Index Futures - Clearing

Index Futures (IF) transaction in Indonesia was first launched by the Surabaya Stock Exchange on August 13th, 2001 using LQ-45 Index as underlying instrument. On April 27th, 2004, Dow Jones Industrial Average and the Dow Jones Japan Titans 100 began to be traded. Although IF was launched a long time ago, until 2015, IF products have not been actively traded. After a long period of inactivity, in 2016 Indonesia Stock Exchange reactivate the IF LQ-45 product, with several improvements from the product specification, the transaction mechanism, and trading system. IF is expected to be one of the alternative investment instruments for investors other than equity products such as stocks, warrants, rights, and ETFs.

IDX LQ-45 FUTURES BASICS
Futures is a contract which obliges the parties to buy or sell a certain underlying asset at a certain price and at a specified time in the future. Futures Contract price movements are affected by the movement of underlying assets (assets that form the basis of the futures contract), such as IF LQ-45, follows the movement of LQ-45 index which is the reference of the IF LQ-45.

In the IDX LQ-45 Futures trading, there are short/sell and long/buy positions. The position taken depends on the prediction and analysis of each investor. If investors predict upward movement of LQ-45 index, then the best position to be taken is long position, whereas if investors predict a downward movement of LQ-45 index, the best position is a short position.

Some of the terms used on derivatives-futures transaction are as follows:
1.    Underlying Index
2.    Multiplier
3.    Initial Margin
4.    Maturity Date
5.    Contract Price Fraction
6.    Contract Code
7.    Daily Settlement Price and Final Settlement Price 

Explanation for the terms above:

1.    Underlying Index
There are several types of assets that serve as underlying assets such as stocks, bonds, and interest rate. Currently, the underlying asset used as a reference is the LQ-45 index.

2.    Multiplier
Multiplier is the Rupiah value that represents a point of the securities Index. In IDX LQ-45 Futures trading, the Multiplier is Rp500,000,-. This means any changes of 1 LQ-45 index points is worth Rp500,000,-.
The IDX LQ-45 Futures transaction value can be calculated by:

3.    Initial Margin (Pre-Order Risk)
Initial Margin on Pre-Order Risk is the amount of funds to be submitted by Clearing Member to KPEI so that Clearing Member can submit order for Futures transactions. Initial  Margin (pre-order risk) for IDX LQ-45 Futures transaction can be calculated as follows:

For example, an investor buys 1 contract of IDX LQ-45 Futures at 900 contract price. Thus, the minimum amount of deposit to be submitted by investor as Initial Margin (pre-order risk) equals to 4% * 900 * 1 * Rp500,000,- = Rp18,000,000,-.

4.    Maturity Date
IDX LQ-45 Futures has maturity dates stipulated by the Indonesia Stock Exchange. The maturity date is the last day IDX LQ-45 Futures series are traded.
For example, for IDX LQ-45 Futures series maturing in November 2016, then the last day the series can be traded is the last trading day in November 2016 (Wednesday, November 30th, 2016).

5.    Contract Price Fraction (Tick Size)
IDX LQ-45 Futures Price Fraction is a unit of futures price change used in submitting IDX LQ-45 Futures sell offer and buy orders. IDX LQ-45 Futures price fraction is 0.05 index points. This means that investors may submit IDX LQ-45 Futures sell offers and buy orders in 0.05 points increments.

For example, if the LQ-45 index value is 900.58 then the IDX LQ-45 Futures sell offer and buy orders applicable are 900.60 or 900.65 and so on, increasing or decreasing with the multiple of 0.05 points. Each price fraction of the contract has a value of Rp25,000,- (Rp500,000 * 0.05).

6.    Contract Code
The contract codes used in IDX LQ-45 Futures trading refers to international standards. Contract codes used for IDX LQ-45 Futures are as follows:

Contract Code Example:

7.    Daily Settlement Price (HPH) and Final Settlement Price (HPF)
The daily settlement price is the price used for determining the rights and obligation on a daily basis, while the final settlement price is the price used for determining the rights and obligations on maturity.
The IDX LQ-45 futures contract specification is as follows:

FUTURES TRANSACTION CLEARING
The futures transactions clearing process is carried out by netting for each Clearing Member portfolio and its clients on contract positions, margin, and profit/loss. Clearing results done KPEI will produce a document called Futures and Options Clearing Result List (CRL). CRL can be accessed by Clearing Member at 7.30pm on the same day of the futures contract transaction. Futures and Options CRL inform all open positions, profit/loss, margin, premium of each contract.

As described above, the determination of the futures transactions’ rights and obligations are calculated daily using HPH. For the determination of HPH, contract price (IF) samples that occur at specific points in Regular Market is used, excluding ones that occur by crossing (buy and sell transaction conducted by the same Exchange Member). HPH sample calculation based on:

a.    The average (IF) contract price within the last 30 minutes of IF Regular Market by taking the contract price every 10 minutes to get the 4 prices on the following points (15:45, 15:55, 16:05, 16:15). This is done if there is a IF transaction before and after 15:45.
b.    If the above conditions are not fulfilled because the transaction occurring after 15:45, then HPH is calculated based on the average 8 contract prices, which consists of 4 (IF) contract price in the KBIE Regular Market and 4 (underlying) LQ-45 securities index price points as follows:

i.    First, second, fourth and sixths prices use securities (underlying) LQ-45 index prices taken on the following points: 15.30, 15.40, 15.50, 16.00;
ii.   Thrid, fifth, seventh, and eighth prices use the last (IF) contract prices on Regular Market taken on the following points: 15.45, 15.55, 16.05, 16.15.

c.    If until 16:15 there are no transactions in the IF Regular Market, the HPH is calculated in accordance to the provisions stipulated on the letter b. above, but the (IF) contract price  uses the previous prices (T-1 settlement price) instead of the final price.
d.    If the IF transaction only occurs before 15:45, the HPH is calculated in accordance to the provisions of letter b.ii above, but the four points will use IF contract prices occurring on the last transaction in the Futures Regular Market.

Meanwhile, HPF is calculated based on the average (underlying securities) LQ-45 index price in the last 30 minutes of trading on the underlying market by taking the 15:30, 15:40, 15:50, 16:00 points.
To access KPEI Rules governing the futures transactions clearing process, click here.

KPEI uses web-based system to facilitate futures transactions clearing and settlement. This system has the ability to provide clearing of Clearing Member level and clients level and can be accessed online by Clearing Member.

Derivatives Clearing and Settlement system is used:
a.    To monitor derivative transactions on a daily basis, AK can view Futures and Options transactions, Futures and Options Positions, Margins, Gain/Loss Value, to receive Alerts (Early Warning Indicators), to monitor Guarantee Fund Position and the value of Clearing Member Collateral and its clients;
b.    To withdraw excess of AK and its clients’ Guarantee Fund and Collateral (if any);
c.    To liquidate Futures and Options positions;
d.    To publish Futures and Options transaction clearing and settlement document.

CALCULATION SIMULATION OF FUTURES RIGHTS AND OBLIGATIONS: