BANK Indonesia will launch a new financial market infrastructure to regulate, develop, and supervise the money market and foreign exchange market. This will be done through the Central Counterparty (CCP) which will be released on September 30, 2024.
This was conveyed by the Head of the Financial Market Deepening Department of Bank Indonesia, Donny Hutabarat, in a media briefing at his office in Jakarta, Tuesday (24/9). “This is in line with the implementation of the Law on the Development and Strengthening of the Financial Sector (PPSK),” he said.
“Which mandates BI to regulate, develop, and supervise the currency market and foreign exchange market. Also in line with the G-20 OTC Derivatives Market Reforms commitment,” added Donny.
He explained that CCP is a financial market infrastructure that performs central clearing functions in money market and foreign exchange market transactions. CCP also positions itself as a guarantor between the parties conducting the transaction.
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The purpose of establishing CCP is to mitigate the risk of transaction failure between parties (counterparty risk), liquidity risk, and risk due to market price volatility (market risk). With the presence of CCP, said Donny, money market and foreign exchange market transactions will become more efficient.
In addition, the presence of CCP will also support the effectiveness of monetary policy and exchange rate stability which will ultimately encourage financial system stability. CCP also facilitates hedging instruments for banking and the business world, investors, and financing the national economy.
“Because the main thing in CPP is hedging transactions for our financial market, be it foreign investment hedging, portfolio, this will encourage better hedging, and of course with adequate hedging, financing through SBN for the economy will also be positive,” explained Donny.
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Thus, the presence of CCP will also reduce fragmentation and segmentation in the money market and foreign exchange market. It is hoped that the new financial infrastructure will integrate the clearing process which has often been fragmented and segmented.
In the roadmap that has been prepared, derivative products that can be transacted in CCP are Domestic Non Deliverable Forward (DNDF) this year. Next year, it is planned that REPO products can also be included in it.
The formation of CCP is carried out as an open consortium, following global best practices to ensure the sustainability of operations. The consortium consists of the Indonesia Stock Exchange, BI, and 8 banks, namely, Mandiri; BRI; Maybank; BNI; BCA; Danamon; Permata Bank; and CIMB Niaga.
The 8 banks included in the consortium were also selected based on volume, readiness, infrastructure and adequate risk management.
“We actually offered it to the banks. However, these 8 banks (that entered the consortium) are also banks that are large in size, in the money market, their volume is large. So big banks, big transactions, mean they are interested in stability, risk mitigation, efficiency,” explained Donny. (Mir/M-4)
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