Further to Law No. 4 of 2023 on Development and Strengthening of Financial Sector ("P2K Law"), Bank Indonesia ("BI") issues Regulation No. 6 of 2023 on Money Market and Foreign Exchange Market ("PBI 6/2023") on 27 June 2023. Communities in financial sector have been aware on the fact that BI has actually issued a regulation on money market back in 2021 through the issuance of Regulation No. 23/10/PBI/2021 on Money Market ("PBI 21/2021"). PBI 21/2021 fairly comprehends detailed and contemporary rules for money market; however as a response to P2K Law BI decides to further "strengthen" the rules.
This insight highlights any key differences/improvements between PBI 6/2023 and PBI 21/2021.
| Aspects | PBI 6/2023 | PBI 21/2021 |
| Product | Scope: consists of: (i) issuance of "Money Market Instruments" or Instrumen Pasar Uang, (ii) money market transactions, and (iii) foreign exchange transactions | Scope: Identical with PBI 6/2023 |
| Forms: Forms of Money Market
Instruments that will be issued by issuer (penerbit) are:
(i) promissory note, (ii) payment instruction, (iii) certificate or evidence of ownership that has the same value and represents inseparable part of the underlying assets, and (iv) other money market instruments. |
Forms: Does not indicate the forms yet but the instruments must meet BI's criteria. | |
| Closing: (a) As one of means for settlement of a transaction, close-out netting is permitted if it is agreed in the contract, (b) Close-out netting can be done before and post-bankruptcy decision, (c) Close-out netting post-bankruptcy does not require a request submitted to the receiver/curator, and (d) receiver/curator cannot cancel/annul the close-out netting, unless the action is proved to be a fraud. | Closing: (a) As one of means for settlement of a transaction, close-out netting for settlement of transaction is permitted if it is agreed in the contract, and (b) Close-out netting can be done before bankruptcy decision. | |
| Smart Contract: Money market transactions and foreign exchange transactions can use "smart contract" – which will be admitted as authentic evidence before the court. | Smart Contract: Not regulated | |
| Reference Price | Scope: (A) for money market: interest rate, yield or instrument price, and price in other money market, and (B) for foreign exchange market: currency rate, derivative of currency rate and price in other foreign exchange market. | Scope: Interest rate and currency rate |
| Price determination: will be determined by the market based on demand and supply. BI may provide information on interest rate and currency rate. | Price determination: BI will determine the reference price for interest rate and currency rate. | |
| Participants | Participants are: (a) actors (pelaku) being issuer and parties who carry out the transaction; (b) supporting institutions in money market and foreign exchange market ("Lembaga Pendukung") being bank, securities company, broker company, operator of innovation of technology in financial sector and other party as determined by BI; (c) supporting professions in money market and foreign exchange market (or "PPSK PUVA") being legal consultant, public accountant, notary and other professions as determined by BI; (d) business actors (pelaku usaha) in money market and foreign exchange market (or "PUSK PUVA") being broker company, electronic trading platform provider, central counterparty, exchange operator, and other business actors as determined by BI; and (e) other related party involving in money market and foreign exchange market. | Participants are: (a) actors (pelaku) being issuer and parties who carry out the transaction; and (b) supporting institutions in money market and foreign exchange market ("Lembaga Pendukung") being bank, securities company, electronic trading platform provider, supporting professions in financial sector (i.e., legal consultant, public accountant, notary and other supporting professions as determined by BI), and other party as determined by BI. |
| Treasury dealer and treasury certification: (a) treasury dealer must obtain treasury certification, is registered in BI and being a member of a treasury dealer association, (b) treasury certification can be issued by (i) institution that is licensed by BI to carry out certification on treasury activities (or "Certification Profession Institution"), and/or (ii) association that supervises treasury dealer profession (or "Treasury Dealer Association"). | Treasury dealer and treasury certification: (a) treasury dealer must obtain treasury certification, and (b) treasury certification is issued by institution that is licensed by BI to carry out certification on treasury activities | |
| Infrastructure | Scope: consists of: (i) transaction facilities, (ii) central counter party, (iii) facilities for settlement, administration and deposit of financial instrument or central custodian, (iv) fund settlement facilities, (v) trade repository of financial instruments and/or derivatives, and (v) other facilities determined by BI. | Scope: Identical with PBI 6/2023 |
| Self-Regulatory Organization (SRO) | Forum or institution that is a legal entity as required by BI to support the development of money market and foreign exchange market. SRO will have members from bank, broker company, Treasury Dealer Association and other party as determined by BI. | Not regulated |
| Mandatory registration | Lembaga Pendukung, PPSK, treasury dealers, Treasury Dealers Association, Certification Profession Institution and other institutions or professions as determined by Bank must all be registered in BI. Parties are not allowed to use non-registered PPSK and/or Treasury dealers who are not registered in BI. | Lembaga Pendukung under this regulation (including supporting professions such as legal consultant and notary) is required to be registered in BI. However, no sanction yet indicated on violation of the requirement. |
Few take-aways:
It is apparent that BI is striving to create a contemporary and advanced money market and foreign exchange market in Indonesia and hence has set out higher and stricter standards for the markets. As a regulator, BI is strengthening the sectors and now be hands-on in supervising every actor and interested parties by, for example, requiring registration for any professionals – including lawyers – prior to dive into the money market and foreign exchange market spaces. BI perhaps has observed the other large market, i.e. capital market which has implemented this requirement for years.
In the future, a few SROs seem would be established in developing the money market and foreign exchange market. Naturally, financial SROs are there to "protect" investors/customers by establishing rules, regulations, and setting standards of procedures that promote ethics, equality, and professionalism. As a comparison, Indonesian capital market does have some established SROs being IDX (Indonesia Stock Exchange), KPEI (Indonesia Securities Exchange Transaction Clearing Services) and KSEI (Indonesia Central Securities Depository).
All in all, it is a promising start for now. Public will wait for subsequent regulations from BI to govern specific rules and mechanics related to the markets.
Originally published by 09 August, 2023
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
