Compliance Report ISSA Recommendations 2000

ISSA - International
Securtities Services Association

Compliance to the ISSA Recommendations 2000

Market: Indonesia

Status: September 25, 2001

Recommendation 1
Recommendation 2
Recommendation 3
Recommendation 4

Recommendation 5
Recommendation 6
Recommendation 7
Recommendation 8

Market selection

Recommendation 4

Each market must have clear rules assuring investor protection by safeguarding participants from the financial risks of failed settlement and ensuring that listed companies are required to follow sound policies on corporate governance, transfer of economic benefits and shareholder rights.

1. Does the depository or the market have securities lending and borrowing schemes in place, and are these open to all market participants and their settlement agents? Indonesia Clearing and Guarantee Corporation (KPEI) has put in place the securities lending and borrowing scheme on 30 July 2001. At the moment, the scheme covers only five lines of stock and is made available to clearing members only to bridge fail settlement.

2. Does the settlement system mark fail trades to market and collect margin from the failing counterparty to protect the innocent counterpart's interest? KPEI, as the clearing agent for scripless settlement, takes over the counterparty risk and guarantees all trades on the exchange. KPEI undertakes the risk monitoring function including mechanisms like imposition of trading limits on brokers, stock borrowing and lending. In the event that the clearing member fails to deliver its obligation, KPEI will apply the penalty system called "Alternate Cash Settlement" (ACS) on the failing broker. The ACS is equivalent to 125% of the highest market value between T+0 to T+4. Failing to meet such obligation will result in immediate trading suspension on the exchange while KPEI will in turn use the guarantee fund (see 3. Below) to cover the "short" position and substitute the innocent counterpart’s interest.

3. Does the market operate a guarantee fund or have an equivalent procedure to protect against the cost of failed transactions; and which sectors of the market does it cover? KPEI, as the Clearing and Guarantee Corporation, maintains and operates the guarantee fund. In the event that the clearing member fails to deliver its cash obligations, KPEI will impose ACS on the failing broker. To meet the obligations, KPEI may opt to liquidate the offline collateral of the Clearing Member, or to perform a sell-out of its securities asset in the collateral account or even to use the LPEI reserve fund. If all these measures are still not enough to cover the shortfall, the last resort is to use the guarantee fund to substitute the innocent counterpart’s interest.

4. Are the stock transfer agents (share registrars) linked electronically to the depository? Yes, it is compulsory to shares registrars to connect electronically to KSEI since they are requested to have daily reconciliation with KSEI. ( For scrip based environment, registrars are not required to connect with KSEI).

5. Is there a legal maximum time period to complete ownership transfers in the books of the issuer? If so, does market practice adhere to the deadline? Yes, for scrip based environment the registrars have to complete the ownership transfer by 5 days. Ability to stick to this benchmark is dependable upon the capacity and efficiency of the registrar and delay is not uncommon.

A transfer of ownership of book entry securities held at KSEI is made by book entry posting securities accounts. The Capital Market Law provides the legal basis for effecting transfer of ownership by book entry. For book entry securities ownership passes on settlement date when the transfer between securities accounts its accomplished.

6. Are investors entitled to all benefits arising on a security from the point of purchase; and how are any rules enforced? Under the regulation of Stock Exchange (JSX & SSX) investors is entitled to all benefits and rights as long as they are registered as owner on book close date.

7. Is proxy voting permissible in the market and can such proxies be lodged by post or other remote delivery method?
The entitlement position: Voting rights are based on client;s settled position on book close date.

Method voting : By physical representation or through proxy voting procedure.

Voting counting method : votes are counted using a method of one vote per each share.

Split voting : investors are allowed to exercise split voting (between yes ,no or abstain) and are allowed to exercise partial voting.

8. Are there binding rules in the market stating the minimum and maximum lapsed time between the announcement and completion of key events, including registration, the calling of shareholder meetings, the payment of dividends or interest, rights issues, tender offers and other voluntary corporate actions?
Under the BAPEPAM (Capital Market Supervisory Agency) regulation:

Announcement regarding Shareholders Meeting - at least 28 days before the meeting.
Notice of Meeting - at least 14 days before the shareholders meeting.
Notice of dividend or interest, right issues, tender offers and other voluntary corporate actions - 2 days after the shareholder meeting.

9. Are all voluntary corporate actions advised through a central mechanism assuring consistent information to all investors? Information on all corporate actions ( on book entry securities held by depository) is distributed electronically by the system which on line with the participants at the same date as KSEI receives the advice from the issuers. The account holder notifies their clients through established communication channels. The issuer also has to announce the corporate actions to the shareholders at least in 2 newspapers.

10. Is information on corporate actions available electronically, and is the minimum lapsed time for responding to such actions sufficient to enable all domestic and foreign investors to respond in a timely and considered fashion? 9 & 10 : Information on all corporate actions ( on book entry securities held by depository) is distributed electronically by the system which on line with the participants at the same date as KSEI receives the advice from the issuers. The account holder notifies their clients through established communication channels. The issuer also has to announce the corporate actions to the shareholders at least in 2 newspapers. KSEI handles all corporate actions for its participants. If a corporate action requires participant decision, KSEI makes sure information is received in time and set a deadline for response as the confirmation.

1.	Does the depository or the market have securities lending and borrowing schemes in place, and are these open to all market participants and their settlement agents?	Indonesia Clearing and Guarantee Corporation (KPEI) has put in place the securities lending and borrowing scheme on 30 July 2001. At the moment, the scheme covers only five lines of stock and is made available to clearing members only to bridge fail settlement.
2.	Does the settlement system mark fail trades to market and collect margin from the failing counterparty to protect the innocent counterpart's interest?	KPEI, as the clearing agent for scripless settlement, takes over the counterparty risk and guarantees all trades on the exchange. KPEI undertakes the risk monitoring function including mechanisms like imposition of trading limits on brokers, stock borrowing and lending. In the event that the clearing member fails to deliver its obligation, KPEI will apply the penalty system called "Alternate Cash Settlement" (ACS) on the failing broker. The ACS is equivalent to 125% of the highest market value between T+0 to T+4. Failing to meet such obligation will result in immediate trading suspension on the exchange while KPEI will in turn use the guarantee fund (see 3. Below) to cover the "short" position and substitute the innocent counterpart’s interest.
3.	Does the market operate a guarantee fund or have an equivalent procedure to protect against the cost of failed transactions; and which sectors of the market does it cover?	KPEI, as the Clearing and Guarantee Corporation, maintains and operates the guarantee fund. In the event that the clearing member fails to deliver its cash obligations, KPEI will impose ACS on the failing broker. To meet the obligations, KPEI may opt to liquidate the offline collateral of the Clearing Member, or to perform a sell-out of its securities asset in the collateral account or even to use the LPEI reserve fund. If all these measures are still not enough to cover the shortfall, the last resort is to use the guarantee fund to substitute the innocent counterpart’s interest.
4.	Are the stock transfer agents (share registrars) linked electronically to the depository?	Yes, it is compulsory to shares registrars to connect electronically to KSEI since they are requested to have daily reconciliation with KSEI. ( For scrip based environment, registrars are not required to connect with KSEI).
5.	Is there a legal maximum time period to complete ownership transfers in the books of the issuer? If so, does market practice adhere to the deadline?	Yes, for scrip based environment the registrars have to complete the ownership transfer by 5 days. Ability to stick to this benchmark is dependable upon the capacity and efficiency of the registrar and delay is not uncommon. A transfer of ownership of book entry securities held at KSEI is made by book entry posting securities accounts. The Capital Market Law provides the legal basis for effecting transfer of ownership by book entry. For book entry securities ownership passes on settlement date when the transfer between securities accounts its accomplished.
6.	Are investors entitled to all benefits arising on a security from the point of purchase; and how are any rules enforced?	Under the regulation of Stock Exchange (JSX & SSX) investors is entitled to all benefits and rights as long as they are registered as owner on book close date.
7.	Is proxy voting permissible in the market and can such proxies be lodged by post or other remote delivery method?	The entitlement position: Voting rights are based on client;s settled position on book close date. Method voting : By physical representation or through proxy voting procedure. Voting counting method : votes are counted using a method of one vote per each share. Split voting : investors are allowed to exercise split voting (between yes ,no or abstain) and are allowed to exercise partial voting.
8.	Are there binding rules in the market stating the minimum and maximum lapsed time between the announcement and completion of key events, including registration, the calling of shareholder meetings, the payment of dividends or interest, rights issues, tender offers and other voluntary corporate actions?	Under the BAPEPAM (Capital Market Supervisory Agency) regulation: Announcement regarding Shareholders Meeting - at least 28 days before the meeting. Notice of Meeting - at least 14 days before the shareholders meeting. Notice of dividend or interest, right issues, tender offers and other voluntary corporate actions - 2 days after the shareholder meeting.
9.	Are all voluntary corporate actions advised through a central mechanism assuring consistent information to all investors?	Information on all corporate actions ( on book entry securities held by depository) is distributed electronically by the system which on line with the participants at the same date as KSEI receives the advice from the issuers. The account holder notifies their clients through established communication channels. The issuer also has to announce the corporate actions to the shareholders at least in 2 newspapers.
10.	Is information on corporate actions available electronically, and is the minimum lapsed time for responding to such actions sufficient to enable all domestic and foreign investors to respond in a timely and considered fashion?	9 & 10 : Information on all corporate actions ( on book entry securities held by depository) is distributed electronically by the system which on line with the participants at the same date as KSEI receives the advice from the issuers. The account holder notifies their clients through established communication channels. The issuer also has to announce the corporate actions to the shareholders at least in 2 newspapers. KSEI handles all corporate actions for its participants. If a corporate action requires participant decision, KSEI makes sure information is received in time and set a deadline for response as the confirmation.