BI to Form Central Counterparty for Derivative Transactions

TEMPO.CO, Jakarta - Bank Indonesia (BI) will form a central counterparty (CCP) in the near future to facilitate derivative transactions conducted by corporations with banks.

"Banks will root this [transactions] via the CCP. Currently, all countries are preparing CCPs based on recommendations from world organizations," BI Governor Agus Martowardojo said at the BI Complex in Jakarta on Friday, February 17, 2017.

According to Agus, BI is still discussing the plan with stakeholders in order to reach an agreement about the framework and system that will be implemented.

BI held a seminar on the establishment of the CCP back in July 2016. The institution will serve a task to reduce systemic risks, administer clearing, guarantee transactions and conduct risk management processes in the financial market.

The CCP also play a role in derivative transactions conducted over the counter (OTC) or outside the market. In processing clearings and guaranteeing transactions, the CCP bridges buyers and sellers (contract replacement) to conduct a process called novation.

The contract takeover by the CCP will minimize the risks of defaults between market movers. In this case, the CCP is required to guarantee the continuity of a transaction. In addition, the CCP can reduce counterparty risks through a multilateral netting process.

The CCP also serves a function to improve standards of risk management, boost operation efficiency, improve transparency, and facilitate regulation and supervision. Such benefits are expected to boost financial system stability in the financial market.

ANGELINA ANJAR SAWITRI