Risk Management

Handling Failures

Based on PFMI-IOSCO Principle 13 requires IDClear as Financial Market Infrastructure (FMI) to have a clear and effective regulations and procedures for handling its members’ failures. The regulations are designed to ensure that FMI can take immediate action to handle failure and liquidity problems to meet settlement obligations. In carrying out the guarantee function, IDClear refer to Indonesia FSA Regulation No.26/POJK.04/2014 regarding Securities Exchange Transaction Settlement Guarantee. Under this rule, it is stated that IDClear is obliged to instantly and immediately take over responsibility of the Clearing Member who failed to meet its obligations related to exchange transactions settlement and to settle the transactions at the same time and manner as required to the Clearing Member.

Exchange transaction settlement guarantee is based on clearing results by netting at the Clearing Member level. As for the order of use of financial resources for guaranteeing the transaction is as follows:

  1. Guarantee Reserve
    Guarantee Reserve is a fund accumulated from IDClear net income allowance by a certain percentage in the form of cash or cash equivalents that are used to guarantee securities exchange transactions settlement. The percentage is based on the recommendations of IDClear's Credit Policy and Risk Management Committee and is requested for approval from the General Meeting of Shareholder.
  2. Bank's Credit facility
    Bank’s credit facility is obtained from one of the payment banks in collaboration with IDClear, in terms of the bailout that can "soon" used to cover the settlement failure of a particular Clearing Member.
  3. Guarantee Fund
    Is a collection of fund and/or securities administrated and managed by IDClear which is used to perform Exchange Transactions’ Settlement Guarantee.
  4. Credit Ring
    Credit Ring is a financial resource collected from other credit ring members, which jointly bear losses from a certain Clearing Member.

The credit ring is used when the three above financial resources have been used but not sufficient, with the following distribution:

  1. 20% (twenty percent) of the amount needed to fulfill obligations to IDClear is equally divided among members of the remaining credit ring;
  2. 80% (eighty percent) of the amount needed to fulfill obligations to IDClear is shared proportionally among members of the credit ring that remains based on their respective clearing value of each member for the last 6 (six) months; and
  3. The amounts not paid within 30 (thirty) days by a particular credit network member, will be divided among remaining credit ring members in accordance with the provisions of subparagraph a and b above.

For every use of financial resources must be repaid by the defaulting Clearing Member. The repayment can be assisted by IDClear through:

  1. Requesting cash deposit and/or using the defaulting Clearing Member’s financial resources which are under IDClear control no later than two (2) trading days after the use of financial  resources;
  2. Selling the securities available in the defaulting Clearing Member Collateral Account no later than 10 trading days after the use of financial resources;
  3. Requesting the revocation of the defaulting Clearing Member’s Exchange membership, followed by the sale of Stock Exchange membership and/or sale of defaulting Clearing Member shares owned by majority shareholder no later than 60 trading days after the use of financial resources;
  4. Filing for defaulting Clearing Member’s bankruptcy to Indonesia FSA no later than 90 days after the use of financial resources followed by liquidation and/or sale of Clearing Member’s assets.

Furthermore, after the financial resources for the repayment is sufficient, the repayment is done with the following order of priority:

  1. Guarantee Fund;
  2. Credit Ring;
  3. Credit Facility;
  4. Guarantee Reserve.

Exchange transaction settlement’s default handling mechanism above can be accessed in KPEI Rule Number II-5 on Clearing and Guarantee for Settlement of Exchange Transactions Involving Equity Securities.