Collateral Management

Indonesian Clearing and Guarantee Corporation (KPEI)Indonesia Stock Exchange Building, Tower 1 4-5th Fl

Jl. Jend. Sudirman Kav. 52 – 53Jakarta - INDONESIA

The ACG Cross Training, Dhaka 2-5 July 2009

Agenda

• Overview

• Collateral Structure for Equities, Bonds, and SBL Transactions

• Acceptable Collateral Criterion

• Collateral Valuation

• Perfect Collateral

• KPEI Financial Buffer (for Defaulting Members)

• Risk Management Development at KPEI

Overview

• Collateral as one of Risk Management Tools in KPEI.• Collateral Management:

– Must be valued properly

– Must be sufficient

• Comparison against Exposure / Outstanding Positions• Part of Trading Limit Calculation (Equities, Bonds Market, SBL

Transaction)

• Collateral Management Development

General Scheme of Risk Management KPEI

SX Trading

CollateralPlacement / Margin Call

Netting/Novation

Risk Exposure

Right/Obligation

iMac

Member

Free Collateral

Risk Calculation

Guarantee Fund Management

TradingLimit

GF Charge

kpeikpei

-

Memberships Req and NAWC

COLLATERAL STRUCTURE

Offline Collateral

Online Collateral Total

Collateral

Time DepositGov BondBank

Guarantee

Stock Exchange

Seat Treasury

Bills (SBI)

Cash Securities

Account 004

Instruments Acceptable as CollateralOffline Collateral (ownership documents given to KPEI)

• Time Deposit (IDR and US$)

- haircut: 2% - 5%• Bank Guarantee (IDR and US$)

- haircut: 5% • Stock Exchange Membership Seat (Equity and Fixed Income)• Indonesian Government Bonds (Fixed Rate, Variable Rate and Retail)

- haircut: 10% - 20% (could also be place in online collateral account)• BI Treasury Bills (Sertifikat Bank Indonesia)

- haircut: 5% Online Collateral (linked to the Indonesian Central Securities Depository)

• Cash

- currently national currency (IDR) and (USD)

- future; other currencies (Euro, Yen, etc).• Listed securities

- Stocks, Indonesian Government Bonds, Corporate Bonds

- haircut: 5% - 100%

Online Collateral Valuation

• Cash (IDR),- valued 100 % (No Haircut)

- get interest from participating banks

• Acceptable Securities, - marked to market, lowest price in last three trading days.

- haircut determined by fundamental & market analysis

(liquidity & volatility)

COLLATERAL VALUATION

Online Collateral in Collateral account at KSEI :

----------------------------------------------------------------------------------

Collateral Valuation

===============================================================================

Cash 100 %Securities (Lowest Price and Haircut )

Offline Collateral deposited to KPEI :

------------------------------------------------------------------------------------------------

Collateral Valuation ==============================================================

Time Deposit (IDR) 98 %Time Deposit (US$) 95 %Bank Guarantee 95 %Stock Exchange Memberships IDR 50.000.000SBI (Certificate of Central Bank) 98%Bonds Haircut

from Rating

MARKED TO MARKET

Marked to market is done when there is a new lowest / highest price of securities

Adjustment of collateral and exposure is done two times a day: Interday:

End of day Intraday:

End of first session Every 30 minutes (in progress)

PERFECT COLLATERAL

What is Perfect Collateral ?

• Perfect Collateral is securities owned by CM in Delivery Acc./and Collateral Acc. that match with CM’s outstanding obligations

• If CM has obligations to deliver the same stocks which its own in Delivery Acc. / and Collateral Acc., then those obligations will be released. It’s called perfect collateral until settlement date due (T+3).

How ?

Similar Securities / Cash ?

Perfect Collateral

Yes

No Changing on Blocked Collateral

No

002 & 004

Deliver Securities

/Cash

Decreasing Blocked Collateral

Collateral Placed in KPEI Acc.

Total Collateral Value (Offline & Online) placed in KPEI Acc. as of 29/05/2009: IDR 6.300.332.855.416 (US$ 630.033.285) Consist of :- Offline Collateral : IDR 4,139,270,765,063 (US$ 413,927,076)- Online Collateral : IDR 3,614,182,147,574 (US$ 361,418,214)

- Cash : IDR 355,819,101,705 (US$ 35,581,910)- Securities : IDR 3,258,363,045,869 (US$ 325,836,304)

Currency Notes:

US$ 1 = IDR 10,000

Guarantee Funds Positions

Guarantee Funds managed by KPEI

as of 29/05/2009: IDR 978,409,578,437,-

(US$ 97,840,957)

Currency Notes:

US$ 1 = IDR 10,000

KPEI Financial Buffer

Based on Government Regulation (Bapepam) No.III.B.6: Guarantee for Transactions in SX

1. Cash in Defaulting Member’s Collateral Account,

2. Selling Out Securities in Defaulting Member’s Collateral Account,

3. Credit Line from Banks,

4. Reserved Funds from part of KPEI’s Current Year Pre-Tax Earning

5. Selling Out Defaulting Members’ SX Memberships,

6. Guarantee Funds, as of 29/05/2009: IDR 978,409,578,437 (US$ 97,840,957)

7. Credit Ring from All Clearing Members of KPEI

Currency Notes:

US$ 1 = IDR 10,000

Risk Management Development at KPEI

• Risk exposure calculation:

– Hs VaR at portfolio basis

– Net exposure as sum of three days outstanding positions exposure

– Exposure calculation up to client level

• Collateral Management Development:

– Pool collateral account (Clearing Member account) and client’s subaccount

– Eligibility for collateral allocation

• Update free collateral (exposure and market data at near real time basis)

Q & A