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

• 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

Introduction - KSEI in Indonesian Capital Market
Ministry of Finance
Capital Market Supervisory Agency
(BAPEPAM)
Stock Exchange :
Jakarta Stock Exchange
Surabaya Stock Exchange
Scripless Trading
Indonesian Clearing and Guarantee
Institution
PT KPEI
Indonesian Central Securities
Depository
PT KSEI
Clearing-Netting
SRO (Self Regulatory Organization)
Book-entry Settlement

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 entities
Total 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

Electronic
Records KSEI
ASII 10000
Scrip
Records
ISSUER / REGISTRAR
ICSD / KSEI
Merrill Lynch
ASII 2000
ING Baring
ASII 3000
HSBC
ASII 2000
CITIBANK
ASII 2000
BROKER/
CUSTODIAN BANK
Morgan
Stanley
ASII 1500
Bankers
Trust
ASII 500
Northern
Trust
ASII 3000
Chase
Manhattan
ASII 2000
Goldman
ASII 2000

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 ; and b. maintain secured facilities for safekeeping clients’ assets, under separate records for each client.

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)

Broker B
Broker A
Custodian Bank X
Own Deposit account
Client Dep
Account 1
Client Dep
Account 2 delivery account receipt
Account
Lending & borrowing
Collateral account
Own Deposit account
Client Dep
Account A
Client Dep account B
delivery account receipt
Account
Lending & borrowing
Collateral account
Own Deposit account
Client Dep account X
Client Dep account Y
Client Dep account Z

Custodian Bank
Non Clearing Member
Depository Acc
Cash Sec
Sub Acc
Cash Sec
Sub Acc
Cash Sec
Broker
Clearing Member
Depository Acc
Cash Sec
Delivering Acc
Cash Sec
Receiving Acc
Cash Sec
Collateral Acc
Cash Sec
L & B Acc
Cash Sec
Sub Acc
Cash Sec
Sub Acc
Cash Sec
KSEI
KPEI Issuer
Registrar
Payment Bank
Depository Acc
Cash Sec
Nostro Acc
Cash Sec
Nostro Acc
Cash Sec

Indirect Account
• Investors own accounts at Brokers / Custodians
• Brokers / Custodians possess their own accounts and their clients’ accounts at KSEI
Request &
Docs
Request &
Docs
Investors
Brokers/
Custodians
Verify
Process
Archive
Confirmation Confirmation
• 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 /
Custodian
Banks
Account Holder : Br 1
Own
Sec. A
Sec. B
IDR
Cust. A
Sec. A
Sec. D
IDR
Cust. B
Sec. C
Sec. D
IDR
Br 1
Br 1 Cust. A Cust. B
Customer A Customer B
Investors
Account Holder : CB 2
Own
Sec. A
Sec. B
IDR
Cust. X
Sec. A
Sec. D
IDR
Cust. Y
Sec. C
Sec. D
IDR
CB 2 Cust. X Cust. Y
CB 2
Customer X Customer 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

• 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 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

•
•
•
•
•
•
•
•
•
•
•
•
•
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

• 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

Input via C-Best workstation
C-Best Server
Instruction
Investor
Investor
Participant
• 6-eyes principle (create, check, approve)
•
4-eyes principle (create direct check, approve)
•
2-eyes principle (create direct approve)
File upload
Instruction
Participant
KSEI
OTC
SECTRS
BTS
WT
DCONF
REC
Participants are responsible for the data they input.

OTC
Custodian
Bank
Selling broker
Own
Account
Client
Account
K S E I stock stock
Buying broker
Own
Account
Client
Account
Receiving
Account
Delivery
Account
Receiving
Account
KPEI
Account
Delivery
Account cash cash
Collateral
Account
Collateral
Account alignment
L & B
Account
L & B
Account
KPEI synchronize
Stock
Cash
OTC
Payment Bank

A
Brokers /
Cust. Banks
1. DVP
INSTRUCTION
A
MATCHING
PROCESS
KSEI
B
2. RVP
INSTRUCTION
B
Brokers /
Cust. Banks
X
Brokers /
Cust. Banks
3. DFOP
INSTRUCTION
X Z
4. RFOP
INSTRUCTION
Z
Brokers /
Cust. Banks
1. DVP : DELIVERY VERSUS PAYMENT
2. RVP : RECEIVE VERSUS PAYMENT
3. DFOP : DELIVERY FREE OF PAYMENT
4. RFOP : RECEIVER FREE OF PAYMENT

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

Announcement
Date (AD)
Reminder Date
(Rem Date)
Record
Date (RD)
Effective date
(1) (2)
Announcement Report
(On AD/ Rem Date)
(3)
Member Entitlement
Report
(RD + 1)
Invitation Letter
(RD + 1)
Credit Entitlement of CA
(4)

• 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
Start
Exercise period
Instruction
Deadline
Effective date x days *
Voluntary CA
Instructions
* The Rights/Warrants and cash positions will be debited automatically in the exercise request amount

ISSUER
Payment Bank
(cash proceed)
Registrar
(sec proceed)
Issuer’s account
Proceeds member 1
Own 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
Tax
Central tax account

• 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

• 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.