BANK INDONESIA REGULATION NUMBER: 4/10/PBI/2002 CONCERNING BANK INDONESIA CERTIFICATES THE GOVERNOR OF BANK INDONESIA,

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1 Unofficial Translation BANK INDONESIA REGULATION NUMBER: 4/10/PBI/2002 CONCERNING BANK INDONESIA CERTIFICATES THE GOVERNOR OF BANK INDONESIA, Considering : a. whereas to perform the tasks of establishing and implementing monetary policy through open market operations, Bank Indonesia issues securities in the form of Bank Indonesia Certificates; b. whereas to strengthen the effectiveness and efficiency of open market operations, Bank Indonesia Certificates are issued and administered by Bank Indonesia in electronic form; c. now therefore, it is deemed necessary to enact improvements to provisions concerning Bank Indonesia Certificates in a Bank Indonesia Regulation; In view of : 1. Act Number 7 of 1992 concerning Banking (State Gazette of the Republic of Indonesia Number 31 of 1992, Supplement to the State Gazette Number 3472) as amended by Act Number...

2 -2- Number 10 of 1998 (State Gazette of the Republic of Indonesia Number 182 of 1998, Supplement to the State Gazette Number 3790); 2. Act Number 23 of 1999 concerning Bank Indonesia (State Gazette of the Republic of Indonesia Number 66 of 1999, Supplement to the State Gazette Number 3843); 3. Bank Indonesia Regulation Number 4/9/PBI/2002 concerning Open Market Operations (State Gazette of the Republic of Indonesia Number 126 of 2002; Supplement to the State Gazette Number 4243); HAS DECREED: To enact : THE BANK INDONESIA REGULATION CONCERNING BANK INDONESIA CERTIFICATES. Article 1 The terminology used in this Bank Indonesia Regulation has the following meanings: 1. Bank is a Commercial Bank as referred to in Act Number 7 of 1992 concerning Banking as amended by Act Number 10 of 1998, conducting conventional business operations. 2. Open Market Operations, hereinafter referred to as OMOs, are activities conducted by Bank Indonesia in money market transactions with Banks and other parties for the purpose of monetary control. 3. Bank...

3 -3-3. Bank Indonesia Certificates, hereinafter referred to as SBIs, are securities denominated in the Rupiah currency, issued by Bank Indonesia as a shortterm debt instruments. Article 2 SBIs are issued by Bank Indonesia as one of the instruments used in OMOs. Article 3 (1) SBIs have the following characteristics: a. denominated in units of Rp 1,000,000 (one million rupiahs); b. term of maturity of not less than 1 (one) month and not more than 12 (twelve) months, stated in number of days and calculated from the settlement date to the maturity date; c. issued and traded under discount system; d. issued in scripless form; e. negotiable. (2) Discount in SBI transactions with Bank Indonesia shall be calculated on the basis of the true discount formula as follows: Nominal x 360 Cash Value = {(Discount Rate) x (Term)} Discount Value = Nominal Cash Value Article 4...

4 -4- Article 4 SBIs may be held by Banks and other parties as stipulated by Bank Indonesia. Article 5 (1) SBIs shall be issued under an auction mechanism and/or non-auction mechanism. (2) SBI-Repurchase Agreement (SBI-Repo) transactions with Bank Indonesia shall be conducted under an auction mechanism and/or non-auction mechanism. Article 6 (1) SBIs may be purchased on the primary market by Banks and other parties stipulated by Bank Indonesia. (2) SBIs may be traded on the secondary market by means of repurchase agreement/repo or outright buying/selling. Article 7 (1) Banks conducting SBI transactions on the primary market on their own account or on behalf of other non-bank parties shall have sufficient balance in the rupiah demand deposit at Bank Indonesia to meet obligations arising from settlement of SBI transactions with Bank Indonesia at the settlement deadline. (2) Banks conducting SBI transactions on the secondary market on their own account or on behalf of other non-bank parties in which settlement is conducted...

5 -5- conducted by Bank Indonesia shall have sufficient funds and/or SBIs at Bank Indonesia at the settlement deadline. Article 8 For the purpose of settlement of payment for SBI transactions with Bank Indonesia, Bank Indonesia is authorized to debit the demand deposit account of any Bank having obligations for settlement of SBI transactions. (1) SBIs may be placed as collateral. Article 9 (2) Any SBI still under collateral status shall not be negotiable. Article 10 (1) Bank Indonesia shall administer SBIs in an electronic administration system. (2) The administration system managed by Bank Indonesia as referred to in paragraph (1) shall encompass a system for registration of ownership and for settlement of SBI transactions. (3) The system for registration of ownership of SBIs as referred to in paragraph (2) shall be scripless. (4) Bank Indonesia may appoint another party to support the administration of SBIs as referred to in paragraph (1). Article 11...

6 -6- Article 11 (1) Bank Indonesia shall redeem SBIs upon maturity at nominal value. (2) Bank Indonesia may redeem SBIs prior to maturity upon agreement with the SBI holder. Article 12 (1) In the event that at a settlement deadline a Bank or other party defaults on obligations as referred to in Article 7, the SBI transaction shall be cancelled. (2) In the event of any cancellation of SBI transactions with Bank Indonesia, the Bank or other party concerned shall be liable to sanctions as stipulated in Article 16 of Bank Indonesia Regulation Number 4/9/2002 concerning Open Market Operations. (3) In the event of any cancellation of SBI transactions on the secondary market, the Bank or other party shall be liable to sanctions in the form of: a. written warning; and b. a financial penalty of Rp 1,000,000 (one million Rupiahs); (4) In respect of the third instance of cancellation of SBI transaction on the secondary market within a period of 6 (six) months, in addition to the sanctions referred to in paragraph (1), the Bank or other party shall also be suspended from OMO activities for 5 (five) working days. Article 13 Bank Indonesia may impose charges for administration of SBIs. Article 14...

7 -7- Article 14 In the event of any breakdown in the administration system as referred to in Article 10 paragraph (1), paragraph (2), and paragraph (3) occurring outside the control of Bank Indonesia or any force majeure, Bank Indonesia shall: a. institute a contingency plan for emergency administration of SBIs; b. not bear responsibility for any non-processing of transactions and/or any losses that may be incurred. Article 15 Any SBIs issued prior to the promulgation of this Bank Indonesia Regulation shall remain subject to the provisions of Decree of the Board of Managing Directors of Bank Indonesia Number 31/67/KEP/DIR dated July 23, 1998, concerning Issuance and Trading of Bank Indonesia Certificates and Rupiah Intervention until such SBIs reach maturity. Article 16 The regulations for implementation of this Bank Indonesia Regulation shall be stipulated further in a Circular Letter of Bank Indonesia. Article 17 With the issuance of this Bank Indonesia Regulation, Decree of the Board of Managing Directors of Bank Indonesia Number 31/67/KEP/DIR dated July 23, 1998, concerning Issuance and Trading of Bank Indonesia Certificates and Rupiah Intervention as amended by Bank Indonesia Regulation Number 3/13/PBI/2001 dated September 3, 2001, is declared no longer valid. Article 18...

8 -8- Article 18 This Bank Indonesia Regulation shall come into force on November 25, Enacted in Jakarta Dated November 18, 2002 THE GOVERNOR OF BANK INDONESIA (signed) SYAHRIL SABIRIN STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 127 OF 2002 DPM

9 ELUCIDATION TO BANK INDONESIA REGULATION NUMBER: 4/10/PBI/2002 CONCERNING BANK INDONESIA CERTIFICATES I. GENERAL REVIEW As part of the implementation of monetary policy for maintaining the stability of the Rupiah, Bank Indonesia conducts monetary control among others by activities conducted through Open Market Operations as mandated under Act Number 23 of 1999 concerning Bank Indonesia, Article 10 paragraph (1) letter b.1). In conducting activities through Open Market Operations, Bank Indonesia has power to stipulate the instruments used. In regard to this power, Bank Indonesia issues securities in the form of short-term Rupiah-denominated debt instruments under the discount system, referred to as Bank Indonesia Certificates. Bank Indonesia Certificates were first issued pursuant to Presidential Decree Number 5 of 1984, with reference to Act Number 13 of 1968 concerning the Central Bank. Following the promulgation of Act Number 23 of 1999 concerning Bank Indonesia and to support the effectiveness and efficiency of Open Market Operations, it is necessary for the provisions concerning the issuance...

10 -2- issuance and administration of Bank Indonesia Certificates to be improved to cover electronic issuance and administration using a scripless registration system. II. ARTICLE BY ARTICLE Article 1 Article 2 Article 3 Paragraph (1) Letter a Letter b Letter c Letter d Scripless SBIs are defined as SBIs issued without the physical existence of the SBI itself, and with proof of ownership for the SBI holder existing only in the form of electronic registration. Letter e...

11 -3- Letter e Paragraph (2) Article 4 Article 5 Paragraph (1) Paragraph (2) Bank Indonesia conducts SBI-Repo transactions with Banks. Article 6 Paragraph (1) Paragraph (2) Repurchase agreement/repo is a conditional transaction for selling of SBIs with the obligation of repurchase at an agreed price and term. Outright buying is transactions for purchase of SBIs without any obligation of resale. Outright...

12 -4- Outright selling is transactions for selling of SBIs without any obligation of repurchase. Article 7 Paragraph (1) Paragraph (2) The obligation of a Bank to hold sufficient SBIs applies only to the settlement of transactions on the Bank s own account. Article 8 Article 9 Article 10 Paragraph (1) The electronic administration system shall use the Book Entry Registry (BER) system. Paragraph (2) Paragraph (3)...

13 -5- Paragraph (3) Article 11 Article 12 Paragraph (1) Paragraph (2) SBI transactions with Bank Indonesia encompass issuance of SBIs on the primary market and SBI-Repo transactions by Banks with Bank Indonesia. Paragraph (3) These sanctions apply to secondary market transactions other than transactions with Bank Indonesia. Paragraph (4) Article 13 Article 14...

14 -6- Article 14 Breakdown of administration system is defined as breakdown occurring outside the control of Bank Indonesia, including force majeure and technical faults including but not limited to communication disruptions and computer system breakdown causing the electronic SBI administration system to cease functioning. Article 15 Article 16 The key provisions to be stipulated in the Circular Letter of Bank Indonesia include but are not limited to: a. requirements and procedure for placement of bids and administration of SBIs; b. procedure for imposition of sanctions; c. requirements for appointment and supervision of other parties supporting the administration of SBIs; d. contingency plan for administration of SBIs in emergencies. Article 17 Article 18...

15 -7- Article 18 SUPPLEMENT TO THE STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 4244 OF 2002 DPM