Implementation of the PPSK Law, KPEI Expands Role as National Central Counterparty

Indonesia's capital market (Photo: dok. Antara)

JAKARTA - PT Kliring Penjaminan Efek Indonesia (KPEI) targets transformation into a center for managing the risk of the national financial market as part of the implementation of the Financial Sector Development and Strengthening Law (UU PPSK).

Until now, KPEI has played a role as a clearing and settlement guarantee institution for transactions on the Indonesia Stock Exchange (IDX) and in the future will expand its functions to become a provider of central counterparty (CCP) services, risk management, and collateral management (collateral management) that is integrated across markets.

KPEI President Director Antonius Herman Azwar said the PPSK Law is the basis for strengthening the role of KPEI as an infrastructure that connects the capital market with the money market.

According to him, in various countries, the existence of CCPs is an important element in maintaining efficiency as well as the stability of the financial system.

"Our vision in this country is to deepen the financial market, not only the capital market, but also the money market," he told the media, quoted by Antara, Tuesday, July 14.

He explained that the expansion of the mandate was carried out in line with efforts to integrate the capital market and the money market through the strengthening of the infrastructure of the Indonesian financial market.

According to Anton, the KPEI paradigm is no longer limited to providing clearing and risk management services in the capital market.

Anton said that his party was transforming into a central clearing, risk management, and collateral management hub that integrates various segments of the financial market, both domestic, regional, and global.

"We are transforming from a clearing provider to a central clearing, risk management and collateral management hub that integrates the financial market," he said.

As part of this transformation, KPEI has also updated its clearing and risk management systems to comply with international standards, and this step is expected to improve connectivity between Indonesia's financial markets and global markets.

"Now we are updating the clearing system and risk management system, which is in accordance with standards, and later if other countries, or foreign investors want to connect to us, it is ready, we have prepared many connections," he explained.

Anton assessed that centralized risk management would make the use of collateral more efficient, because until now, collateral on various market instruments is still scattered, increasing the need for capital and transaction costs.

According to him, by going through an integrated risk management system, various risks in the financial market can be monitored more comprehensively, in addition to increasing the efficiency of collateral use, the system is also expected to be able to strengthen market liquidity, reduce transaction costs, and increase financial market stability.

"Market risk is no longer spread or duplicated. Well this is the main function also in the center. So if we do central risk management here we can measure it together. So it's not spread. So it means that if there is a risk in the sector or in the instrument or in the market, it can even be captured directly at KPEI," he explained.

He added that the transformation of KPEI is aimed at creating a more efficient, liquid, and competitive financial market, as well as implementing international compliance standards as a CCP institution.

Anton revealed that KPEI had actually carried out the CCP function in the money market and the next stage was to expand the implementation of the service while increasing the participation of industry players so that its utilization would be more optimal.

One of the developments that are being prepared is the CCP service for Interbank Repo transactions, namely KPEI targeting the development of the system to take place gradually from 2027 to early 2028.

In addition, KPEI is also seeking recognition from a number of international regulators, such as the European Securities and Markets Authority (ESMA), the United Kingdom, the United States, and Japan, and the process is currently still in the assessment stage of system and operational standards.

According to Anton, this international recognition is an important factor in increasing global investors' confidence in Indonesia's financial market infrastructure as well as encouraging foreign investment.

In the capital market, he claimed that the CCP mechanism had generated efficiency through the netting process, namely from the daily transaction value of around Rp24 trillion, the value of transaction settlement can be suppressed to around 40 percent of the total transaction.

"In terms of value, we can be efficient by about 60 percent. This means that only about 40 percent of the Rp24 trillion is settled. Then from the 3 million frequency, the volume is more efficient, 70 percent to 80 percent. This means only a few transactions are settled because we do it efficiently," he said.

However, Anton admitted that the transformation still faces a number of challenges, ranging from the preparation of derivative regulations, increased adoption by the banking industry, to strengthening human resources and technology capacity.

KPEI also continues to encourage the development of the Money Market and Foreign Exchange Market (PUVA) so that the available instruments are more diverse and liquid, the price formation mechanism becomes more efficient, and the capacity of market participants increases.

At the same time, KPEI also communicated with a number of global CCPs to obtain recognition as an international PUVA transaction guarantor institution.

He added that so far, 10 institutions have joined from the previous eight institutions that became members of PUVA in the CCP KPEI mechanism.

In addition, Anton said that there were a number of foreign banks that were still waiting for the recognition process of the KPEI system at the international level.

"PUVA members are now correct, now those who have been onboarding are from eight to 10, 2 are still in the process," he said.

On the other hand, the Triparty Agent Repo (TPR Repo) service for the repurchase agreement (repo) transaction of State Securities (SBN) has also been operational.

The scheme is prepared to support the needs of Bank Indonesia in expanding the SBN repo transaction outside the primary dealer bank group.

Anton said that currently KPEI continues to encourage banks that have not yet been status as primary dealers to join in utilizing this mechanism.

"We already have a program to chase all banks that are not primary dealers. Primary dealers, if I'm not mistaken, there are 19. The others will be because there is no mandatory regulation for mandatory, so we have to chase them to enter the mechanism," he concluded.