FSB published the results of a peer review on the implementation of over-the-counter (OTC) derivatives market reforms in Indonesia. The report examines steps the authorities have taken to implement OTC derivatives market reforms in Indonesia, including by following up on the relevant G20 commitments. The review finds that the authorities in Indonesia have made some progress in implementing the OTC derivatives reforms, with focus on developing their domestic derivatives market. The report also provides recommendations for Indonesian authorities to address issues in the implementation of OTC derivatives reforms.
The report highlights that OTC derivatives market in Indonesia has been steadily growing over the past five years, though it is relatively small, both compared to its economy and from a global perspective. Foreign-exchange derivatives are, by far, the largest OTC derivatives class, followed by interest rate and commodity derivatives. Reporting requirements have been in place for banks’ OTC foreign exchange and interest rate derivatives transactions as well as for other participants’ commodity derivatives transactions for many years. Domestic banks, including local subsidiaries of foreign banking groups and local branches of foreign banks, are the most active market participants. Progress continues on central clearing requirements and margin requirements for non-centrally cleared derivatives and the authorities are appropriately prioritizing these areas over establishing platform trading. The report notes the authorities’ continued progress on these reforms, despite pressures in the wake of the COVID-19 pandemic. Nevertheless, the review includes following recommendations for Indonesian authorities:
- Improving the reporting, use, and public transparency of OTC derivatives data. The authorities should continue to improve reporting and use of OTC derivatives data by finalizing their review of trade repository infrastructure and reporting requirements and implementing improvements identified in the review; another recommendation entails introducing a timeline for adopting unique global identifiers for entities, transactions, and products.
- Addressing legal uncertainties regarding netting. The authorities should address legal uncertainties related to netting for derivatives transactions in bankruptcy, to facilitate effective central clearing and margin requirements.
- Implementing the remaining OTC derivatives reforms sequentially. The authorities should implement remaining OTC derivatives reforms in an appropriately sequenced manner by adopting central clearing of standardized OTC derivatives, margin requirements for non-centrally cleared derivatives, and capital requirements for exposures to central counterparties.
Keywords: Asia Pacific, Indonesia, Banking, Securities, Peer Review, OTC Derivatives, Reporting, Margin Requirements, Netting Regulations, Basel, FSB
Scott is a Director in the Regulatory and Accounting Solutions team responsible for providing accounting expertise across solutions, products, and services offered by Moody’s Analytics in the US. He has over 15 years of experience leading auditing, consulting and accounting policy initiatives for financial institutions.
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