The Indonesian central bank, Bank Indonesia, has issued one regulation and three circular letters to enhance the legal certainty of its administrative duties, particularly those related to Bank Indonesia's scripless securities settlement system (BI-SSSS). This is used in the administration of Bank Indonesia certificates (sertifikat Bank Indonesia or SBI), securities issued in rupiahs by Bank Indonesia as short-term acknowledgment of indebtedness, and sovereign debts (surat utang negara or SUN) consist of treasury bills and government bonds (securities issued by the government of Indonesia as long-term debt instruments in rupiahs or other foreign currency denominations). All of the issuances are dated February 16 2004. They are:
- Regulation 6/2/PBI/2004 re BI-SSSS; as implemented further by
Circular Letter 6/1/DPM re BI-SSSS;
- Circular Letter 6/2/DPM re Utilization Fee of BI-SSSS; and
Circular Letter 6/3/DPM re Requirements and Procedures for the Appointment of Sub-Registry for Securities Administration.
Based on Law 24 of 2002 re sovereign debt, Bank Indonesia acts as tender agent for the open sale of government bonds in the primary market (the eligible participants for this tender are certain banks, money markets, foreign currency brokerage companies and securities companies appointed specifically by the minister of finance). It will also administer government bonds, acting as the central registry (on behalf of banks, sub-registries and other parties agreed by Bank Indonesia) that registers the issuance, ownership, clearing, settlement, payment of interest (coupon) and repayment of principal.
When administering the movement of government bonds, which are traded scripless, Bank Indonesia used to conduct the administration electronically under the book-entry registry system (BI-SKRIP). Meanwhile, with regards to Bank Indonesia certificates, the main instruments in open market operations or OPT (that is, transactions executed by Bank Indonesia with banks and other parties in the framework of monetary control in the money market), Bank Indonesia used to conduct the administration by using the automatic bidding system (ABS) facility, which, in 2003, was also changed into scripless. The past use of BI-SKRIP and ABS does not fit the requirement for an online and integrated system connected with market participants, which is urgently required to cope with more efficient market practices.
It is necessary to consolidate these administration transaction systems into one integrated system, which connects market participants and Bank Indonesia's electronic tender and transaction facilities with information and settlement systems for the securities, and settlement systems for the funds of the market participants through Bank Indonesia real-time gross settlement (BI-RTGS) by debiting or crediting the market players' account in Bank Indonesia, and to allow the use of administration of settlement in the form of delivery versus payment, which can minimize settlement risks and be done immediately. Some of the most significant terms are highlighted below.
Under this Regulation, Bank Indonesia administers the securities, namely, the Bank Indonesia certificates and government bonds. Bank Indonesia will become the operator of BI-BSSS. This administration of securities will be performed in a two-tier system as follows:
The central registry role, which will be performed by Bank Indonesia, is designed for the administration of securities on behalf of banks, sub-registries and other parties that Bank Indonesia allows to have securities accounts in the central registry.
The sub-registry, which may be delegated to certain qualified bank and custodian institutions, is designed for the administration of securities on behalf of customers.
In other words, Bank Indonesia is authorized to appoint a sub-registry to support the central registry's administration of securities ownership. This registration of securities ownership will be conducted in scripless and book-entry systems. This registration will be valid evidence of ownership. However, the registration of a sub-registry's securities account in the central registry (an omnibus account) cannot be considered evidence of securities ownership.
Circular Letter 6/3/DPM (Circular 6/3)
Furthermore, Circular 6/3 provides the requirements and procedures of the appointment of bank or custodian institutions as the sub-registry. The bank or custodian must reside in the Republic of Indonesia and not be in the process of bankruptcy. Furthermore, the bank or custodian must have:
- at least three years' experience in securities registration and/or depository activities and must have obtained a custodian licence from the Capital Market Supervisory Agency (Badan Pengawas Pasar Modal - BAPEPAM) that is still valid;
- business links regarding securities registration to foreign and domestic countries (online) and/or provide a securities depository business to foreign countries;
- a securities registration system based on a scripless system in the form of safe, accurate and reputable book entry, that can, at least, administer an outright transaction, repurchase agreement and pledge;
- separate working units that specifically handle the custodian activities, supported by professional management and staff in the field of securities registration and/or depository.
The management of the bank or custodian must not be listed on the blacklist of individuals (daftar orang tercela) and/or the bad debt list (daftar kredit macet).
For a bank to administer the sub-registry it must have fulfilled the minimum capital requirements (kewajiban penyediaan modal minimum - KPPM) in accordance with the prevailing Bank Indonesia provision. Furthermore, the custodian as sub-registry administrator must have a paid-up capital of at least Rp25 billion.
Based on the fulfillment of the above requirements, the bank or custodian must file an application to Bank Indonesia's Directorate of Monetary Management, with its latest audited annual financial statement.
Once the bank or custodian is chosen by Bank Indonesia to act as the sub-registry, the said bank or custodian is required to be a participant of BI-SSSS.
Rahmat Bastian and Aseana Marsini
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