Account Structure in KSEI ACG Cross Training Bangkok, 27-28 June 2006 KSEI – Kustodian Sentral Efek Indonesia (ICSD – Indonesian Central Securities Depository)

Account Structure in KSEIACG Cross Training

Bangkok, 27-28 June 2006

KSEI – Kustodian Sentral Efek Indonesia(ICSD – Indonesian Central Securities Depository)

Outline• Introduction

– KSEI in Indonesian Capital Market– Scripless Implementation Background

• KSEI Participants• Collective Custody

– Regulation on Accounts and Sub Accounts • Account Type & Structure• Indirect Account Sub Accounts• Benefit & Advantage of Sub Accounts• Investor Types• Account Details & Maintenance• Transactions in C-Best• Corporate Action (Entitlement & Distribution)• Securities Holder List• Issues• Conclusion

Ministry of FinanceMinistry of Finance

Capital Market Supervisory Agency (BAPEPAM)

Capital Market Supervisory Agency (BAPEPAM)

Stock Exchange :

Jakarta Stock Exchange

Surabaya Stock Exchange

Stock Exchange :

Jakarta Stock Exchange

Surabaya Stock Exchange

Indonesian Central Securities Depository

PT KSEI

Indonesian Central Securities Depository

PT KSEI

Indonesian Clearing and Guarantee Institution

PT KPEI

Indonesian Clearing and Guarantee Institution

PT KPEI

Introduction - KSEI in Indonesian Capital Market

SRO (Self Regulatory Organization)

Clearing-Netting Book-entry SettlementScripless Trading

Introduction - Scripless Implementation Background

• Began in July 2000• Fully Scripless since June 2002 • C-Best (Central depository and Book Entry Settlement System)• Stock Exchange settlement performed Electronic-Based• Time Frame Settlement (T+3) : since September 2002• OTC transaction & Settlement• Automatic transfer of securities ownership by book-entry• Automatic Corporate Actions process

• Actual Data (as of 31 May 2006) : Total Participants : 167 entities

(148 Brokers, 19 Bank Custodians)Total Issuers : 437 entitiesTotal Securities instruments : 667

(384 shares, 240 corp.bonds, 24 Warrants, 2 Rights, 11 MTN, 6 PN)Total Asset (value of all securities recorded) : 583.303 Billion IDR : 63.080 Trillion USD

• KSEI Participants are :- Brokers (Securities Companies)- Custodian Banks- Other parties approved by Bapepam (The Capital Market Supervisory Agency);

KPEI for the function of Stock Exchange Transaction Settlement Foreign CSDs for cross-border settlement

As of 31 May 2006 : 167 Participants 148 Brokers 19 Custodian Banks

• Investor opens a securities account in Securities Company or Custodian Bank

KSEI Participants

Collective Custody

ICSD / KSEI

ISSUER / REGISTRAR

BROKER/CUSTODIAN BANK

Merrill Lynch ASII 2000

ING Baring ASII 3000

HSBCASII 2000

CITIBANKASII 2000

Morgan StanleyASII 1500

Bankers TrustASII 500

Northern TrustASII 3000

Chase ManhattanASII 2000

Goldman ASII 2000

Scrip Records

Electronic Records KSEI ASII 10000

Legal Basis

• Law Number 8 Year 1995 of The Republic of Indonesia regarding Capital Market

Fungible : Securities In Collective Custody issued by the same Issuer are interchangeable with and equivalent to other Securities of the same type and class

Under the name of CSD :Securities in Collective Custody at a Central Securities Depository shall be recorded in the Issuer’s registry of Security-holders in the name of the Central Securities Depository as the representative of its account-holders

Segregation of assets :Securities Companies must comply with BAPEPAM Rules upon accepting

clients’ Securities and must : a. register clients’ Securities in accounts that are separate from own accounts ;

andb. maintain secured facilities for safekeeping clients’ assets, under separate

records for each client.

Collective Custody

BAPEPAM Rule No. III.C.7 regarding Sub Account at ICSD :

• Client Investor is the recognized holder of securities account at Participant • Participant is a Securities Company or Custodian Bank that has opened a securities account at KSEI • A sub securities account is the securities account of each client recorded in the Participant’s security account at KSEI • KSEI Participant is obligated to :

• open a sub account in name of each client• record client owned securities in respective sub accounts• assure accuracy of client securities balance (internal vs ICSD data )• assure accuracy of client identity (internal vs ICSD data )

• KSEI is obligated to : • hold separate administration for the recording of securities in each sub securities account• deliver daily reports on the position of sub security accounts to respective Participants

• KSEI only maintains contact with and is responsible to respective Participants pertaining to the administering of Sub Securities Accounts

• Investor has the right to check the accuracy of the report concerning the balance of securities he owns (data at Participant vs data at ICSD)

Collective Custody

Account Type

Lending &borrowing

delivery account

receiptAccount

Collateral account

Own Depositaccount

Client Depaccount X

Lending &borrowing

delivery account

receiptAccount

Collateral account

Own Depositaccount

Client DepAccount A

Custodian Bank X

Own Depositaccount

Client DepAccount 1

Client Depaccount Y

Client Depaccount ZClient Dep

account B

Broker ABroker A

Broker BBroker B

Client DepAccount 2

Account Structure

KSEI

Custodian Bank Broker KPEI IssuerRegistrar

Payment Bank

Clearing MemberNon Clearing Member

Depository Acc

Cash Sec

Delivering Acc

Cash Sec

Depository Acc

Cash Sec

Sub AccCash Sec

Sub AccCash Sec

Nostro Acc

Cash Sec

Receiving Acc

Cash Sec

Collateral Acc

Cash Sec

L & B Acc

Cash Sec

Sub AccCash Sec

Sub AccCash Sec

Nostro Acc

Cash Sec

Depository Acc

Cash Sec

Indirect Account

• Investors own accounts at Brokers / Custodians• Brokers / Custodians possess their own accounts and

their clients’ accounts at KSEI

Brokers/CustodiansInvestors

Request &Docs

Request &Docs

VerifyProcessArchive

ConfirmationConfirmation

• KSEI holds separate administration for the recording of securities in each sub securities account

There is No Omnibus Account

Securities Recording on Accounts

KSEI

Brokers /CustodianBanks

Investors

Br 1 CB 2

Account Holder : Br 1 Account Holder : CB 2

Own Cust. A Cust. B

Sec. ASec. BIDR

Sec. ASec. DIDR

Sec. CSec. DIDR

Own Cust. X Cust. Y

Sec. ASec. BIDR

Sec. ASec. DIDR

Sec. CSec. DIDR

Customer A Customer B Customer X Customer Y

Br 1 Cust. A Cust. B CB 2 Cust. X Cust. Y

Benefit & Advantage of Sub Accounts

– Investor Protection• Assurance of separated bookkeeping for securities owned by the investor and those owned by the custodian• Assurance of accurate recording of investor securities ownership position • Assurance of rights attached to securities such as dividend; right to attend RUPS (Shareholder General Meeting), as investor will be listed in the List of Shareholders issued by KSEI

– Availability of real time investor data in KSEI, for the purpose of :• performing corporate action• Issuer’s reporting to Bapepam, Stock Exchange, Central Bank, for among others: investigation.• Monitoring share ownership of > 5% • investigation by authorities, like: Bapepam, Court of Justice, Police.• producing reports.

– Corporate action proceeds distribution efficiency.– Assuring proper tax rate applied upon investor in the occurrence of Corporate Action

Investor Types

• Individual Investor– Local– Foreign

• Institutional Investor :– Local :

• Limited Company• Brokers• Insurance• Bank• Government of Indonesia• Pension Fund• Mutual Fund• Foundation• Jamsostek (Labor Social Security)• Cooperative• Custodian Bank • Taspen (Civil Servant Insurance Savings)

– Foreign : • Tax Treaty (each country)

Account Details

• Account Number AB001 – XY12 – 001 – 99 Local_Code – Client_Code – Acc_Type – CheckDigit

• Correspondent Account Number : account on PB (mirroring acct) – only for Own Acct and Collat.Acct

• Account Description : name of client

• Status : Available/Blocked/Closed

• Tax ID• Blocking Reason (if any; only for Blocked Acct.)

• ID number : KITAS / COR / COD / NPWP

• Address • Nationality

Open Account : – Supporting documents will define the investor type and tax rate of the account – No documents the highest tax rate (20%)– Upload facility (Internal use)

Modify : – Usually to change / to adjust tax rate, address, account description.

Block/Unblock :– To Pledge / unpledge, Lock-up by Stock Exchange, other reasons.

Close :– Account should be zero balance– Can Not be recycled

Account linkage :– Related to Post Trade Processing module.– To link an Investment Manager’s sub account to a custodian bank

Account Maintenance

Data and Supporting Documents

• Local Individual : Identity No and address according to Identity Card• Foreign Individual : copy of ID card if residing in Indonesia or copy of Certificate of

Tax Residence (COTR) legalized by tax office if otherwise. • Local Institution :• - Foundation, Cooperative, Insurance, Ltd. : copy of Tax Registration• - Pension Fund : copy of State Minister of Finance Decree (SKMK) and

Tax Reg.• - Mutual Fund : copy of Effective Letter (from Bapepam) and Tax

Registration• - Jamsostek JHT : State Minister of Finance Decree (SKMK)• - Jamsostek Non JHT : copy of Tax Registration• - Taspen : copy of Tax Registration• Foreign institution: copy of Certificate of Tax Residence (COTR) legalized by tax

office, • Foreign Institution exempted from income tax: State Minister of Finance Decree No.

574/KMK.04/2000 dated December 26th 2000• Armed Forces (ABRI) : Letter of Acknowledgement from Dir. Gen. of Tax• Indonesia Government: RI State Regulation

Transactions in C-Best

• Depository Management– Deposit – Withdrawal– Security Transfer (within one Member)

• Clearing and Settlement– DFOP/RFOP – DVP/RVP

• Cash Management– Book Transfer (cash transfer within one Member)– Wire Transfer (cash withdrawal)

• Collateral Deposit• Lendable Deposit• Post Trade Processing

– Trade Confirmation– Settlement Instruction

Instruction Creation

Participant KSEI

Input via C-Best workstationC-Best Server

• 6-eyes principle (create, check, approve)

• 4-eyes principle (create direct check, approve)

• 2-eyes principle (create direct approve)

File upload

Participant Participants are responsible for the data they input.

OTCSECTRSBTSWTDCONFREC

Investor

Investor

Instruction

Instruction

stock

cash

stock

cash

KPEI Account

L & B Account

CollateralAccount

ReceivingAccount

ReceivingAccount

Client Account

L & BAccount

CollateralAccount

DeliveryAccount

Selling broker Buying broker

Payment Bank

alignment

K S E I KPEI

synchronize

Stock

Delivery Account

Client Account

Own Account

OwnAccount

Cash

CustodianBank

OTC

OTC

Stock Exchange Settlement

KSEIA B

1. DVPINSTRUCTION

2. RVPINSTRUCTION

MATCHINGPROCESS

X Z

1. DVP : DELIVERY VERSUS PAYMENT2. RVP : RECEIVE VERSUS PAYMENT

4. RFOPINSTRUCTION

3. DFOP : DELIVERY FREE OF PAYMENT4. RFOP : RECEIVER FREE OF PAYMENT

3. DFOPINSTRUCTION

Brokers /Cust. Banks

Brokers /Cust. Banks

A

Brokers /Cust. Banks

Brokers /Cust. Banks

B

Brokers /Cust. Banks

Brokers /Cust. Banks

Z

Brokers /Cust. Banks

Brokers /Cust. Banks

X

Over The Counter Transaction

Corporate Action

• Mandatory CA– Cash dividend– Stock dividend– Mix dividend– Stock bonus– Stock split / reverse split– Merger / acquisition– Interest payment– Principal payment (Redemption)– Right / Warrant distribution – Proxy Voting

• Voluntary CA– IPO– Exercise of

Right/Warrant – Securities

conversion

General Process of Mandatory CA

Announcement Date (AD)

Record Date (RD) Effective

date

(2) (3) (4)(1)

Reminder Date (Rem Date)

Credit Entitlement of CA

A nnouncem ent R eport

(O n A D / R em D ate)

M em ber Entitlem entR eport

(RD + 1)

Inv ita tion Le tte r (R D + 1)

Member Entitlement

• Containing the list of all accounts (including own account and clients’ sub accounts that are entitled to proceeds of Corporate Action)

• Generated on Record Date + 1• All KSEI members receive this report via workstation

Announcement date

Instruction Deadline

Start Exercise

periodEffective

date

Voluntary CAInstructions

x days *

Voluntary CA Process

* The Rights/Warrants and cash positions will be debited automatically in the exercise request amount

Distribution of CA proceed

KDPW KDPWC-Best Back-end system

Central tax account

member 1Own Deps a/c

Client a/c 001

Client a/c 002

Client a/c 003

Client a/c 004

member 2

Own Deps a/c

Client a/c A

Issuer’s account

ISSUER

Payment Bank (cash proceed)

Registrar (sec proceed)

Proceeds Tax

Security Holder List

• Issuer / Registrar requirement• On request (Ad hoc report)• Containing the complete data of Security holders :

– General Data : • Security Name & Code• Record Date• Total Securities Issued

– Security holder list : • Name• ID number• Address• Investor type• Nationality• Tax rate• Member Name & Code (where the investor open the account with)• Securities Amount• Percentage of ownership• Status of account

Issues on Sub Accounts Implementation

• Still practices physical archiving of COD/COTR and other supporting documents

• Uncertainty of investors numbers – Some brokers do not open sub accounts for some of their clients.– Investors may keep several accounts at different

brokers/custodians under the same or different names or ID numbers

• Rely on the data given by brokers/custodians

Conclusion

KSEI implements Indirect Account (Sub Account)

• Does not need to deal with thousands of investors. KSEI only deals with Participants (Brokers & Custodian)

• Reduce operational activities :– No Counter Desk– Participants (Brokers & Custodians) assure the accuracy of client

identity. (KYC)

• Investor Protection : – Separate bookkeeping

– Assurance of rights attached to any CA event.

• Corporate Action process efficiency ;

– CA Entitlement & Distribution : up to investors’ depository accounts.

Thank You