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'Derivative clearing houses needed to mitigate risks'
A CCP is a clearing agency intended to bring regulatory oversight to over-the-counter (OTC) derivative transactions, which — because they were largely unregulated before the 2008 global financial crisis — are deemed one of the causes of the crisis.
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The Bank Indonesia building on Jl. MH Thamrin in Central Jakarta. (Shutterstock.com/Harismoyo )
Economists and bankers have warmly welcomed a new Bank Indonesia (BI) regulation that lays the groundwork for the establishment of derivatives clearing bodies, or central counterparties (CCPs), in the country, saying such institutions could mitigate transaction risks.
Meanwhile, the central bank said the CCPs would be part of the infrastructure to deepen the financial market.
A CCP is a clearing agency intended to bring regulatory oversight to over-the-counter (OTC) derivative transactions, which — because they were largely unregulated before the 2008 global financial crisis — are deemed one of the causes of the crisis.
The establishment of CCPs was part of the Group of 20 leaders’ statement in their 2009 and 2001 summits.
BI Regulation No. 21/2019, which will be effective starting June 2020, stipulates that a CCP needs to be established as a limited liability company (PT) with a minimum paid-up capital of Rp 400 billion (US$28.18 million). The regulation also caps foreign ownership in a CCP at 49 percent.
The central bank regulation only pertains to CCPs that clear OTC transactions of interest rate or exchange rate derivative products, as those two instruments are under the jurisdiction of BI.
Parwati Surjaudaja, president director of private lender OCBC NISP, said CCPs would help deepen the derivative market and reduce credit risks between price takers and makers in the market.
