BI's scriptless system to foster domestic bond market

BI's scriptless system to foster domestic bond market

Urip Hudiono, The Jakarta Post, Jakarta

Bank Indonesia (BI)'s new, fully computerized securities
settlement system is expected to support and promote the
country's domestic bond market.

"The system's ability to promptly and reliably manage large
quantities of transactions of government domestic bonds will
increase investors' confidence in the bonds, and therefore foster
their liquidity and market growth," BI Governor Burhanuddin
Abdullah said during the recent launch of the system.

The central bank, according to Law No. 24/2003 on government
domestic bonds, is now mandated to administer the trade of the
bonds.

Called Bank Indonesia's Scriptless Securities Settlement
System (BI-SSSS), the system has been handling bond transactions
since February. The government plans to issue a total of Rp 24
trillion worth of domestic bonds this year. The first issue took
place in February, worth about Rp 2.52 trillion (US$296.5
million), which was followed by a Rp 2 trillion issue earlier
this month.

BI-SSSS is an extension of the central bank's Real Time Gross
Settlement (BI-RTGS) system. BI-RTGS has been the country's main
electronic interbank cash transfer and clearing system since it
was introduced in 2001.

BI-SSSS enables its current members, consisting of 145 banks,
11 sub-registries, nine foreign currency exchange companies and
four stock brokers, to settle bond transactions online through
locally installed SSSS terminals (ST).

The terminals are connected via dedicated leased lines with
BI's Automatic Bidding System central computer (BidCC) and BI's
SSSS central computer (SCC). The BidCC administers the bidding on
bonds, while the SCC handles the settlement of bond transactions.

The new, paperless system also enables the Ministry of
Finance, as the issuer of government domestic bonds, to monitor
the bonds' current standing.

Previously, the whole process was done manually, which in
practice proved prone to delays and human error, resulting in
frequent settlement failures.

At present, the BI-SSSS can only handle bond transactions in
rupiah. However, because the system is designed according to
global clearing standards set by the Bank for International
Settlement (BIS) and the International Organization of Security
Commissions (IOSCO), BI will be able to develop it for bond
transactions in foreign currencies, in anticipation of a future
borderless international bond market.

For reliability, the system implements a delivery-versus-
payment (DVP) method, enabling it to verify the identities of
both the buyer and the seller, as well as the buyer's available
funds. If the buyer does not have enough funds, the transaction
is put into a queue until the buyer has adequate funds.

"The DVP method will reduce settlement failures and prevent
any monetary disruption," said Burhanuddin.

The system's reliability was demonstrated in an exhibition
during its launching, in which giant state Bank Mandiri made an
actual transaction with Deutsche Bank AG over a batch of
government domestic bonds worth Rp 100 billion.

An information technology officer at a major bank, however,
questioned the central bank's preparations for dealing with
possible technical malfunctions of the system.

"If there is any technical malfunction, will BI be able to get
the system running again in time to prevent any settlement
failures?" he asked, adding that he also found some difficulties
in integrating the system's software with the software used by
his bank.

As a contingency measure, BI has provided back-up facilities
for the BI-SSSS, as well as several firewall computer servers for
added security. It also provides optional dial-up connections and
direct guest terminals in case there is a disturbance in the
system's dedicated leased lines.