SPEECH OF THE DEPUTY GOVERNOR OF BANK INDONESIA IN THE INAUGURATION OF APPLICATION OF MONEY SETTLEMENTS FOR TRANSACTIONS IN THE CAPITAL MARKET BY USING BI-RTGS SYSTEM Jakarta, 29 June 2015 Distinguished: - Deputy Commissioner II of Capital Market Supervisor of the Financial Services Authority (OJK) of Indonesia, Mr. M. Noor Rachman; - President Director of PT. Kustodian Sentral Efek Indonesia, Mrs. Margeret Tang; - Chair and Management of Indonesian Custodian Bank Association (ABKI); - Heads of Departments of the Financial Services Authority (OJK) of Indonesia; - Heads of Departments of Bank Indonesia; - Heads of Banks in Indonesia; and - Ladies and gentlemen. Good Afternoon and May God Bless Us All 1. To begin my speech this afternoon, I would like to invite all of us to praise God the Almighty for giving us the opportunity to be in a favorable condition to attend this inauguration of Implementation of Use of BI-RTGS System in Money Settlements for Transactions in the Capital Market. 2. On this favorable occasion, on behalf of all members of the Board of Governors of Bank Indonesia, please allow me to extend my deepest appreciation and gratitude to all parties involved in this cooperation, namely Bank Indonesia, the Financial Services Authority (OJK), Indonesian Central Securities Depository (KSEI), and Custodian Banks, for successfully implementing the use of BI-RTGS System in money Page 1 of 5
settlements for transactions in the Capital Market, or also known as Central Bank Money. 3. In the capacity as the Central Bank, the main task of Bank Indonesia is to maintain not only monetary stability, but also financial system stability. Successful monetary stability maintenance by Bank Indonesia without financial system stability maintenance will have less significance in supporting sustainable economic growth. 4. Financial system plays a very significant role in the economy. Experiences show that unstable financial system, which further causes crisis, will result in very high salvage costs. Learning from the past experiences, Bank Indonesia considers that efforts to avoid or reduce potential unstable financial system risks are highly necessary, primarily to avoid a tremendous loss. 5. Bank Indonesia as a macroprudential authority consistently observes every development of the financial system and will take necessary policies to anticipate and mitigate systemic risks, as well as credit, liquidity, and market risks, thereby ensuring maintained financial system stability. 6. Stability of the Money Market and Capital Market is a vital component to create financial system stability. Any turbulence in the two markets, which are caused by global or domestic factors, may trigger financial system instability, which may eventually result in a financial crisis. Therefore, in performing the task to maintain financial system stability, Bank Indonesia pays full attention to the development of the Money Market and Capital Market. Page 2 of 5
7. Based on such consideration, Bank Indonesia warmly welcomes and greatly supports the applied use of BI-RTGS System in Money Settlements for Transactions in the Capital Market, which we consider as one of the efforts to mitigate credit and liquidity risks in the implementation of money settlements for securities transactions. 8. By the application of Central Bank Money, mitigation will be possible against credit risks which may occur from potential default by Payment Banks on their obligations. The same applies to liquidity risks, which may occur when any Participants fail to transfer their assets in a quick manner because the relevant Payment Banks are suffering from liquidity problems. By the application of Central Bank Money, such liquidity risks may be mitigated. 9. In addition to risk mitigation, another advantage of money settlements for transactions in the Capital Market through BI-RTGS System is the creation of competitive neutrality because any Banks may perform money settlements for transactions in the Capital Market and they do not depend on any particular Banks. Application of Central Bank Money also increases liquidity management efficiency of every Bank as banks do not necessarily have to own accounts with any other institutions for money settlements for transactions in the Capital Market. 10. Bank Indonesia s mission in payment system is to manage and maintain secure, efficient, and smooth Payment and Money Management System through access expansion and by considering the national interest. Such mission will be accomplished through two important aspects: first, strengthening of Payment System, and second, being proactive in pioneering cooperation and collaboration. Page 3 of 5
11. Bank Indonesia s contribution to the implementation of Central Bank Money in Money Settlements for Transactions in the Capital Market is one of our concrete efforts to accomplish such mission in payment system. Cooperation and collaboration between Bank Indonesia and OJK, KSEI, and Custodian Banks may strengthen payment system in Indonesia, particularly for transactions in the Capital Market. 12. The synergic collaboration is expected to contribute to the economy, monetary stability, and financial system stability by considering the aspects of access expansion and national interest. Therefore, Bank Indonesia will be consistently active to encourage the use of BI-RTGS System in money settlements for transactions in the Capital Market. 13. From the international perspective, application of central bank money in money settlements for transactions in the Capital Market follows the recommendation in the Principles for Financial Market Infrastructures (PFMIs), issued by the Bank for International Settlements (BIS) and the International Organization of Securities Commissions (IOSCO), particularly Principle 9: Money Settlements, specifying that Financial Market Infrastructure should conduct its money settlements by using current accounts (rekening giro) with the central bank. 14. Application of money settlements for transactions in the Capital Market by using BI- RTGS System is an important achievement of the cooperation between Bank Indonesia, OJK, KSEI, and Custodian Banks. Such implementation serves as the first step of using Central Bank Money in money settlements for all Securities transactions in the Capital Market, which will be further developed in phases. Therefore, we expect such constructive cooperation may be continuously improved, so that the next implementation phase may be immediately realized. Page 4 of 5
15. To conclude, may God the Almighty accept all of our efforts for the development of our country, nation, and people and we all be blessed with the strength to implement such efforts. Thank you. Deputy Governor of Bank Indonesia Ronald Waas Page 5 of 5