Partner

KPEI Securities Borrowing & KPEI Securities Borrowing & LendingLending

88thth Asia-Pacific Central Securities Depository Asia-Pacific Central Securities Depository Group Group Cross Training Seminar Cross Training Seminar

June 27June 27thth – 28 – 28th,th, 2006, Bangkok 2006, Bangkok

Antonius H. Antonius H. AzwarAzwar

Role of KPEIRole of KPEI KPEI SBLKPEI SBL Tax ImplicationTax Implication StatisticsStatistics IssuesIssues

ObjectivesObjectives

88thth ACG Cross Training Seminar ACG Cross Training Seminar

June 27June 27thth – 28 – 28th,th, 2006, Bangkok 2006, Bangkok

Performs Clearing and Performs Clearing and Guarantee of securities Guarantee of securities transaction settlement:transaction settlement:• As Central CounterpartyAs Central Counterparty

• Central SBL ServiceCentral SBL Service• Managing the Managing the

Guarantee Guarantee FundFund

EXCHANGES

KPEI/CCPKPEI/CCP

KSEI/CD

Performs Securities Transactions

Performs Central Custodian & Depository

The Functional Relationship & The Functional Relationship & The Role of KPEI

KPEI SBLKPEI SBL

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)

PurposesPurposes

Market PlayersMarket Players

KPEI KPEI as Intermediary/Principal and Guarantor

Lenders:Lenders: Institutional or individual investors through Clearing Member and Custodian Bank.

Borrowers:Borrowers: All investors participating through Clearing Member only.

Client

Client

Client

LenderCM/CB

LenderCM/CB

BorrowerCM

Client

BorrowerCM

BorrowerCM

Client

Client

KPEI

KPEI SLB SchemeKPEI SLB Scheme

--------------Scope of KPEI SLB Scope of KPEI SLB Agreement-Agreement-----------

Borrower

NOVATIENOVATIE

Borrower Lender

WHY?

WHY

Lender

KPEI

KPEI

Orderly function Guaranteed intermediation Management service:

System supportCollateral managementDefault HandlingEntitlement processingFee management

Why Why KPEI ?KPEI ?

4 days (Exchange Day)Recall Period

125 %NRC (Non Reimbursement Compensation)

12% p.aLending Revenue rate

IDR 20.000 Borrowing Instruction Fees

Borrowing fee x 1 dayMin Borrowing fee

15% p.aBorrowing Fee rate

1 day (Exchange Day)Min Loan Period

Cash, Stocks, Bank Guarantee, Deposit, Bonds

Type of Collateral

125 %Collateral

Parameter

Max Loan Period 90 days (Exchange Day)

ParameterParameter

Tax ImplicationTax Implication Approved by tax authority Jan ‘06Approved by tax authority Jan ‘06

FeeFee

Borrower KPEI

Fee = Y

KPEI SBL System

Lender

Borrowing Fee = X%

LenderFee = Z

No income tax Income tax

Lending revenue = X% - ZNo income tax

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”.

Borrowing Fee = X%

Borrower

KPEI

Cash Dividen= X%

KPEI SLB System

Lender

Cash Dividen= X%

Issuer viaPayment Agent

Investor

Cash Dividen = X%

Cash Dividen= X%,

(income tax)

No Income tax No Income taxNo Income

tax

Manufactured Dividend

Cash Dividen= X%

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.

Borrower KPEI

Pass-through

KPEI SLB System

LenderFail to reimburse Penalty = NRC NRC

Investor

No Income taxNo income tax

Exchange trade

Final Income tax = 0,1% NRC value

NRC

NRC

NRC (Non Reimbursement Compensation)

“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”.

KPEI SLB Transaction 2004-2006

05,000,000

10,000,00015,000,000

20,000,00025,000,00030,000,00035,000,00040,000,00045,000,00050,000,00055,000,00060,000,00065,000,00070,000,00075,000,00080,000,00085,000,00090,000,00095,000,000

1st Q2nd Q3rd Q 1st Q2nd Q3rd Q Jan Feb Mar Apr May

2004

Volume Unit

0

25,000,000,000

50,000,000,000

75,000,000,000

100,000,000,000

125,000,000,000

150,000,000,000

175,000,000,000

200,000,000,000

225,000,000,000

250,000,000,000

275,000,000,000

300,000,000,000

325,000,000,000

350,000,000,000

2005 2006

Value IDR

Volume

value

S t a t i s t i cS 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

S t a t i s t i cS t a t i s t i c

Eligible Stock and Membership

05

1015

20253035404550556065707580859095

100

2001-03 2004 2005 2006

Members

05101520253035404550556065707580859095100

Stocks

Member Stock

Eligible Stocks Eligible Stocks

: 84Active Eligible Stock: 70

Members Members : 83 (Brokers + Custodian Bank)Active Members : 39

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

On Progress AgendaOn Progress Agenda

Current Issues & ObstaclesCurrent 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 RequiredAdditional 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

Thank YouThank YouContact:Contact:antonius@kpei.co.idantonius@kpei.co.idP: 62-21-52995631P: 62-21-52995631