ONE OF THREE SROS IN INDONESIA

Indonesia 2018 | FINANCE | VIP INTERVIEW

TBY talks to Friderica Widyasari Dewi, President Director of Indonesia Central Securities Depository (KSEI), on financial infrastructure, educating customers on available products, and foreign participation.

Could you tell us a bit more about the capital markets financial infrastructure and the role of KSEI?

KSEI is one of the three self-regulatory organizations (SRO) in the Indonesian capital market, according to the Capital Market Law no 8 from 1995. The other two SROs are Indonesia Stock Exchange (IDX) and Indonesian Clearing and Guarantee Corporation (KPEI). KSEI represents the country as the Central Securities Depository (CSD), which provides securities central custody and transaction settlement services. KSEI commits to continuously support the growth of the Indonesian capital market by developing infrastructures and innovations. We provide a platform and system infrastructure to support the development that covers the needs of our regulator, the Financial Services Authority (FSA) or OJK, stakeholders and also market players. Since 2000, KSEI has successfully converted the depository services in Indonesia capital market from script into scriptless (dematerialized) securities. This migration is one of the milestones in Indonesia capital market in order to support the effectiveness and efficiency of trading process. With the conversion to scriptless securities, KSEI is now able to conduct book-entry settlement supported by the high technology system, The Central Depository and Book-Entry Settlement System (C-BEST). Since 2009, KSEI has launched AKSes facility that enables investors to inquire their ownership (portfolio) and transaction through consolidated system. This system is also intended for investor protection as well. AKSes facility is the further development of Single Investor Identification (SID), a single ID which is used as investor's identity when they open their first account in Indonesia Capital Market. SID is mandatory generated for any investor. KSEI also works closely with Bank of Indonesia (BI). In 2006, KSEI was appointed as one of the sub-registry to administer the government bonds. This appointment shows the Government's trust in the reliability of KSEI's infrastructure. Having known for its SID facility for the capital market investor, KSEI has also recently appointed by BI as the SID generator for all of the investors who owned government bonds. Beside this project, KSEI has also appointed by BI to provide the Negotiable Certificates of Deposit (NCD) custody services. In cooperation with the Directorate General of Demographic and Civil Registration of the Ministry of Home Affairs of the Republic of Indonesia, KSEI is able to accelerate the opening of investment accounts. By utilizing the demographic and electronic ID (e-KTP) data for capital market services, the time required to open the investment account (securities account and cash account) can be reduced from days to only less than 30 minutes. The electronic ID data is also used to verify the investor database in order to create a more reliable database. KSEI have also introduced its new mutual fund hub infrastructure called S-INVEST in 2016. The system enables the mutual fund operation services between the asset managements, custodian banks, as well as the brokers to be integrated into one platform. This development of this new system makes Indonesia as the first country in South East Asia that provides such infrastructure. The implementation of this infrastructure also contributes to the award which was received by KSEI in 2016, as the Best Central Securities Depository in South East Asia in 2016.

The number of SIDs has exceeded 1 million. What does this figure say about the size and scale of the capital markets in Indonesia?

This investor number has been increasing tremendously, especially after we launched S-INVEST, a platform for mutual funds industry. Previously, the number of investors which is covered by KSEI are only the one which invests any kind of securities, except mutual funds. Since the establishment of our mutual fund hub system, S-INVEST, we are now able to consolidate the number and the figure of all investor which is around 1.1 million, 20% increased from 2016. However, we think that the number of investors is still low compared to the Indonesia population that reach 250 million of people. This is because people has been spoiled by the high of interest rate, so they still prefer to put their money in the banks. However, currently as the interest rate declines, people tend to find investments which can grow their funds. In this case, our role, together with IDX and KPEI, is to introduce and educate people about investing in capital market, not only to grow their investment, but also as one of the ways to contribute to the country development. I am confident that the market will keep growing in the future, considering Indonesia's economic potential and massive infrastructure development at present. In the near future, there will be a new initiative by the government aimed to help people to be able to own houses with minimum installment rates. Law number 4 from 2016 concerning Public Housing Savings has already taken into effect since 2016, and shall become effective once the Government Regulation regarding the Implementation of Public Housing Savings is established, possibly in 2018. In order to enable value growth, a certain portion of the Public Housing Savings or TAPERA is planned to be invested in Mutual Funds and therefore shall be administrated in KSEI's centralized system for the fund industry, namely the S-INVEST. In addition, KSEI will also generate the SIDs for these investors, which in return shall multiply the number of investors up until 4.5 million SIDs for the first stages of TAPERA implementation.

What are your initiatives to educate people on your available products (AKSes)?

KSEI has been conducting several activities and awareness program to educate the people regarding Indonesia Capital Market, together with IDX and KPEI. AKSes Facility was established by KSEI since 2009, then in 2012 we launched AKSes' mobile application. Investors use this facility to monitor their investment portfolios online based on real time data recorded in KSEI. Together with SID and the Investor Client's Fund Account (RDN), AKSes Facility is intended to be one of the investors protection facilities in Indonesia capital market. This year, KSEI is developing AKSes Next Generation with the enhancement in some features, such as how to login, and other information services provided. The development of AKSes Next-G is part of KSEI's efforts to provide convenience and ease of using AKSes Facility. This improvement hopefully will increase the number investors who utilize AKSes Facility. In the meantime, AKSes Facility has only been utilized by 12% of total investors.

Are you looking to have more foreign participation into the securities?

Indonesia is a promising market to invest. The growth of the Jakarta Composite Index (JCI) is the highest among other markets, with 228% in 10 years. Looking at Indonesia economic growth, which stands at above 5%, and the current aggressive development of infrastructure, we are confident that foreign investors are keen to invest in our market. Foreign Investors are well informed about best markets to invest, so in that way, we are not worried. However, in order to attract more investor to invest in Indonesia, our approach is more to convince them that Indonesia is the best place to invest. This can be achieved by providing them the infrastructure which is aligned to international regulation, standards, and best practice. By providing them convenient environment to invest, we are confident that the number of foreign investor can also be increased in term of the number. Currently we are more focusing to increase the number of local investor through several awareness and education program, together with IDX and KPEI.

What are your ambitions and objectives for KSEI moving forward?

Currently, we are developing the General Meeting of Shareholders (GMS) platform through electronic platform. This platform have been introduced in several countries including Turkey, India, Taiwan, and the Netherlands. The development of e-proxy and e-voting platform can be seen as KSEI's effort to facilitate investor's convenience. E-proxy and e-voting platform are the application which accommodate investor's needs and convenience as Shareholders to be able to participate in the GMS without having them to physically present due to geographically conditions of Indonesia where investors lives in different cities, even they reside abroad. This platform is expected to provide convenience for local and foreign investors and become solution for investors who have to attend multiple GMS being held at the same time but in different locations. With the number of issuers which has reached more than 500 companies, there exists the possibility that GMS will be held at the same day during a year. Meanwhile, 35% of Indonesia's capital market investors hold multiple securities. In order to build an e-proxy and e-voting platform, KSEI has appointed Mekezi Kayit Kurulusu (MKK) – the Central Securities Depository of Turkey. KSEI plans to launch e-proxy platform during next year, while for e-voting platform will be developed in the next phase since there is the law adjustment needed. We are now also working on the enhancement of our main system, C-BEST Next Generation. It allows us to anticipate the increase in trading and number of investors. The C-BEST Next-G is expected to enhance 10 times from the previous system in speed and capacity and hopefully will be launched next year. KSEI wants to provide more services to stakeholders. To fulfill this KSEI has Financial Hub Program cooperation with banking industry as a third party. This was done to support the financial services in establishing the financial market deepening program which covers all financial sectors, namely capital market, banking and non-bank financial institutions. Our synergy with banks is expected to provide a solution since infrastructure development requires a huge investment and will take a very long time if it was to be implemented by the capital market industry alone. In the future, Indonesia capital market can develop rapidly with the availability of infrastructure which can reach remote areas in Indonesia. With the continuous development in its infrastructure, it is expected that the public can invest in the capital market more easily.