24-9-2024 (JAKARTA) In a significant move to strengthen its financial infrastructure, Indonesia is set to unveil a central counterparty clearing house (CCP) next week, focusing on foreign exchange and money market transactions. The Bank Indonesia (BI) announced this development on Tuesday, marking a crucial step towards deepening the capital markets of Southeast Asia’s largest economy.
The introduction of the CCP is expected to address the current fragmentation and segmentation in Indonesia’s money and foreign exchange markets. By reducing default and other market risks, the clearing house aims to enhance liquidity for banks and streamline market operations.
Donny Hutabarat, who heads the central bank’s Financial Market Development Department, highlighted the anticipated benefits during a media briefing. “The implementation of the CCP will drive efficiency in money market transactions and boost transaction volumes,” he stated, underlining the transformative potential of this initiative.
Hutabarat pointed out that the existing market price-setting mechanism is suboptimal, with large banks primarily engaging in transactions amongst themselves. The CCP is designed to democratise market access and improve overall market efficiency.
In its initial phase, the CCP will facilitate Domestic Non-Deliverable Forwards (DNDF) transactions. The central bank has outlined an ambitious five-year roadmap starting from 2025, which will see the clearing house expand its services to include repo, interest rate swaps, and overnight indexed swaps. The plan also envisages the participation of non-bank entities from 2026 onwards.
While specific targets for DNDF transaction volumes post-launch were not disclosed, the move is expected to significantly impact market dynamics.
The ownership structure of the CCP reflects a collaborative approach, with shareholders including the Indonesia Stock Market Clearing House, Bank Indonesia, and eight prominent banks: Bank Central Asia, Bank Rakyat Indonesia, Bank Mandiri, Bank Negara Indonesia, Permata Bank, Bank Danamon, CIMB Niaga, and Maybank.
To ensure the robustness of the CCP and mitigate default risks, Hutabarat revealed that each shareholder will contribute four distinct types of guarantee funds. This multi-layered financial safeguard is designed to bolster the CCP’s stability and credibility.
It’s noteworthy that despite being a shareholder, Bank Indonesia’s role will be limited to that of a regulator and supervisor, alongside Indonesia’s financial services authority. This arrangement aims to maintain regulatory independence and oversight.
The genesis of Indonesia’s CCP can be traced back to 2019 when Bank Indonesia issued relevant regulations. This move was in response to a G20 resolution aimed at controlling derivative risks in the aftermath of the 2008 global financial crisis. In developing its CCP model, Indonesia has drawn inspiration from established clearing houses in Japan and the United Kingdom.
