the investment (no overnight Swaps);
  • Underlying documentation is required, for example, a buy/receive against payment settlement instruction via SWIFT, tested telex, tested fax or Reuters Monitor Dealing System.

Outright Sell/Delivery against payment

  • The regulation does not govern the sale of IDR against foreign currencies for value today, tomorrow and spot. These transactions can be executed without supporting documentation of the underlying transactions.

    Even though the sale of IDR spot is not restricted, it must be proved that the source of funds is an economic activity, for example, settlement of a delivery against payment instruction.

    According to market practice, the sale of IDR is held off until settlement of the related delivery against payment instruction. This is to avoid a situation where the transaction fails and no more supporting documentation is available to cover the FX trade.
  • The regulation does not impose any restrictions on repatriation of cumulated IDR balances in non-resident accounts.

Derivative

Maximum USD 1 million per bank.

SBI (Sertifikat BI) as underlying transaction to book Forward Value and Swap

Not allowed.

Penalty

10% of threshold breached.

IDR transfers under IDR 500 million

Declaration of underlying transaction is required (for example, related securities settlement instruction).

Payment systems

  • Bank Indonesia Real Time Gross Transfer System (RTGS)

    BI operates RTGS for the electronic real-time transfer of cash funds in Indonesia on a gross basis for amounts above IDR 100 million. The system is open to banks, non-bank financial institutions, other entities that transfer funds and switching2 companies. To access RTGS, market participants are required to maintain accounts at BI.

    The RTGS is open daily from Monday to Friday between 06:30 and 16:30.

    Cash payments may only be made if funds exist on the payer's account at the central bank. Payments are considered final and irreversible upon the book-entry crediting of the receiver’s account. Backvalue payments are not possible via the RTGS.
  • Bank Indonesia National Clearing System (SKN)

    The SKN is a paperless clearing system used to clear funds transfers for amounts up to IDR 1 billion. Under the SKN, same-day transfers can be executed through the issuance of a physical credit note for interbank payments and via cheque for payments between banks and non-bank entities.

Registration

Fixed income securities

Most bonds are bearer instruments and registration is not required.

Equities

Registration is done automatically by crediting the book-entry/scripless securities to the KSEI account. The account holder is considered to be the registered owner.

Physical securities are registered upon receipt of the investor’s instruction or a standing instruction. Certificates must be endorsed under the investor’s name before registration. The registration process may take up to 14 business days depending on the number of certificates; during the corporate action peak season, this period may be longer.

Neither a central registrar nor the nominee concept are recognised in Indonesia. Physical shares are registered with each individual issuer and the appointed registrar.

Account structure at KSEI

The central depository (KSEI) requires direct participants (custodian banks, brokers) to open stock accounts for their clients. Such accounts are on account level (that is, Clearstream Banking) and not on final beneficiary basis. Clients may open a sub-account showing the name of the final beneficiary in order to benefit from any Double Taxation Treaty agreement.

In the event of KSEI bankruptcy, the assets under custody are considered to be third-party’s assets and as such will not be included in KSEI’s own assets but will be distributed as per the KSEI’s records.

Account structure at BI

BI, as the central registry, will only deal with banks (for proprietary holdings) and with sub-registries - that is, custodians - (for third-party holdings).

Each sub-registry maintains an omnibus account and a single cash account at BI to facilitate settlement of government bonds (GDS) and BI certificates (SBI) and, in turn, investors must open accounts with the sub-registries. The accounts at sub-registry level should reflect the owner of the GDS and SBI (that is, client’s name “for and behalf of” the owner).

Stamp duty

Stamp duty is not applicable in the Indonesian market.

Penalties (buy-ins etc.)

All stock exchange trades must settle on T+2. If any shortage of securities is not covered by T+2, KPEI will impose a penalty called the “Alternate Cash Settlement” (ACS).

ACS is 125% of the highest market value between T+0 and T+2. If the broker does not have sufficient cash to pay the penalty, KPEI will use the guarantee fund to cover the short cash position and substitute the relevant buying broker. The selling broker will be suspended for the day pending investigation by the IDX.

Brokers that are aware of insufficient securities on T+2 have the option to buy them from the cash market (T+0 settlement cycle) or via the Securities Borrowing programme. KPEI will net off the broker’s position as of SD from the cash market and the regular market.

Buying brokers with insufficient cash on T+2 will be suspended and KPEI will use the guarantee fund to cover the obligations. Before suspending the broker, KPEI checks whether the broker has other collateral, including offline collateral such as time deposits or bank guarantees pledged to KPEI.

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1. Against payment settlement instructions are considered to be supporting documents.
2. Switching is the process of liquidating a position in exchange for other securities with better prospects for growth, yields or capital gains.