Risk Management

In performing its functions as Clearing and Guarantee Corporation, IDClear refers to the Principles for Financial Market Infrastructure published by the Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organization of Securities Commissions (IOSCO). These guidelines are intended to provide a comprehensive standard for Financial Market Infrastructure (FMI), which play a role in facilitating the payment, support processes and activities of settlement and financial instruments depository. FMI is an important aspect of the financial system and the economy around the world because if not managed properly, FMI can become the source of financial crisis.

To that end, IDClear as one of the FMI having a role as a central counterparty in the Indonesia capital market, should conduct measurement, monitoring, and management of credit, liquidity and market risks.

CREDIT RISK

In performing exchange transaction clearing and settlement guarantee activities, IDClear faces credit risks which would potentially arise anytime. This is as result of a certain Clearing Members default in fulfilling its obligations to IDClear. Credit risk has become a threat to IDClear as CCP and poses a systemic risk to the financial market stability in general because the default of one party to meet his obligations will cause the other party's default to fulfill the obligations that ultimately threatens the financial markets stability.

IDClear credit risk arises from the following parties:

1. Clearing Member
   

   Credit risk arising from Clearing Member transactions, Clearing Member whose financial condition is inadequate, caused by a change in the stock price on the same day (intraday) and inter-day, or as the number of positions that have not settled (outstanding position). 

   • Clearing Members Membership Requirements
     To become a Clearing Member, it is required to meet the membership requirements that refer to IDClear Rule Number II-3 regarding Clearing Member. These rules can be found here.
   • Net Adjusted Working Capital Minimum Requirement (NAWC)
     NAWC is the minimum capital that should be owned by the securities company or an exchange member based on the company’s assets and capital deducted by its liability components. NAWC fulfillment refers to Bapepam-LK Rule Number V.D.5 regarding Net Adjusted Working Capital Maintenance and Reporting. Every securities company is required to have NAWC amounting to 6.25% of its total liabilities, or at least Rp 25,000,000,000 (twenty-five billion rupiah) and must be reported daily no later than 08.30.
   • Risk Profile
     The risk profiles assessed by IDClear cover Clearing Members and Securities, which will then become risk factors based on a combination of both, and the calculation is performed at the transaction order on the stock exchange. The risk factors in this order level require a Clearing Member to pledge sufficient collateral to submit an order. Clearing Member Orders will be automatically rejected if the collateral is insufficient to cover the risk factors, so the higher the risk factor due to the Clearing Member orders over certain securities, the higher the collateral value that must be pledged by the Clearing Member.
   • Trading Limit
     A maximum exchange transactions value set for every Clearing Member based on the free collateral value deposited by Clearing Members to IDClear. The trading limit value always changes depending on the collateral value pledged compared to the risk value of all unsettled positions. Further information regarding trading limit, click here.
   • Margin
     Is the collateral amount deposited to IDClear to cover the risk of Clearing Members and their client's position/portfolio in order to guarantee the exchange transactions settlement that has been performed. Margin components include variation margin and initial margin. For detailed information regarding margin, click here.
   • DVP Settlement
     IDClear implements DVP settlement which is an equity settlement procedure for equity securities through securities book-entry between accounts in which the securities delivery and funds payment are performed simultaneously. DVP settlement process is divided into two sessions:
     
     1. 1. Morning session settlement or batch settlement (starting from 06:30 to 11:25);
        2. Final or afternoon settlement session (starting from 12:15 to 13:30)

     The DVP settlement concept is a risk mitigation for a case when a party (seller or buyer) have submitted their obligations but do not receive their rights or vice versa.

   • Alternate Cash Settlement (ACS)
     In the event that a Clearing Member failed to meet some or all of its equity securities delivery obligations to IDClear, the Clearing Member must replace any delivery obligation of these securities to a substitute cash payment obligation (Alternate Cash Settlement) to IDClear which is further handled by IDClear to the receiving party. ACS amount is calculated as follows:
     
     ACS : Securities Volume * Highest Price * 125%
     
     Where the highest price used is between equity prices on T + 0 (session 1 and session 2) and on T + 2 (session 1) in both the regular and cash market, whichever is higher.
   • Sources of Funds
     Referring to Indonesia Financial Services Authority Rules Number 26/POJK.04/2014 regarding Exchange Transaction Settlement Guarantee, IDClear has 3 pre-funded financial resources which are ready for use in an event of exchange transaction settlement failure. The use of the three financial resources is done sequentially, i.e. Guarantee Reserve, Credit Facility and Guarantee Fund. If the above three financial sources are insufficient, IDClear will use Credit Ring that are un pre-funded, i.e. the financial resources that are not yet available and its value will be calculated to match the needs.
   • Guarantee Fund
     Is the funds accumulated from IDClear net income allowance as the Clearing Guarantee Institution in the form of cash or cash equivalent. The amount is determined by the General Meeting of Shareholders (GMS).
   • Credit Facility
     Loans granted by banks to IDClear using cash collateral with the credit term of the loan 1 year and then extended by agreement.
   • Guarantee Fund
     The funds raised from Clearing Members initial contribution and the 0.01% (zero point zero one percent) quote from each exchange transaction value.
   • Financial Resources Adequacy (Stress Test)
     The pre-funded financial resources that must be met at the point g is calculated based on the worst possible loss during the extreme but plausible period. To determine the financial resources adequacy, IDClear conducts stress tests. For further information regarding stress tests click here.
2. Payment Banks and/or Cash & Cash Equivalents Issuer Banks
   Payment Banks and/or Cash & Cash Equivalents Issuer Banks are parties associated with IDClear that pose a credit risk to IDClear resulting from the exchange transaction settlement activity, collateral management and guarantee funds and the management of IDClear financial resources. To mitigate credit risk arising from payment bank activities, IDClear will set a credit risk framework for payment banks.
3. Stock Loans Counterparties
   Stock Loans Counterparties are parties associated with IDClear that pose a credit risk to IDClear as a result of securities lending and borrowing activities including default in fulfilling obligations, depreciation of loan value and risk calculations. To mitigate credit risk arising from Stock Loans Counterparties activities, IDClear will set the credit risk framework for securities borrowers.

LIQUIDITY RISK

IDClear must ensure the measurement, monitoring, and management of liquidity risk effectively. IDClear manages liquid funding sources adequacy in all of the relevant currencies, either on the same day or inter-day by considering a certain confidence level and with a specific stress scenario. This is done to the Clearing Members and its affiliates which could potentially lead to the need for very large liquidity in the extreme but possible market conditions. IDClear liquidity risk is fully in Rupiah (IDR) currency.

MARKET RISK

IDClear is affected by market risk when assessing the risk for any clearing members and clients’ outstanding positions. In assessing such risks, IDClear uses margin method. Market risk arises as a result of the difference in price when the transaction occurs with the last market price. The margin is calculated for every unsettled position in each of the equity, derivatives, bonds and securities lending and borrowing markets. Margin value will be a deduction for the collateral value which as a component in calculating AK trading limit.