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Account Structure in KSEI ACG Cross Training Bangkok, 27-28 June 2006 KSEI – Kustodian Sentral Efek Indonesia (ICSD – Indonesian Central Securities Depository)

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Presentation on theme: "Account Structure in KSEI ACG Cross Training Bangkok, 27-28 June 2006 KSEI – Kustodian Sentral Efek Indonesia (ICSD – Indonesian Central Securities Depository)"— Presentation transcript:

1 Account Structure in KSEI ACG Cross Training Bangkok, June 2006 KSEI – Kustodian Sentral Efek Indonesia (ICSD – Indonesian Central Securities Depository)

2 Outline Introduction –KSEI in Indonesian Capital Market –Scripless Implementation Background KSEI Participants Collective Custody –Regulation on Accounts and Sub Accounts Account Type & Structure Indirect Account  Sub Accounts Benefit & Advantage of Sub Accounts Investor Types Account Details & Maintenance Transactions in C-Best Corporate Action (Entitlement & Distribution) Securities Holder List Issues Conclusion

3 Ministry of Finance Capital Market Supervisory Agency (BAPEPAM) Stock Exchange : Jakarta Stock Exchange Surabaya Stock Exchange Stock Exchange : Jakarta Stock Exchange Surabaya Stock Exchange Indonesian Central Securities Depository PT KSEI Indonesian Central Securities Depository PT KSEI Indonesian Clearing and Guarantee Institution PT KPEI Indonesian Clearing and Guarantee Institution PT KPEI Introduction - KSEI in Indonesian Capital Market SRO (Self Regulatory Organization) Clearing-NettingBook-entry SettlementScripless Trading

4 Introduction - Scripless Implementation Background Began in July 2000 Fully Scripless since June 2002 C-Best (Central depository and Book Entry Settlement System) Stock Exchange settlement performed Electronic-Based Time Frame Settlement (T+3) : since September 2002 OTC transaction & Settlement Automatic transfer of securities ownership by book-entry Automatic Corporate Actions process Actual Data (as of 31 May 2006) : Total Participants : 167 entities (148 Brokers, 19 Bank Custodians) Total Issuers : 437 entities Total Securities instruments : 667 (384 shares, 240 corp.bonds, 24 Warrants, 2 Rights, 11 MTN, 6 PN) Total Asset (value of all securities recorded) : Billion IDR : Trillion USD

5 KSEI Participants are : - Brokers (Securities Companies) - Custodian Banks - Other parties approved by Bapepam ( The Capital Market Supervisory Agency) ;  KPEI for the function of Stock Exchange Transaction Settlement  Foreign CSDs for cross-border settlement As of 31 May 2006 : 167 Participants 148 Brokers 19 Custodian Banks Investor opens a securities account in Securities Company or Custodian Bank KSEI Participants

6 Collective Custody ICSD / KSEI ISSUER / REGISTRAR BROKER/ CUSTODIAN BANK Merrill Lynch ASII 2000 ING Baring ASII 3000 HSBC ASII 2000 CITIBANK ASII 2000 Morgan Stanley ASII 1500 Bankers Trust ASII 500 Northern Trust ASII 3000 Chase Manhattan ASII 2000 Goldman ASII 2000 Scrip Records Electronic Records KSEI ASII 10000

7 Legal Basis Law Number 8 Year 1995 of The Republic of Indonesia regarding Capital Market Fungible : Securities In Collective Custody issued by the same Issuer are interchangeable with and equivalent to other Securities of the same type and class Under the name of CSD : Securities in Collective Custody at a Central Securities Depository shall be recorded in the Issuer’s registry of Security-holders in the name of the Central Securities Depository as the representative of its account-holders Segregation of assets : Securities Companies must comply with BAPEPAM Rules upon accepting clients’ Securities and must : a. register clients’ Securities in accounts that are separate from own accounts ; and b. maintain secured facilities for safekeeping clients’ assets, under separate records for each client. Collective Custody

8 BAPEPAM Rule No. III.C.7 regarding Sub Account at ICSD : Client Investor is the recognized holder of securities account at Participant Participant is a Securities Company or Custodian Bank that has opened a securities account at KSEI A sub securities account is the securities account of each client recorded in the Participant’s security account at KSEI KSEI Participant is obligated to : open a sub account in name of each client record client owned securities in respective sub accounts assure accuracy of client securities balance (internal vs ICSD data ) assure accuracy of client identity (internal vs ICSD data ) KSEI is obligated to : hold separate administration for the recording of securities in each sub securities account deliver daily reports on the position of sub security accounts to respective Participants KSEI only maintains contact with and is responsible to respective Participants pertaining to the administering of Sub Securities Accounts Investor has the right to check the accuracy of the report concerning the balance of securities he owns (data at Participant vs data at ICSD) Collective Custody

9 Account Type Lending & borrowing delivery account receipt Account Collateral account Own Deposit account Client Dep account X Lending & borrowing delivery account receipt Account Collateral account Own Deposit account Client Dep Account A Custodian Bank X Own Deposit account Client Dep Account 1 Client Dep account Y Client Dep account Z Client Dep account B Broker A Broker B Client Dep Account 2

10 Account Structure KSEI Custodian BankBrokerKPEIIssuer Registrar Payment Bank Clearing MemberNon Clearing Member Depository Acc CashSec Delivering Acc CashSec Depository Acc CashSec Sub Acc CashSec Sub Acc CashSec Nostro Acc CashSec Receiving Acc CashSec Collateral Acc CashSec L & B Acc CashSec Sub Acc CashSec Sub Acc CashSec Nostro Acc CashSec Depository Acc CashSec

11 Indirect Account Investors own accounts at Brokers / Custodians Brokers / Custodians possess their own accounts and their clients’ accounts at KSEI Brokers/ Custodians Investors Request & Docs Request & Docs Verify Process Archive Confirmation KSEI holds separate administration for the recording of securities in each sub securities account There is No Omnibus Account

12 Securities Recording on Accounts KSEI Brokers / Custodian Banks Investors Br 1CB 2 Account Holder : Br 1Account Holder : CB 2 OwnCust. ACust. B Sec. A Sec. B IDR Sec. A Sec. D IDR Sec. C Sec. D IDR OwnCust. XCust. Y Sec. A Sec. B IDR Sec. A Sec. D IDR Sec. C Sec. D IDR Customer ACustomer BCustomer XCustomer Y Br 1Cust. ACust. BCB 2Cust. XCust. Y

13 Benefit & Advantage of Sub Accounts – Investor Protection Assurance of separated bookkeeping for securities owned by the investor and those owned by the custodian Assurance of accurate recording of investor securities ownership position Assurance of rights attached to securities such as dividend; right to attend RUPS (Shareholder General Meeting), as investor will be listed in the List of Shareholders issued by KSEI – Availability of real time investor data in KSEI, for the purpose of : performing corporate action Issuer’s reporting to Bapepam, Stock Exchange, Central Bank, for among others: investigation. Monitoring share ownership of > 5% investigation by authorities, like: Bapepam, Court of Justice, Police. producing reports. – Corporate action proceeds distribution efficiency. – Assuring proper tax rate applied upon investor in the occurrence of Corporate Action

14 Investor Types Individual Investor –Local –Foreign Institutional Investor : –Local : Limited Company Brokers Insurance Bank Government of Indonesia Pension Fund Mutual Fund Foundation Jamsostek (Labor Social Security) Cooperative Custodian Bank Taspen (Civil Servant Insurance Savings) –Foreign : Tax Treaty (each country)

15 Account Details Account Number AB001 – XY12 – 001 – 99 Local_Code – Client_Code – Acc_Type – CheckDigit Correspondent Account Number : account on PB (mirroring acct) – only for Own Acct and Collat.Acct Account Description : name of client Status : Available/Blocked/Closed Tax ID Blocking Reason (if any; only for Blocked Acct.) ID number : KITAS / COR / COD / NPWP Address Nationality

16 Open Account : –Supporting documents will define the investor type and tax rate of the account –No documents  the highest tax rate (20%) –Upload facility (Internal use) Modify : –Usually to change / to adjust tax rate, address, account description. Block/Unblock : –To Pledge / unpledge, Lock-up by Stock Exchange, other reasons. Close : –Account should be zero balance –Can Not be recycled Account linkage : –Related to Post Trade Processing module. –To link an Investment Manager’s sub account to a custodian bank Account Maintenance

17 Data and Supporting Documents Local Individual : Identity No and address according to Identity Card Foreign Individual : copy of ID card if residing in Indonesia or copy of Certificate of Tax Residence (COTR) legalized by tax office if otherwise. Local Institution : - Foundation, Cooperative, Insurance, Ltd. : copy of Tax Registration - Pension Fund : copy of State Minister of Finance Decree (SKMK) and Tax Reg. - Mutual Fund : copy of Effective Letter (from Bapepam) and Tax Registration - Jamsostek JHT : State Minister of Finance Decree (SKMK) - Jamsostek Non JHT : copy of Tax Registration - Taspen : copy of Tax Registration Foreign institution: copy of Certificate of Tax Residence (COTR) legalized by tax office, Foreign Institution exempted from income tax: State Minister of Finance Decree No. 574/KMK.04/2000 dated December 26th 2000 Armed Forces (ABRI) : Letter of Acknowledgement from Dir. Gen. of Tax Indonesia Government: RI State Regulation

18 Transactions in C-Best Depository Management –Deposit –Withdrawal –Security Transfer (within one Member) Clearing and Settlement –DFOP/RFOP –DVP/RVP Cash Management –Book Transfer (cash transfer within one Member) –Wire Transfer (cash withdrawal) Collateral Deposit Lendable Deposit Post Trade Processing –Trade Confirmation –Settlement Instruction

19 Instruction Creation Participant KSEI Input via C-Best workstation C-Best Server 6-eyes principle (create, check, approve) 4-eyes principle (create direct check, approve) 2-eyes principle (create direct approve) File upload Participant Participants are responsible for the data they input. OTC SECTRS BTS WT DCONF REC Investor Instruction

20 stock cash stock cash KPEI Account L & B Account Collateral Account Receiving Account Receiving Account Client Account L & B Account Collateral Account Delivery Account Selling brokerBuying broker Payment Bank alignment K S E IKPEI synchronize Stock Delivery Account Client Account Own Account Own Account Cash Custodian Bank OTC Stock Exchange Settlement

21 KSEI AB 1. DVP INSTRUCTION 2. RVP INSTRUCTION MATCHING PROCESS XZ 1. DVP : DELIVERY VERSUS PAYMENT 2. RVP : RECEIVE VERSUS PAYMENT 4. RFOP INSTRUCTION 3. DFOP : DELIVERY FREE OF PAYMENT 4. RFOP : RECEIVER FREE OF PAYMENT 3. DFOP INSTRUCTION Brokers / Cust. Banks Brokers / Cust. Banks A Brokers / Cust. Banks Brokers / Cust. Banks B Brokers / Cust. Banks Brokers / Cust. Banks Z Brokers / Cust. Banks Brokers / Cust. Banks X Over The Counter Transaction

22 Corporate Action Mandatory CA –Cash dividend –Stock dividend –Mix dividend –Stock bonus –Stock split / reverse split –Merger / acquisition –Interest payment –Principal payment (Redemption) –Right / Warrant distribution –Proxy Voting Voluntary CA –IPO –Exercise of Right/Warrant –Securities conversion

23 General Process of Mandatory CA Announcement Date (AD) Record Date (RD) Effective date (2) (3) (4) (1) Reminder Date (Rem Date) Credit Entitlement of CA

24 Member Entitlement Containing the list of all accounts (including own account and clients’ sub accounts that are entitled to proceeds of Corporate Action) Generated on Record Date + 1 All KSEI members receive this report via workstation

25 Announcement date Instruction Deadline Start Exercise period Effective date Voluntary CA Instructions x days * Voluntary CA Process * The Rights/Warrants and cash positions will be debited automatically in the exercise request amount

26 Distribution of CA proceed KDPW C-Best Back-end system Central tax account member 1 Own Deps a/c Client a/c 001 Client a/c 002 Client a/c 003 Client a/c 004 member 2 Own Deps a/c Client a/c A Issuer’s account ISSUER Payment Bank (cash proceed) Registrar (sec proceed) ProceedsTax

27 Security Holder List Issuer / Registrar requirement On request (Ad hoc report) Containing the complete data of Security holders : –General Data : Security Name & Code Record Date Total Securities Issued –Security holder list : Name ID number Address Investor type Nationality Tax rate Member Name & Code (where the investor open the account with) Securities Amount Percentage of ownership Status of account

28 Issues on Sub Accounts Implementation Still practices physical archiving of COD/COTR and other supporting documents Uncertainty of investors numbers –Some brokers do not open sub accounts for some of their clients. –Investors may keep several accounts at different brokers/custodians under the same or different names or ID numbers Rely on the data given by brokers/custodians

29 Conclusion KSEI implements Indirect Account (Sub Account) Does not need to deal with thousands of investors. KSEI only deals with Participants (Brokers & Custodian) Reduce operational activities : –No Counter Desk –Participants (Brokers & Custodians) assure the accuracy of client identity. ( KYC) Investor Protection : –Separate bookkeeping –Assurance of rights attached to any CA event. Corporate Action process efficiency ; –CA Entitlement & Distribution : up to investors’ depository accounts.

30 Thank You


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