Encouraging Strengthening Financial System Stability, BI Strengthens Utilization Of Central Counterparty

Bank Indonesia (Photo: Antara)

JAKARTA - Bank Indonesia (BI) together with the Financial Services Authority (OJK) and related authorities continue to encourage the use of the Central Counterparty (CCP) by financial market players.

BI Senior Deputy Governor Destry Damayanti conveyed the role of CCP as a party in the midst of countering transactions in the foreign exchange market (PUVA) which will mitigate credit risk, liquidity risk, and market risk.

"The role of CCP is important to increase market efficiency and liquidity, as well as wider market participants' participation in realizing financial market deepening and strengthening financial system stability," he said in his statement, Tuesday, August 5.

He conveyed that the implementation of CCP is an embodiment of the mandate of the Financial Sector Development and Strengthening Law (UPU PPSK) and is also the mandate of the G20 OTC Derivatives Market Reform.

Destry stated that BI is committed to encouraging the implementation and strengthening of CCP and currently, the transactions being screened show an increasing trend but still have the potential to further increase in the context of realizing market deepening.

He said that the increase was in line with the increase in the daily average of foreign exchange market transactions, which previously in 2020 was only around US$3 billion to US$4 billion per day, increasing to US$10 billion per day by 2025.

Destry said that the affirmation of this commitment was realized in 3 ways, namely first, BI supported by main banking partners to strengthen CCP's capital to increase market participants' confidence and support CCP's sustainability as systemic financial market infrastructure.

Then second, BI included the development of CCP in the Blueprint Deepening of the 2030 Foreign Exchange Money Market and Market (BPPU), which is integrated with the development of aspects of products, prices, and financial market players, as well as third, BI continues to coordinate with relevant and industrial authorities.

Destry added that intensive coordination of Bank Indonesia was carried out with domestic authorities including the OJK as the authority regulating banks and margins for non-centrally cleared destinations (NCCD), The International Swaps and Derivatives Association (ISDA), as well as other juridiktion authorities such as Europe, the UK, the United States and Japan to obtain the recognized CCP status from foreign jurisdiction.

"In addition, coordination and synergy also continue to be carried out with market players and banking associations, including the Association of Indonesian Foreign Exchange Money Markets and Markets (APUVINDO)," he said.

He added that the strengthening and development of CCP in Indonesia is a form of policy coordination within the framework of twin-peak regulation between BI and OJK as an effort to strengthen financial market infrastructure that supports the resilience of Indonesia's financial system.

The Chief Executive of the Capital Market Supervisory, Derivative Finance and Carbon Exchange, OJK, Inarno Djajadi emphasized that the presence of CCP is increasingly crucial in reducing systemic risk risk through the risk management function of CCP, netting, and guaranteeing the completion of derivative transactions.

"OJK has issued a series of technical provisions that not only provide certainty for banks in capital and risk treatment, but also encourage the preference of financial institutions to use CCP that meet the qualifications (qualifying CCP) for the efficiency and mitigation of systemic risk," he said.

He stated that the widespread implementation of CCP by market players supported by active involvement of member banks would be the foundation for the development of Indonesia's deeper and credible financial derivative markets.

Inarno conveyed that OJK is committed to strengthening the joint coordination framework of BI through harmonization of regulations and supervision of PT Kliring Penjaminan Efek Indonesia (KPEI) by referring to the Principles for Financial Market Infrastructure (PFMI) as a joint reference.

"OJK is committed to expanding the utilization of CCP for a stronger, inclusive financial market, and is ready to face global financial dynamics," he concluded.