INVESTOR PROTECTION INDONESIAN CAPITAL MARKET PERSPECTIVE

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1 INVESTOR PROTECTION INDONESIAN CAPITAL MARKET PERSPECTIVE YUNITA LINDA SARI Head of Market Institutions and Transaction Bureau, Bapepam-LK ACG Seminar Denpasar Bali, 20 September 2012

2 OUTLINES IOSCO RECOMMENDATIONS MAKRO OVERVIEW REGULATORY FRAMEWORK EXPOSURE RISK OF CLIENT ASSET IPF PLAN

3 IOSCO Recommendations on Investor Protection IOSCO Principle 24 There should be a procedure for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk CPSS IOSCO Recommendation on Securities Settlement System Entities holding securities in custody should employ accounting practices and safekeeping procedures that fully protect customers securities. It is essential that customers securities be protected against the claims of a custodian s creditors IOSCO s 20 Recommendation on Client Asset Protection to Regulators (1996) Regulatory authorities choose mechanisms which best achieve the overall objective of client asset protection, taking into account national insolvency and investment services laws, regulations and practices; the needs of market efficiency and investor protection; and the costs of any such measures

4 Macro Overview in Indonesia OTHERS BAPEPAM-LK TERITORIAL OVERVIEW TAX POLICE LEGAL, ETC BANK INDONESIA ACCOUNTING STANDARDS BODY OTHER GOVERNMENT AGENCIES EQUITY ISSUER FINANCIAL CONTRACT INVESTORS DEBT SHAREHOLDERS CREDITORS MARKET INFRASTRUCTURE (SRO) MARKET INTERMEDIARIES SUPPORTING MARKET INTERMEDIARIES MARKET ORGANISATION INDONESIAN CAPITAL MARKET ARBITRATION BOARD RIGHT TO MEETING & VOTE RIGHT TO DIVIDENTS RIGHT TO NEW SECURITY ISSUED RIGHTS Of INVESTORS RIGHT TO COLLATERAL RIGHT TO PROTECT SENIORITY OF DEBT RIGHT IN EVENT OF BANKRUPTCY CORPORATE LAW INDONESIAN LEGAL SYSTEM BANKRUPTCY LAW

5 Existing Investor Protection Tools REGULATORY PROVISIONS NATIONAL CODE ON CORPORATE GOVERNANCE CAPITAL MARKET LAW BAPEPAM-LK RULES MINIMUM DISCLOSURE STANDARDS LICENSING & REGISTRATION STANDARDS RISK MANAGEMENT & INTERNAL CONTROL STANDARDS SC, FM, CUSTODIAN & TRUSTEES GUIDELINES ACCOUNTING STANDARDS INDONESIAN ACCOUNTING BODY GUIDELINES LISTING GUIDELINES SRO GUIDELINES DOCUMENTATION GUIDELINES MARKET TRANSPARENCY GUIDELINES ASSOCIATION GUIDELINES CLEARING & GUARANTEE MECHANISM MANDATORY RATING GUIDELINES

6 INDONESIAN CAPITAL MARKET AND FINANCIAL INSTITUTIONS SUPERVISORY AGENCY (BAPEPAM-LK) Functions o provide guidance, o regulation, o and day-to-day supervision, of the Capital Market. Missions o to ensure that the Capital Market is orderly, fair, and efficient o Investor protection

7 Fundamental Regulatory Framework on Client Asset Protection Principles in capital market law for Custodian & Securities Companies regarding Client Securities Bapepam-LK Rules on requirement of responsibility, safekeeping and records of clients asset by Custodian & Securities Companies SRO Rules on Client Assets

8 Principles in CML for Custodian & Securities Companies Must maintain and record securities deposit separately Responsible for safekeeping client s securities Hold client asset in segregated account from the Sec companies proprietary account Maintain a separate register/book keeping for each client Client Securities in Custodian are not custodian s asset Kustodian Securities companies Administer client Securities Maintain secure facilities for safekeeping clients asset Securities in custodian CML 1995, article 44 Securities holding by Securities companies, CML, article 37

9 Client Asset Protection Rules Mandatory of Client asset separation Mandatory of Investor Area (AKSes) as asset monitoring tool by investors Mandatory of SID as transparency tools Mandatory of maintaining sound record and bookkeeping on client asset Mechanism of client asset transfer Client asset is on Bankruptcy Remote

10 EXPOSURE RISK MARKET MALPRACTICE CLIENT ASSET INTERMEDIARIES MISUSE OF CLIENT ASSETS FAILURE OF MARKET INTERMEDIARIES

11 Towards Comprehensive and Complementary Protection Tools Investor Protection Fund Insurance Mechanism Existing Regulation and Supervision

12 IPF Development Stages Establishments Master Plan Internal Studies Consultans

13 IPF Alternatives:Indonesia Scheme International Best Practices Separate entity Indonesian Compensation Fund Domestic market characteristic Part of SRO

14 Thank You