Collateral Management

The ACG Cross Training, Dhaka 2-5 July 2009 Indonesian Clearing and Guarantee Corporation (KPEI) Indonesia Stock Exchange Building, Tower 1 4-5th Fl Jl. Jend. Sudirman Kav. 52 53 Jakarta - INDONESIA

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

Placement / Margin Call

kpei
Collateral
Netting/Novation

Member Memberships Req and NAWC

iMac

Right/Obligation

Risk Calculation Trading Limit Risk Exposure

SX Trading
Guarantee Fund Management Free Collateral

GF Charge

COLLATERAL STRUCTURE
Time Deposit Bank Guarantee Stock Exchange Seat Gov Bond Treasury Bills (SBI)

Offline Collateral Online Collateral

Account 004

Total Collateral

Cash

Securities

Instruments Acceptable as Collateral

Offline 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
Time Deposit (IDR) Time Deposit (US$) Bank Guarantee Stock Exchange Memberships SBI (Certificate of Central Bank) Bonds

Valuation
98 % 95 % 95 % IDR 50.000.000 98% Haircut from Rating

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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 CMs 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. Its called perfect collateral until settlement date due (T+3).

How ?
Deliver Securities /Cash 002 & 004 Decreasing Blocked Collateral

Similar Securities / Cash ?

Yes

Perfect Collateral

No

No Changing on 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 Members Collateral Account, 2. Selling Out Securities in Defaulting Members Collateral Account, 3. Credit Line from Banks, 4. Reserved Funds from part of KPEIs 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 clients subaccount Eligibility for collateral allocation Update free collateral (exposure and market data at near real time basis)

Q&A