3 October, 2015
On 25 June 2015, the OJK issued Regulation No. 9/POJK.04/2015 on Repurchase Agreement Transaction Guidelines (Regulation 9). While securities repurchase (Repo) has become one of the safest funding options in the capital market and is increasingly popular in many countries, including in Indonesia, before the issuance of Regulation 9, there was an absence of law on guidelines to conduct repo transactions.
Regulation 9 basically sets out guidelines for Indonesian Financial Services Institutions (FSI) (including insurance companies) on repo transaction requirements for scriptless securities regulated and supervised by the OJK, and settled through Bank Indonesia and/or the Securities Depository and Settlement Institutions (KSEI, the Indonesian Central Securities Depository, and KPEI, the Indonesian Clearing and Guarantee Institution).
The following are some of the key provisions of Regulation 9:
- Change of ownership – All repo transaction must result in a change of securities ownership (all rights attached to securities must be transferred to the purchaser); therefore the securities will not serve as security.
- Definition of Scriptless Securities – The following are defined as scriptless securities: promissory notes, commercial paper, shares, bonds, evidence of indebtedness, participation units of collective investment contracts, future contracts related to securities and all derivatives of securities, corporate bonds, corporation sukuk, state commercial paper, shares and derivatives of securities.
- Agreement – All repo transactions must be made in writing, in line with the Indonesian Global Master Repurchase Agreement (GMRA) standard form to be issued by the OJK (or other parties acknowledged by the OJK), and must at least cover provisions on transfer of securities ownership; adjustment of the securities value to normal market value (mark-to-market); the first margin and/or haircut effect in the transaction; duties and obligations of the parties with regard to the ownership of the securities, including the period of execution and tax obligations; events of default; settlement method for events of default and all rights and obligations that arise from it; the position of the FSI (i.e., whether the insurance company acts as an agent or on its own behalf); and confirmation method of the transaction, or material changes to the transaction.
- The parties can agree to change the terms and conditions under the repo agreement made based on the GMRA, provided that the changes do not violate Regulation 9.
- FSIs conducting repurchase transactions with government institutions that implement monetary or financial policy are not required to implement the GMRA.
- Reporting – All debt securities repo transactions must be reported to the OJK, while all equity securities repo transactions must be reported to KPEI and KSEI.
- Sanctions – Notwithstanding criminal sanctions under Law No. 8 of 1995 on Capital Market, any violation of the provisions of Regulation 9 will be subject to written warnings, monetary fines, limitation of business activities, cessation of business activities, revocation of business license, approval cancellation and registration cancellation. In addition to these sanctions, the OJK may perform certain actions deemed necessary against the offender of Regulation 9.
- Transitional provisions – Existing repo transactions that were entered before the issuance of Regulation 9 will remain valid and are not required to conform with the provisions of Regulation 9.
- Closing provisions – Repo transactions performed based on shariah principles are not required to comply with the Regulation 9.
Mark Innis, Baker & McKenzie
mark.innis@bakermckenzie.com
