Regulation of the Financial Services Authority Number 54/POJK.04/2020 Concerning the Control and Protection of Securities Held by Securities Companies

COPY
FINANCIAL SERVICES AUTHORITY REGULATION
NUMBER 54 /POJK.04/2020
CONCERNING
THE CONTROL AND PROTECTION OF SECURITIES HELD BY SECURITIES COMPANIES BY THE GRACE OF GOD THE ALMIGHTY THE COMMISSIONERS OF THE FINANCIAL SERVICES AUTHORITY, Considering: a. that with the transfer of functions, duties, and authority for the regulation and supervision of financial services activities in the capital market sector, including regulations regarding the control and protection of securities held by securities companies, from the Capital Market Supervisory Agency and Financial Institutions to the Financial Services Authority; b. that to provide clarity and certainty regarding regulations on the control and protection of securities held by securities companies, existing legislation in the capital market sector regarding the control and protection of securities held by securities companies issued prior to the establishment of the Financial Services Authority needs to be changed into a Financial Services Authority Regulation; FINANCIAL SERVICES AUTHORITY REPUBLIC OF INDONESIA
c. that based on the considerations as referred to in letters a and b, it is necessary to establish a Financial Services Authority Regulation concerning the Control and Protection of Securities Held by Securities Companies;
Recalling: 1. Law Number 8 of 1995 concerning the Capital Market (State Gazette of the Republic of Indonesia Year 1995 Number 64, Supplement to the State Gazette of the Republic of Indonesia Number 3608);
2. Law Number 21 of 2011 concerning the Financial Services Authority (State Gazette of the Republic of Indonesia Year 2011 Number 111, Supplement to the State Gazette of the Republic of Indonesia Number 5253);
DECIDES:
Establishing: FINANCIAL SERVICES AUTHORITY REGULATION CONCERNING THE CONTROL AND PROTECTION OF SECURITIES HELD BY SECURITIES COMPANIES.
CHAPTER I
GENERAL PROVISIONS
Article 1
In this Financial Services Authority Regulation, the following terms are defined as:

1. Securities Company is a Party that conducts business activities as a Securities Underwriter, Securities Broker, and/or Investment Manager.
2. Securities are securities, namely debt acknowledgment instruments, commercial paper, shares, bonds, debt certificates, Participation Units of Collective Investment Contracts, futures contracts over Securities, and any derivatives of Securities.
3. Long Position is the balance of Securities in a specific account in the Securities Subsidiary Book showing a number of Securities owned by the Securities Company or a number of Securities that must be delivered by the Securities Company to clients.
4. Short Position is the balance of Securities in a specific account in the Securities Subsidiary Book showing a number of Securities sold by the Securities Company for its own interest and/or client interest, but at the time of sale, the said Securities were not yet owned by the Securities Company and/or not yet delivered by the client to the Securities Company.
5. Securities Subsidiary Book is a record of Securities stored at the Securities Company or owned by the Securities Company, created in a double-entry bookkeeping format showing the Long Position, Short Position, and the location of said Securities.
6. Free Securities are Securities recorded as the Long Position of client securities accounts in the Securities Subsidiary Book that constitute excess over client collateral Securities and can be withdrawn by the client from the securities account at any time.
7. Owned Securities are Securities owned by the Securities Company itself, separated from client-owned Securities.
8. Segregated Securities are client Securities under the direct control of the Securities Company that are not currently pledged to the Securities Company or not currently bound by transaction settlement obligations and/or client Securities are not under the direct control of the Securities Company for more than 5 (five) working days.
9. Collateral Securities are Securities recorded as the Long Position of client securities accounts in the Securities Subsidiary Book that are not Free Securities.
10. Non-Segregated Securities are Securities under the direct control of the Securities Company that are owned by clients and are currently pledged to the Securities Company or bound by client transaction settlement obligations or in the administrative process at the Issuer or Securities Administration Bureau which will be issued within 5 (five) working days calculated from the date said Securities are submitted to the Issuer or Securities Administration Bureau.
11. Securities Discrepancy is the number of Securities recorded in the Securities Subsidiary Book showing excess or shortage found in the calculation of Securities, excess or shortage found in the daily reconciliation between the General Ledger and the Securities Subsidiary Book, or excess or shortage of balances in the daily debit and credit reconciliation in the Securities Subsidiary Book.
12. Adjusted Net Working Capital is the amount of the Securities Company's current assets minus all of the Securities Company's liabilities and ranking liabilities, plus subordinated debt, and other adjustments.
    CHAPTER II
    BOOKKEEPING OF SECURITIES STORED AT SECURITIES COMPANIES OR OWNED BY SECURITIES COMPANIES IN THE SECURITIES SUBSIDIARY BOOK
    Article 2
    Securities Companies are required to perform daily bookkeeping of Securities stored at the Securities Company or owned by the Securities Company through the Securities Subsidiary Book and prepare the Securities Subsidiary Book Report in accordance with the Securities Subsidiary Book Report as contained in the Appendix which is an integral part of the Financial Services Authority Regulation regarding the maintenance and reporting of Adjusted Net Working Capital.
    Article 3
    Daily bookkeeping of Securities stored as referred to in Article 2 is conducted with the following provisions:
    a. the balance on the debit side in the Securities Subsidiary Book shows ownership of Securities in accounts as follows:
13. reverse repo Securities;
14. Securities Company portfolio (Long Position);
15. Securities in client securities accounts (Long Position):
    a) Free Securities; and b) Collateral Securities;
16. client securities purchase transactions;
17. Securities owned by other Securities Companies:
    a) Securities borrowed from other Securities Companies; b) Securities sale transactions; and c) Securities Company delivery failures;
18. Securities to be delivered to clearing and guaranteeing institutions:
    a) Securities borrowed from clearing and guaranteeing institutions; and b) Securities delivery from clearing results;
19. Securities owned by other Securities Companies, insurance companies, pension funds, banks, and/or other financial institutions as referred to in the Financial Services Authority Regulation regarding internal control of Securities Companies conducting business as securities brokers:
    a) purchase transactions; and b) delivery failures;
20. Securities borrowed from other parties; and
21. positive Securities discrepancy;
    b. the balance on the credit side in the Securities Subsidiary Book shows the location of Securities in accounts as follows:
22. Securities under the direct control of the Securities Company are grouped into Owned Securities, Segregated Securities, and Non-Segregated Securities, including:
    a) Securities stored in work units performing the custodian function of the Securities Company; b) Securities stored in storage boxes rented by the Securities Company at custodian banks; c) Securities in securities accounts at custodian banks; d) Securities in securities accounts at other Securities Companies; e) Securities in securities accounts at depository and settlement institutions; f) Securities at the Issuer or securities administration bureau; and g) Securities in securities accounts at other depository institutions;
23. Securities not under the direct control of the Securities Company are grouped into:
    a) Securities not under direct control up to 5 (five) working days; and b) Securities not under direct control for more than 5 (five) working days, grouped into Owned Securities and Segregated Securities;
24. Securities not under the direct control of the Securities Company as referred to in item 2 include the following:
    a) Securities used as collateral for loans at banks or financial institutions; b) Securities in transit between offices within one Securities Company; c) Securities in transit to other Securities Companies, custodian banks, clearing and guaranteeing institutions, or depository and settlement institutions where proof of shipment has not been received; d) Securities to be received from foreign custodians, foreign clearing institutions, or foreign Securities Companies; e) Securities at the Issuer or securities administration bureau that have not been issued within 5 (five) working days calculated from the date said Securities are submitted to the Issuer or Securities Administration Bureau; f) Securities to be received from the Issuer as a result of rights distribution in corporate actions, such as stock dividends or Rights to Purchase Securities First on the record date; g) repo or re-repo Securities; h) client securities sale transactions; i) Securities sold that are not yet owned (Short Position); j) Securities to be received from other Securities Companies:

1. Securities lent;
2. Securities purchase transactions; and
3. Securities Company receipt failures;
   k) Securities to be received from clearing and guaranteeing institutions:
4. Securities lent; and
5. Securities received from clearing results;
   l) Securities to be received from institutional clients:
6. sale transactions; and
7. receipt failures;
   m) Short Position in affiliated client securities accounts; and n) Short Position in non-affiliated client securities accounts; and

4. negative Securities discrepancy;
   c. The Securities Subsidiary Book must be maintained and daily balances reconciled for each type of Security, including any shortages or excesses which must be booked to the Positive Securities Discrepancy account or Negative Securities Discrepancy account;
   d. bookkeeping in the Securities Subsidiary Book must consist of at least:
5. the number of Securities in the case of shares, rights to purchase securities first, warrants, mutual fund participation units, variable cash flow asset-backed securities, real estate investment fund participation units, or other Securities with similar characteristics;
6. the nominal value in the case of corporate bonds, sukuk, Bank Indonesia certificates, government securities, fixed cash flow asset-backed securities, or other debt instruments; and
7. the number of contracts in the case of options or futures contracts over Securities or over standardized Securities indices or other Securities with similar characteristics;
   e. The Securities Subsidiary Book must show the balance of each type of Security separately; f. each type of Security must be marked with a number in accordance with the International Securities Identification Number standard; g. Transactions that must be booked daily into the Securities Subsidiary Book concern all changes in ownership status or location of Securities owned by the Securities Company or its clients, involving transactions including the following:
8. purchase and sale of Securities;
9. Securities lending and borrowing;
10. receipt and delivery of Securities;
11. Securities delivery failure or receipt failure; and
12. Securities arising from rights distribution in corporate actions by the Issuer, such as Rights to Purchase Securities First or stock dividends;
    h. purchase or sale of Securities for the benefit of client securities accounts must be booked into the sub-account for client securities purchase transactions or client securities sale transactions on the transaction date and transferred to the client's Long Position or Short Position account on the transaction settlement date in accordance with the contract;
    i. purchase or sale of Securities for the Securities Company's own account must be booked into said account on the date the contract binds the Securities Company;
    j. delivery failures and receipt failures must be booked on the settlement date in accordance with the contract if the transaction settlement is not carried out; k. settlement of transactions that fail as referred to in letter j must be booked on the date the failure can be resolved.
    l. transfer of Securities between locations or securities accounts must be booked on the date of said transfer;
    m. age analysis of Securities positions in the Securities Subsidiary Book must be performed daily; n. The Securities Subsidiary Book must show durations up to 5 (five) working days and more than 5 (five) working days in the following positions:
13. Securities in transit between offices within one Securities Company;
14. Securities in transit to other Securities Companies, custodian banks, clearing and guaranteeing institutions, or depository and settlement institutions where proof of shipment has not been received;
15. Securities at the Issuer or securities administration bureau that have not been issued within 5 (five) working days calculated from the date said Securities are submitted to the Issuer or securities administration bureau;
16. Securities to be received from the Issuer as a result of rights distribution in corporate actions;
17. receipt failures;
18. delivery failures; or
19. Securities discrepancy;
    o. Securities Companies are required to create a summary of daily notes for all changes in the Securities Subsidiary Book for each sub-account in the Securities Subsidiary Book; p. Short Positions and Long Positions in the Securities Subsidiary Book must be marked with the securities account number of each client; q. Securities balances in accounts in the Securities Subsidiary Book showing Securities to be received from or Securities to be delivered to the Securities Company, custodian bank, issuer, securities administration bureau, clearing and guaranteeing institution, depository and settlement institution, other depository institutions, or other financial institutions must be shown separately for each of said parties; r. The Securities Subsidiary Book must show sub-accounts for Securities in the client Long Position as follows:
20. Free Securities; and
21. Collateral Securities; and
    s. The Securities Subsidiary Book must show custodial accounts separate from securities accounts.
    CHAPTER III
    PLACEMENT OF CLIENT SECURITIES UNDER DIRECT CONTROL OF THE SECURITIES COMPANY
    Article 4
    Securities Companies are required to place client Securities under the direct control of the Securities Company, with the following provisions:
    a. Securities Companies must take quick and effective action to ensure that Securities in the Long Position of client securities accounts remain under the direct control of the Securities Company; b. Free Securities that are not under the direct control of the Securities Company after a period of 5 (five) working days must be replaced with Securities purchased by the Securities Company; and
    c. In the event that:
22. The Securities Company has set aside funds equal to the fair market value of Securities not yet under the direct control of the Securities Company and is in a special account at a bank in the name of the Securities Company for the benefit of account holders to guarantee Free Securities that are not under the direct control of the Securities Company; and
23. The Securities Company has actively and continuously taken best and true actions to ensure said Securities are under the direct control of the Securities Company,
    the Securities Company may extend the 5 (five) working day period to purchase Securities as referred to in letter b.
    CHAPTER IV
    SEGREGATION OF CLIENT SECURITIES
    Article 5
    Securities Companies are required to calculate daily the amount of Free Securities and Collateral Securities with the following procedures:
    a. performing a calculation of Collateral Securities that can be retained as collateral for open order settlement and other client obligations that do not include obligations in securities accounts for margin transaction financing and short selling transaction financing financing accounts in accordance with the risk management calculation of the Securities Company applied consistently in determining transaction limits for each client as referred to in the Financial Services Authority Regulation governing internal control of Securities Companies conducting business as securities brokers. b. based on the Collateral Securities calculation as referred to in letter a, the Securities Company is required to:
24. segregate a number of Segregated Securities of at least the amount of Free Securities, by adding or subtracting Segregated Securities with the following provisions:
    a) for Securities in physical form and located at storage locations, i.e., in work units performing the Custodian function or in Custodian Bank storage boxes, segregation must be performed physically; or b) for Securities in securities accounts managed by Custodian Banks, other Securities Companies, Depository and Settlement Institutions, or other depository institutions, segregation is carried out by instructing said Custodian to transfer Securities between securities accounts; and
25. book a number of Securities in client securities accounts (Long Position) as Free Securities and Collateral Securities.
    CHAPTER V
    PROTECTION OF CLIENT SECURITIES
    Article 6
    Securities Companies are prohibited from using client Securities as collateral for the settlement of the Securities Company's obligations to clearing and guaranteeing institutions unless approved by the relevant client with a clear and separate special agreement from other agreements.
    Article 7
    The special agreement as referred to in Article 6 must follow the provisions of the Financial Services Authority Regulation governing internal control of Securities Companies conducting business as securities brokers.
    Article 8
    In the event that a client approves the use of client Securities as Collateral Securities, the Securities Company is required to open a Collateral Securities sub-account in the client's name and place said Collateral Securities in the Collateral Securities sub-account at the depository and settlement institution.
    Article 9
    In the event that there are general clients who receive an allocation of Securities in a public offering and do not yet have a securities account then:
    a. the client is required to open a securities account to become an account-holding client; and b. the Securities Company is required to:
26. open a securities sub-account at the depository and settlement institution in the client's name; and
27. transfer the client's Securities into the client's securities sub-account in accordance with the distribution date determined by the issuer.
    Article 10
    Securities Companies are required to provide information access to their clients so that their clients can directly monitor the mutation and/or balance of Securities and/or funds stored in the securities sub-account in the client's name at the depository and settlement institution.
    CHAPTER VI
    BOOKKEEPING AND RESOLUTION OF SECURITIES DISCREPANCIES
    Article 11
    Securities Discrepancies must be booked daily.
    Article 12
    Securities Companies are required to immediately conduct examinations and take necessary actions to find the cause and resolve any Securities Discrepancies that occur.
    Article 13
    Securities Discrepancies not resolved within 5 (five) working days must be replaced by purchasing.
    CHAPTER VII
    DAILY VALUATION IN THE SECURITIES SUBSIDIARY BOOK
    Article 14
    In determining the fair market value of Securities, Securities Companies are required to refer to applicable financial accounting standards, apply them consistently, and document matters related to the application of financial accounting standards.
    Article 15
    The fair market value for the following Securities must be valued daily, namely:
    a. Bank Indonesia certificates; b. government securities;
    c. corporate bonds, corporate sukuk, or fixed cash flow asset-backed securities listed on the Indonesia Stock Exchange;
    d. equity-type Securities listed on the Indonesia Stock Exchange, mutual funds whose participation units are traded on the Indonesia Stock Exchange, or variable cash flow asset-backed securities listed on the Indonesia Stock Exchange; e. equity-type Securities no longer listed on the Indonesia Stock Exchange; f. Securities traded on foreign stock exchanges; g. mutual fund participation units; h. investments managed by other Securities Companies;
    i. real estate investment fund participation units;
    j. options contracts over Securities or over Securities indices; k. futures contracts over Securities or over Securities indices; and
    l. other Securities registered with the Financial Services Authority.
    Article 16
    The portfolio account value in the Securities Company's general ledger must be adjusted daily with the fair market value as referred to in Article 15 and recorded in the control account.
    Article 17
    The Fair Market Value of Long and Short Positions in client securities accounts must be summarized as follows:
    a. value of affiliated client Free Securities; b. value of non-affiliated client Free Securities;
    c. value of affiliated client Collateral Securities;
    d. value of non-affiliated client Collateral Securities; e. value of affiliated client Short Positions; and f. value of non-affiliated client Short Positions.
    Article 18
    The fair market value of Securities under the direct control of the Securities Company must be summarized and booked to the control account as follows:
    a. Securities in work units performing the custodian function; b. Securities in custodian bank storage boxes;
    c. Securities in securities accounts at custodian banks;
    d. Securities in securities accounts at other companies; e. Securities in securities accounts at depository and settlement institutions; f. Securities at the Issuer or securities administration bureau that have not been issued within 5 (five) working days calculated from the date said Securities are submitted to the Issuer or securities administration bureau; and g. Securities in securities accounts at other depository institutions.
    CHAPTER VIII
    RESPONSIBILITY OF THE DIRECTOR OF THE SECURITIES COMPANY FOR THE SECURITIES SUBSIDIARY BOOK
    Article 19
    Securities Companies are required to report to the Financial Services Authority the names of 2 (two) directors who are responsible for:
    a. supervising daily bookkeeping in the Securities Subsidiary Book; b. ensuring client Securities are under the direct control of the Securities Company;
    c. grouping Securities into Segregated Securities and Non-Segregated Securities;
    d. resolving Securities Discrepancies; and e. purchasing Securities to replace Securities, as referred to in this Financial Services Authority Regulation.
    Article 20
    1 (one) of the 2 (two) directors as referred to in Article 19 must sign the daily Adjusted Net Working Capital report stored in the Securities Company's archive.
    CHAPTER IX
    ADMINISTRATIVE SANCTIONS
    Article 21
    (1) Any party that violates the provisions as referred to in Article 2, Article 3, Article 4, Article 5, Article 6, Article 7, Article 8, Article 9, Article 10, Article 11, Article 12, Article 13, Article 14, Article 16, Article 17, Article 18, Article 19, shall be subject to administrative sanctions. (2) Sanctions as referred to in paragraph (1) shall also be imposed on parties who cause the occurrence of violations as referred to in paragraph (1). (3) Sanctions as referred to in paragraph (1) and paragraph (2) are imposed by the Financial Services Authority. (4) Administrative sanctions as referred to in paragraph (1) include:
    a. written warning; b. fine, namely the obligation to pay a certain amount of money;
    c. restriction of business activities;
    d. suspension of business activities; e. revocation of business license; f. cancellation of approval; and/or g. cancellation of registration.
    (5) Administrative sanctions as referred to in paragraph (4) letters b, c, d, e, f, or g may be imposed with or without prior imposition of administrative sanctions in the form of a written warning as referred to in paragraph (4) letter a. (6) Administrative sanctions in the form of a fine as referred to in paragraph (4) letter b may be imposed separately or together with the imposition of administrative sanctions as referred to in paragraph (4) letters c, d, e, f, or g. (7) The procedure for imposing sanctions as referred to in paragraph (3) is carried out in accordance with applicable legislation.
    Article 22
    In addition to administrative sanctions as referred to in Article 21 paragraph (4), the Financial Services Authority may take specific actions against any party that violates the provisions of this Financial Services Authority Regulation.
    Article 23
    The Financial Services Authority may announce the imposition of administrative sanctions as referred to in Article 21 paragraph (4) and specific actions as referred to in Article 22 to the public.

CHAPTER X
CLOSING PROVISIONS
Article 24
Upon the commencement of this Financial Services Authority Regulation, the Decision of the Chairman of the Capital Market Supervisory Agency and Financial Institutions Number KEP-549/BL/2010 dated 28 December 2010 concerning Control and Protection of Securities Stored by Securities Companies, along with Regulation Number V.D.4 which is its attachment, are revoked and declared invalid.

Article 25
This Financial Services Authority Regulation comes into force on the date of its enactment.

This copy is consistent with the original
Legal Director 1
Legal Department signed
Mufli Asmawidjaja

In order that everyone may be informed, it is ordered that this Financial Services Authority Regulation be promulgated by placing it in the State Gazette of the Republic of Indonesia.

Established in Jakarta on 3 December 2020
CHAIRMAN OF THE COMMISSIONERS
FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA, signed
WIMBOH SANTOSO

Enacted in Jakarta on 11 December 2020
MINISTER OF LAW AND HUMAN RIGHTS
REPUBLIC OF INDONESIA, signed
YASONNA H. LAOLY

STATE GAZETTE OF THE REPUBLIC OF INDONESIA YEAR 2020 NUMBER 278

EXPLANATION
OF
FINANCIAL SERVICES AUTHORITY REGULATION
NUMBER 54 /POJK.04/2020
CONCERNING
CONTROL AND PROTECTION OF SECURITIES STORED BY SECURITIES COMPANIES

I. GENERAL
That since 31 December 2012, the functions, duties, and authority for the regulation and supervision of financial services activities in the capital market, insurance, pension funds, financing institutions, and other financial service institutions have shifted from the Minister of Finance and the Capital Market Supervisory Agency and Financial Institutions to the Financial Services Authority.

In light of the above, it is necessary to reorganize the existing regulatory structure, particularly those related to the capital market sector, by converting Capital Market Supervisory Agency regulations related to the capital market sector into Financial Services Authority regulations. This reorganization is conducted to ensure that there are Financial Services Authority regulations related to the capital market sector that are consistent with Financial Services Authority regulations in other sectors.

Based on the background and aspects mentioned above, it is necessary to replace the existing legislation in the capital market sector regulating Control and Protection of Securities Stored by Securities Companies, namely the Decision of the Chairman of the Capital Market Supervisory Agency and Financial Institutions Number KEP-549/BL/2010 dated 28 December 2010 concerning Control and Protection of Securities Stored by Securities Companies, along with Regulation Number V.D.4 which is its attachment, with a Financial Services Authority Regulation concerning Control and Protection of Securities Stored by Securities Companies.

II. ARTICLE BY ARTICLE
Article 1
It is clear enough.

Article 2
It is clear enough.

Article 3
It is clear enough.

Article 4
Letter a
What is meant by "quick and effective action" is ensuring that the Securities owned by customers (long position) are located in the customer's Securities sub-account under the Securities Company.

Letter b
It is clear enough.

Letter c
Number 1
It is clear enough.

Number 2
Examples of "best and correct action" include the Securities Company having entered a buy order in the Stock Exchange trading system since the Securities were in a Long position, but the transaction for buying the Securities has not yet occurred.

Article 5
Letter a
In practice, determining transaction limits is known as a trading limit.

Letter b
It is clear enough.

Article 6
It is clear enough.

Article 7
It is clear enough.

Article 8
It is clear enough.

Article 9
It is clear enough.

Article 10
It is clear enough.

Article 11
What is meant by "Securities Difference" is the amount of Securities recorded in the Auxiliary Securities Book showing:
a. excesses or shortages found in the calculation of Securities, such as calculations and reconciliations between the Auxiliary Securities Book and the Securities account in the Financial Services Authority Regulation regarding internal control of Securities Companies conducting business as trading agents; b. excesses or shortages found in daily reconciliations between the General Ledger and the Auxiliary Securities Book as required in the Financial Services Authority Regulation regarding internal control of Securities Companies conducting business as trading agents; or
c. excesses or shortages of balances in daily debit and credit reconciliations in the Auxiliary Securities Book as required in the Financial Services Authority Regulation regarding internal control of Securities Companies conducting business as trading agents.

Article 12
It is clear enough.

Article 13
It is clear enough.

Article 14
It is clear enough.

Article 15
It is clear enough.

Article 16
It is clear enough.

Article 17
What is meant by "must be summarized" is "must be grouped."

Article 18
What is meant by "must be summarized" is "must be grouped."

Article 19
It is clear enough.

Article 20
It is clear enough.

Article 21
It is clear enough.

Article 22
What is meant by "certain actions" includes, among others, ordering the Securities Company to adjust the Auxiliary Securities Book journal.

Article 23
It is clear enough.

Article 24
It is clear enough.

Article 25
It is clear enough.

SUPPLEMENT TO THE STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 6591