Partner

1
Partner
KPEI Securities Borrowing Lending
Antonius H. Azwar
8th Asia-Pacific Central Securities Depository
Group Cross Training Seminar June 27th 28th,
2006, Bangkok
2
Objectives

• Role of KPEI
• KPEI SBL
• Tax Implication
• Statistics
• Issues

8th ACG Cross Training Seminar June 27th
28th, 2006, Bangkok
3
The Functional Relationship The Role of KPEI
Performs Securities Transactions

EXCHANGES

• Performs Clearing and Guarantee of securities
  transaction settlement
• As Central Counterparty
• Central SBL Service
• Managing the Guarantee
• Fund

KPEI/CCP
Performs Central Custodian Depository

KSEI/CD
4
KPEI SBL
5
Purposes

• To avoid settlement failure
• To cover or to settle a short trading
  position/margin trading
• (Strategic Trading)
• Clearing Member financing of stock exchange
  trade settlement
• for its Client (Securities Financing)

6
Market Players

• KPEI as Intermediary/Principal and Guarantor
• Lenders
• Institutional or individual investors
  through Clearing
• Member and Custodian Bank.
• Borrowers
• All investors participating through Clearing
  Member only.

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KPEI SLB Scheme
-------Scope of KPEI SLB Agreement------
Client
Borrower CM
Client
Lender CM/CB
Client
Borrower CM
KPEI
Client
Lender CM/CB
Borrower CM
Client
Client
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Why KPEI ?
Lender
Borrower
NOVATIE
Borrower
Lender
KPEI
KPEI
WHY
WHY?

• Orderly function
• Guaranteed intermediation
• Management service
• System support
• Collateral management
• Default Handling
• Entitlement processing
• Fee management

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Parameter

Parameter
125
Collateral
Type of Collateral
Cash, Stocks, Bank Guarantee, Deposit, Bonds
125
NRC (Non Reimbursement Compensation)
Max Loan Period 90 days (Exchange Day)
1 day (Exchange Day)
Min Loan Period
4 days (Exchange Day)
Recall Period
15 p.a
Borrowing Fee rate
12 p.a
Lending Revenue rate
IDR 20.000
Borrowing Instruction Fees
Borrowing fee x 1 day
Min Borrowing fee
10
Tax Implication Approved by tax authority Jan
06
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Fee

KPEI
Lender
Borrower
Lender Fee Z
Borrowing Fee X
Lending revenue X - Z
Borrowing Fee X
Fee Y
No income tax
No income tax
Income tax
KPEI SBL System
Investor
No levy of Income Tax as intended under Chapter
23 is imposed upon remuneration for Securities
Lending and Borrowing receivables paid by the
Borrower to KPEI, part of which is intended for
pass-through to the Lender. Upon remuneration
for lending and borrowing service paid to the
ultimate lender client investor by a Stock
Exchange Member and/or a Custodian Bank acting as
mediator of Lender, which is deemed to be the
equivalent of lease, and other income originating
from sources pertaining to the utilization of
wealth, Income Tax Deduction as intended under
Chapter 23 of 15 (fifteen percent) against the
projected net income of 40 of bruto income is
imposed or as intended under Chapter 26 Income
Tax a tariff of 20 is imposed or deducted in
accordance with provisions under the Multiple
Taxation Avoidance Agreement.
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Manufactured Dividend

Issuer via Payment Agent
Cash Dividen X, (income tax)
Lender
KPEI
Borrower
Cash Dividen X
Cash Dividen X
Cash Dividen X
Cash Dividen X
No Income tax
No Income tax
No Income tax
KPEI SLB System
Investor
No levy of Income Tax as intended under Chapter
23 is imposed upon Dividend Replacement paid by
the Borrower, whether originating from the Issuer
or its own account, to KPEI for further
pass-through to the Lender.
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NRC (Non Reimbursement Compensation)
KPEI
Borrower
Lender
KPEI SLB System
Fail to reimburse Penalty NRC
NRC
Pass-through
NRC
Final Income tax 0,1 NRC value
No Income tax
No income tax
NRC
Exchange trade
Investor
KPEI, in its capacity as organizer of the stock
exchange, is obligated to deduct Income Tax that
is final in the amount of 0.1 (zero point one
percent) against the value of Non Reimbursement
Compensation paid to the Lender due to the
inability of the Borrower to make reimbursement
for borrowed Securities. This is due to the
consideration that a default in a Securities
Lending and Borrowing Transaction is deemed to be
the equivalent of a Shares Buying Transaction.
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S t a t i s t i c

Updated to June 22th, 2006 06 Total Loan
value Rp. 988,190,617,500 .- Daily average Rp.
5,551,632,682.- Total Volume 330, 555,500
unit shares
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S t a t i s t i c

Eligible Stocks Eligible Stocks 84 Active
Eligible Stock 70
Members Members 83 (Brokers Custodian
Bank) Active Members 39
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On Progress Agenda

• Improve regulated short selling
• Improve the regulation of short selling
• Lift ban on regulation of selected shares for
  regulated short selling
• Coordinate with SX and Bapepam (SEC) for
  surveillance and enforcement of regulated short
  selling transaction
• Implementation new module
• Substitution Loan, Automatic SBL, Automatic Roll
  over
• Develop different market for SLB (Fixed Term)
• Sustainability stability of supply and demand
  (Visit directly to member/marketing program)
• Develop comprehensive KPEI SBL Website for
  information and order facility
• Market education

17
Current Issues Obstacles

• Insufficient pool of Lendable Stocks
• Membership only consists of brokers (Securities
  company)
• Bapepam/SEC has recently permitted Custodian Bank
  only as a Lender
• Pension and Mutual Funds lending prohibition
• Grey area of Short Selling Regulation
• Product knowledge Additional Education Is
  Required
• Product it self
• Myths Misconceptions
• SBL Creates Negative Market Conditions
• Conflict of Interest for Fund Managers
• Stock Lending and Short Selling are Bad for the
  Market

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Thank You Contact antonius_at_kpei.co.id P
62-21-52995631