JAKARTA (TheInsiderStories) – Bank Indonesia (BI) issued the regulation Number 21 Year 2019, concerning the Implementation of the Central Counterparty (CCP) for derivatives market to prevent the failure of the transactions that cause a domino effect. The new policy will be effective on June 1, 2020, said the central bank.
According to BI’ spokesman Agusman Zainal in media briefing today (10/02), CCP is a clearing house for transactions over the counter (OTC) of derivatives instrument to reducing a credit risk. BI said, the new entity will take over the risks faced by sellers and buyers and its expecting to improve the efficiency of the derivative transactions.
In the process of clearing & guaranteeing transactions between market players, CCP is among the both parties and has the role to taking risks faced by the sellers and buyers also to increases the efficiency. This effort followed the Group 20 agreement to prevent a repeat of the 2008 global financial crisis.
The establishment of CCP institutions for OTC derivatives is also part of the pillars of the National Strategy for Financial Market Development and Deepening during 2018 – 2024 and part of the Indonesian Payment System blueprint (2025) in meeting the Financial Market Infrastructures in Indonesia.
“G20 countries’ leaders already recommend this CCP to avoid such repetitive 2008 financial crisis. I expect in the coming two to three years, or in the next 2023, the CCP institution will be set up,” said Zaenal.
The new policy regulated the requirements that must be met by institutions who are willing to become the clearing agency. They need to met especially international standards of a Principles for Financial Market Infrastructures and need to carry several obligations such as capital, governance and risk management.
CCP’ role is to support financial market deepening, particularly in developing derivative transactions, by reducing market segmentation, reducing interconnectedness, increasing transparency, and increasing the efficiency of derivative transactions through the netting mechanism.
Previously, Indonesian Clearing and Guarantee (KPEI) is named as one of CCP’ candidate, where Indonesian bourse authority already commits to inject Rp150 billion (US$10.63 million) as their basic capital.
Economist from PT Bank Mandiri Tbk, Dendi Ramdani welcoming this regulation and agreed that indonesia’ financial market need facilitator to make market more liquid.
“We can expect, with this new institution, financial market will be more transparent and the price making process will be more efficient. Most importantly, there will be more investor tap in the market as it become more liquid and transparent,” he noted.
Meanwhile, Economist from PT Bank Permata Tbk, Josua Pardede rated the new institution will give positive impact to the market, as interest rate swap and cross currency swap transaction volume is expected to increase with this new institution.
“This will give significant impact on market deepening especially for hedging products as well as will strengthen our currency volatility,” he said.
Written by Yosi Winosa, Email: Yosi@theinsiderstories.com