Presentation on theme: "Partner KPEI Securities Borrowing & Lending 8 th Asia-Pacific Central Securities Depository Group Cross Training Seminar June 27 th – 28 th, 2006, Bangkok."— Presentation transcript:
Partner KPEI Securities Borrowing & Lending 8 th Asia-Pacific Central Securities Depository Group Cross Training Seminar June 27 th – 28 th, 2006, Bangkok Antonius H. Azwar
Role of KPEI Role of KPEI KPEI SBL KPEI SBL Tax Implication Tax Implication Statistics Statistics Issues Issues Objectives 8 th ACG Cross Training Seminar June 27 th – 28 th, 2006, Bangkok
Performs Clearing and Guarantee of securities transaction settlement: As Central Counterparty As Central Counterparty Central SBL Service Central SBL Service Managing the Guarantee Managing the Guarantee Fund Fund EXCHANGES KPEI/CCP KSEI/CD Performs Securities Transactions Performs Central Custodian & Depository The Functional Relationship & The Functional Relationship & The Role of KPEI
To avoid settlement failure To cover or to settle a short trading position/margin trading (Strategic Trading) Clearing Member financing of stock exchange trade settlement for its Client (Securities Financing) Purposes
Market Players KPEI KPEI as Intermediary/Principal and Guarantor Lenders: Institutional or individual investors through Clearing Member and Custodian Bank. Borrowers: All investors participating through Clearing Member only.
Client Lender CM/CB Lender CM/CB Borrower CM Client Borrower CM Borrower CM Client KPEI KPEI SLB Scheme ------- Scope of KPEI SLB Agreement- -----
Borrower NOVATIE NOVATIE BorrowerLender WHY? WHY Lender KPEI Orderly function Guaranteed intermediation Management service: System support Collateral management Default Handling Entitlement processing Fee management Why KPEI ?
4 days (Exchange Day)Recall Period 125 % NRC (Non Reimbursement Compensation) 12% p.a Lending Revenue rate IDR 20.000 Borrowing Instruction Fees Borrowing fee x 1 dayMin Borrowing fee 15% p.aBorrowing Fee rate 1 day (Exchange Day) Min Loan Period Cash, Stocks, Bank Guarantee, Deposit, Bonds Type of Collateral 125 %Collateral Parameter Max Loan Period90 days (Exchange Day)Parameter
Tax Implication Approved by tax authority Jan ‘06
Fee Borrower KPEI Fee = Y KPEI SBL System Lender Borrowing Fee = X% Lender Fee = Z No income tax Income tax Lending revenue = X% - Z No income tax Investor “No levy of Income Tax as intended under Chapter 23 is imposed upon remuneration for Securities Lending and Borrowing receivables paid by the Borrower to KPEI, part of which is intended for pass-through to the Lender”. “Upon remuneration for lending and borrowing service paid to the ultimate lender client investor by a Stock Exchange Member and/or a Custodian Bank acting as mediator of Lender, which is deemed to be the equivalent of lease, and other income originating from sources pertaining to the utilization of wealth, Income Tax Deduction as intended under Chapter 23 of 15% (fifteen percent) against the projected net income of 40% of bruto income is imposed or as intended under Chapter 26 Income Tax a tariff of 20% is imposed or deducted in accordance with provisions under the Multiple Taxation Avoidance Agreement”. Borrowing Fee = X%
Borrower KPEI Cash Dividen = X% KPEI SLB System Lender Cash Dividen= X% Issuer via Payment Agent Investor Cash Dividen = X% Cash Dividen= X%, (income tax) No Income tax Manufactured Dividend Cash Dividen= X% No levy of Income Tax as intended under Chapter 23 is imposed upon Dividend Replacement paid by the Borrower, whether originating from the Issuer or its own account, to KPEI for further pass-through to the Lender.
Borrower KPEI Pass-through KPEI SLB System Lender Fail to reimburse Penalty = NRC NRC Investor No Income tax No income tax Exchange trade Final Income tax = 0,1% NRC value NRC NRC (Non Reimbursement Compensation) “KPEI, in its capacity as organizer of the stock exchange, is obligated to deduct Income Tax that is final in the amount of 0.1% (zero point one percent) against the value of Non Reimbursement Compensation paid to the Lender due to the inability of the Borrower to make reimbursement for borrowed Securities. This is due to the consideration that a default in a Securities Lending and Borrowing Transaction is deemed to be the equivalent of a Shares Buying Transaction”.
S t a t i s t i c Updated to June 22th, 2006 06’ Total Loan value:Rp. 988,190,617,500.- Daily average:Rp. 5,551,632,682.- Total Volume:330, 555,500 unit shares
S t a t i s t i c Eligible Stocks Eligible Stocks : 84 Active Eligible Stock: 70 Members Members: 83 (Brokers + Custodian Bank) Active Members: 39
Improve regulated short selling Improve the regulation of short selling Lift ban on regulation of selected shares for regulated short selling Coordinate with SX and Bapepam (SEC) for surveillance and enforcement of regulated short selling transaction Implementation new module: Substitution Loan, Automatic SBL, Automatic Roll over Develop different market for SLB (Fixed Term) Sustainability & stability of supply and demand (Visit directly to member/”marketing program”) Develop comprehensive KPEI SBL Website for information and order facility Market education On Progress Agenda
Current Issues & Obstacles Insufficient pool of Lendable Stocks Membership only consists of brokers (Securities company) Bapepam/SEC has recently permitted Custodian Bank only as a Lender Pension and Mutual Funds lending prohibition Grey area of Short Selling Regulation Additional Education Is Required Product knowledge = Additional Education Is Required : Product it self Myths & Misconceptions: SBL Creates Negative Market Conditions Conflict of Interest for Fund Managers Stock Lending and Short Selling are Bad for the Market
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