Straight Through Processing (STP) Development Concept & Roadmap Indonesian Central Securities Depository (KSEI) Indonesian Central Counterparty (KPEI)

2 AGENDA STP Background 1 Business Process Identification 2 KSEI & KPEI Initiatives 3

3 Ready to Handle Market Growth Ready to Handle Market Growth BACKGROUND Increase Transaction (Volume, Value, Frequency) Various Products: Equity, Fixed Income, Derivatives Socialization/ Education Global Trend : - Floor to remote to online trading -Direct Market Access (DMA) through Securities Companies -Cross border (cross listing, cross member, cross trading, cross clearing, cross settlement) Volume Increase: Scripless Complexity of Trade/Settlement Processing Issuer Growth Capacity Building Market Infrastructure STP Development Business process improvement : -Business orientation & efficiency -Trading, clearing, & settlement mechanism Risk Management Improvement : -Effective Surveillance/Monitoring -Excellent/prudent business operation Funding Issues - Funding cost (turn around transaction)  Inefficiency Risk Issues : - Operational Risk - Back office processing (confirmation /affirmation & Trade Allocation) - Surveillance/Monitoring Challenges : Investor Growth

BENEFIT 1.Improve process capacity. 2.Reduce input redundancies and manual intervention. 3.Improve transparency. 4.Provide better management with systematic audit trail. 5.Minimize risk and reduce errors. 6.Increase speed of data processing, withdrawal and generating reports. 7.Improve overall efficiency such as funding cash.

5 S T P Registration, Administration Of Investor OrderMatching Confirmation/ Affirmation Validation Clearing Settlement Registration/administrati on of Client Investor is conducted by each EM Client Investor Identity distributed to every EM Implementation of ‘Master Client ID’ Manual Transaction Order Development of Remote & On Line Trading Trading Limit (batch, upload/download, multiproduct yet). Risk Management System Enhancement Order Pre-validation (gross). Integrated & Multiproduct Trading System. Different Trading platforms Automatic allocation, confirmation/ affirmation Existing manual confirmation/ affirmation CB as settlement agent & CM Stratification. Existing Funding Cost OTC Transaction /instruction still difficult to monitor Real-time interface for EM & CB manual entry/ upload for settlement instruction ‘Investor Area’ Development Business Process Identification Note: CM = Clearing Member EM = Exchange Member CB = Custodian Bank

6 BUILDING BLOCKS STPSTP Client ID Investor Area Client ID Investor Area Integrated Network & BCP Integrated Network & BCP Information & Corporate Action Information & Corporate Action Membership Stratification Membership Stratification Enhancement Risk Mgt System Enhancement Risk Mgt System Real-time Interface Real-time Interface Single Trading Platform Single Trading Platform Settlement Agent Settlement Agent OTC Pre-matching OTC Pre-matching

7 REAL TIME INTERFACE C-BEST Server Interface Client Interface Server Warehouse and Intranet Server Interface Client SWIFT Network Backoffice Participant Description Communication data interface facilities which will give real time process for Securities companies through KSEI’s system and vice versa. 1.Reduce manual process 2.Reduce input redundancies 3.Increase accuracy and data security 4.Increase flexibility of data form (SWIFT, FIX, XML, etc) 5.Load balancing process for KSEI 6.Initial phase to STP Benefit

8 INVESTOR AREA 1.Generate Investor ID 2.Monitoring portfolio activities and balance on Settlement date via internet Facility for Securities Companies which will give access for their clients to monitor portfolio activities and balance on Settlement date through KSEI system. Description Features 1.Increase Investor reliability to Capital Market transparency 2.Enhance efficiency in generating consolidate portfolio reports 3.Enhance efficiency in giving information regarding clients portfolios Benefit

9 PRE MATCHING Securities Company Custodian Bank Instruction Matching and Settlement in C-BEST outside C-BEST Before pre-matching launched After pre-matching launched Instruction Matching and Settlement Manual Matching (fax, phone, etc) Facility for Securities Companies to pre- match OTC transactions automatically through KSEI system. Description 1.Increase time and cost efficiency 2.Increase accuracy for OTC settlement 3.Reduce risk of failed OTC transaction 4.Increase flexibility for fund allocation of OTC transaction Benefit

10 Master Client ID & Client ID KPEIKPEI 1 2 Client ID Settlement Account Collateral Account 5 6 Client ID Stock ExchangeStock Exchange 7 8 KSEIKSEI Master Client ID Client ID Settlement Account Collateral Account 3 4 Sub Account Client Investor Client ID SX Member Client ID

11 Custodian Bank as Settlement Agent SX Member Client Investor KPEIKPEI KSEIKSEI 1 Master Client ID Client ID 2 Settlement Account Risk Mng. Account 3 Client ID Settlement Account Risk Mng. Account Client ID 7 8 Custodian Bank Settl. Agent Account Sub Account Client ID Stock ExchangeStock Exchange

12 Example of STP Impact – Reduce Funding Cash Funding Cash KPEI CB b Cash a Securities Custodian Bank as Settlement Agent Custodian Bank as Settlement Agent CM KPEI CB BANK 1 2 b Funding Cash a Collateral c Cash d Securities 3 e f Cash OTC