Strategy for Market Standards Paul Landless and Emir Nurmansyah 22 November 2011 Indonesian GMRA Annex

Introduction Overview of Market Standards in Repo markets Case Studies / Issues in Other Jurisdictions 2 Strategy for Market Standards 22 November 2011

Overview of Market Standards in Repo markets 3 Strategy for Market Standards 22 November 2011

Overview of Market Standards in Repo markets  General standards observed in repo markets  Issues relevant for participants in repo markets  Agency transactions  Central counterparty clearing  Margin  Custody  Default and close-out  Repo confirmation 4 Strategy for Market Standards 22 November 2011

General standards observed in repo markets  As a general matter, repo market participants should:  act with due skill, care and diligence  comply with relevant regulatory requirements  ensure fair treatment for and between clients  keep client information confidential  monitor / ensure their activities do not cause market disruption 5 Strategy for Market Standards 22 November 2011

Issues relevant for participants in repo markets (1) Participants should ensure that:  there are no legal obstacles to entering into the repo  all relevant internal authorisations or regulatory approvals etc. have been obtained  all necessary authority has been obtained from the client  adequate systems and controls are in place 6 Strategy for Market Standards 22 November 2011

Issues relevant for participants in repo markets (2)  tax positions have been considered  credit assessment against counterparties have been conducted 7 Strategy for Market Standards 22 November 2011

Agency transactions  Capacity  Acting as agent on behalf of a principal  Acting as agent on behalf of more than one principal  Approvals obtained from beneficial owners of:  Cash  Bonds/securities  Regular reports and updates on repo 8 Strategy for Market Standards 22 November 2011

Central counterparty clearing  Central counterparty clearing  Counterparty to repos  Means of risk management against:  Credit risk  Market risk  Initial margin from both parties  Daily exposure calculations on a MTM basis  Maintenance of margin calls  CCP - now a recently discussed hot topic, forming part of the package of global financial reforms 9 Strategy for Market Standards 22 November 2011

Margin (1)  Initial margin  Marked-to-market on a daily basis  Delivery  Securities  Cash  Valuations to cover:  Interest accrued on the cash  Interest accrued on securities outstanding  Coupon payable to the collateral holder 10 Strategy for Market Standards 22 November 2011

Margin (2)  Standard Margin Threshold?  Material exposures  Monitoring of net exposures  Integration of exposures 11 Strategy for Market Standards 22 November 2011

Default and close-out  Participants in repos should ensure:  adequate systems in relation to EODs  they handle EOD scenarios carefully  default market values used in close-out calculations are fair  not to disrupt or adversely affect the markets 12 Strategy for Market Standards 22 November 2011

Repo confirmation  Date of issue  Form of confirmation  Document main terms  Document any material changes during the life of a repo 13 Strategy for Market Standards 22 November 2011

Case Studies / Issues in Other Jurisdictions 14 Strategy for Market Standards 22 November 2011

Australia  Basel III – Global liquidity rules  Nov 2011: Australian regulators to set bank liquidity fee  Increase of repo margins 15 Strategy for Market Standards 22 November 2011

China  NAFMII’s Chinese Master Repo Agreements (CMRA)  ASIFMA and various PRC authorities and organisations aim to finalise and approve NAFMII’s CMRA in late November November 2011

South Korea  Tax Impact  November 2010: Withholding tax on Korean bonds held by foreigners  Regulatory Impact  April 2011: Investment bank reprimanded by Korean regulators 17 Strategy for Market Standards 22 November 2011

South Africa  Repo Rate  Nov 2011: Rate to remain unchanged 18 Strategy for Market Standards 22 November 2011

Thailand  Regulatory impact  Investment bank’s repo permit suspended due to regulatory investigation 19 Strategy for Market Standards 22 November 2011

Reference materials  Reference materials Various market standard documents and guidance materials prepared by: International Capital Market Association European Repo Committee Securities Industry and Financial Markets Association Securities Lending and Repo Committee Sterling Money Markets Liaison Group 20 Strategy for Market Standards 22 November 2011

Questions? 21 Strategy for Market Standards 22 November 2011

Your Contacts Paget Dare Bryan Partner 28th Floor Jardine House One Connaught Place Central Hong Kong SAR T F E Paul Landless Consultant Clifford Chance One George Street 19th Floor Singapore Singapore T F E 22 Terry Yang Senior Associate 28th Floor Jardine House One Connaught Place Central Hong Kong SAR T F E Strategy for Market Standards 22 November 2011

23 Philip Payne Foreign Of Counsel Graha CIMB Niaga 24th Floor Jl. Jend. Sudirman Kav. 58 Jakarta T F , 5121, 5122,5392 E Emir Nurmansyah Partner Graha CIMB Niaga 24th Floor Jl. Jend. Sudirman Kav. 58 Jakarta T F , 5121, 5122,5392 E Your Contacts 22 November 2011 Strategy for Market Standards

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