Indonesia Government Bond Futures - Clearing

On 8 May 2017, IDX launched a new product of futures with the Government Bond (SUN) as the underlying asset. This product is called the Indonesia Government Bond Futures (IGBF). It is expected to address the needs of primary dealers for a hedging instrument for their SUN portfolios.

Basic Understanding of Indonesia Government Bond Futures (IGBF)
Futures are contracts that require the parties to buy or sell certain underlying assets at a certain price and within a certain period of time in the future. Futures price movements are derived from the movement of underlying assets (assets used as the basis for such futures).

In IGBF trading, there are short/sell position and long/buy position. The determination of position depends on the prediction and analysis of said investor. In the event that an investor predicts that the price of IGBF will increase, then the most appropriate position to be taken by the investor is the long position. Meanwhile, if the investor predicts that the price of IGBF will decline, then the short position is the most appropriate position to be taken. The following are some terms and descriptions used in futures transactions:

1. Underlying
2. Multiplier
3. Initial Margin
4. Maturity Date
5. Tick Size
6. Contract Code
7. Daily Settlement Price (HPH) and Final Settlement Price (HPF) (in percentage)

Description of Terms:

1. Underlying
The underlying used as a reference is the SUN with a benchmark of 5 years and 10 years.
2. Multiplier
Multiplier is the Rupiah value that represents one basis point (bps). In IGBF trading, Multiplier amounts to Rp1,000,000,000.-. Since IGBF prices are expressed in percentage, each 1% change in IGBF is equivalent to Rp1,000,000,000.-.
The transaction value of IGBF can be calculated as follows:
For example, if an investor buys 1 IGBF contract at 100% price, the IGBF transaction value is equivalent to 100%*1*Rp1,000,000,000.- = Rp1,000,000,000.-.
3. Initial Margin (Pre-Order Risk)
As the IGBF has two 2 underlying assets as benchmarks, i.e. the 5-year SUN (BM05) and the 10-year SUN (BM10), the formulas for calculating the pre-order risk for both differ, as follows:
For example, if an investor buys 1 contract of IGBF BM05 and BM10 at 100% price, then the minimum amount of funds to be deposited by the investor as Initial Margin (Pre-Order Risk) is equivalent to 1%*100%*1*Rp1,000,000,000 = Rp10,000,000 and 2%*100%*1*Rp1,000,000,000 = Rp20,000,000.
4. Maturity Date
IGBF has a maturity date set by IDX. Maturity date for an IGBF series is the last day on which the IGBF series is traded. The maturity date of IGBF may fall only in March, June, September, and December of every year. For example, for the IGBF series whose maturity date is in March 2018, the last day of trading for such series shall be the last Exchange Day of March 2018, which falls on Friday, 30 March 2018.
5. Tick Size
IGBF tick size is the unit for IGBF price change used in the selling and/or buying offerings of IGBFIGBF tick size is equivalent to 0.01 bps, which means that investors can input a selling offer and buying order of IGBF with a multiple of 0.01 bps. Unlike KBIE LQ45IGBF tick size does not need to be rounded to 0.05, which means that the price is displayed “as is”.
For example, Mr. A and Mr. B perform the selling and buying offering of IGBF at 100.03% price. Thus, the price is equivalent to 100.03%. Every tick of the price has Rupiah value amounting to Rp100,000 (Rp1,000,000,000*0,01%).
6. Contract Code
The Contract Code used in IGBF trading shall refer to international standards. The contract codes used are as follows:
For example:
7. Daily Settlement Price (HPH) and Final Settlement Price (HPF)
Daily settlement price is the price used for the determination of rights and obligations on a daily basis, while the final settlement price is the price used for the determination of rights and obligations on the maturity date.
The following are the specifications for the IGBF currently traded on the IDX:
 
CLEARING OF INDONESIA GOVERNMENT BOND FUTURES TRANSACTIONS
IGBF transactions’ clearing process is carried out on a netting basis for each CM portfolio and their clients based on the contract position, margin, and profit/loss. Proceeds from clearing that has been carried out by KPEI will generate a document called the Clearing Result List (CRL) of Futures and Options. Such CRL can be accessed by CM at 19.30 on every exchange day when the futures transaction is carried out. The CRL of Futures and Options provides information on all open positions, profit/loss, margin, and premium of each contract.
As explained above, the rights and obligations of IGBF transaction are determined every day using the HPH. HPH determination uses an IGBF contract price sample taken at certain point that occurs in the Regular Market, instead of one that occurs in automatically-closing transaction (sellers and buyers from the same Exchange Member).
The HPH sample calculation is based on:
  1. The average of futures (IGBF) prices in the last 30 minutes of trading on the IGBF Regular Market by taking the futures (IGBF) price every 10 minutes, to obtain 4 points at the following times (15.45, 15.55, 16.05, 16.15). This is carried out if there is any IGBF transaction before and after 15.45;
  2. If above conditions are not met because the transaction takes place after 15.45 , then the calculation is done based on the average of 8 futures prices, consisting of 4 futures (IGBF) prices on the IGBF Regular Market and 4 fair prices of the underlying SUN issued by Indonesia Bond Pricing Agency (IBPA) at the following points:
    • The 1st, 2nd, 4th and 6th prices use the IBPA (underlying) fair prices taken at the following times: 15.30, 15.40, 15.50, 16.00;
    • The 3rd, 5th, 7th and 8th prices use the last futures (IGBF) prices on the IGBF Regular Market taken at the following times: 15.45, 15.55, 16.05, 16.15.
  3. If until 16.15 there are no IGBF transactions on the IGBF Regular Market, then the HPH is calculated based on the provisions set on point 2. above, but the futures (IGBF) prices shall use the previous price (Settlement Price T-1) as the substitute for the last price.
  4. If IGBF transactions only take place before 15.45, the HPH is calculated based on the point 2.ii above, but the four points will use the IGBF prices for the last transaction that takes place on the IGBF Regular Market. 
Meanwhile, HPF is calculated based on the average of IBPA (underlying) fair prices for SUN within the last 30 minutes of trading on the underlying market taken at these times: 15.30, 15.40, 15.50,16.00.
 
To access KPEI Regulations which govern the futures transactions clearing processes, please click here.
 
KPEI uses a web-based system to run the futures transaction clearing and settlement processes. The system is able to provide clearing results from CM level down to clients level, and can be accessed online by CM. 
Functions of Clearing and Settlement System of Derivatives are as follows:
  1. To monitor derivative transactions on a daily basis, whereby CM can monitor the transactions of Futures and Options, Futures and Options Positions, Margins, Gain/Loss Values, Early Warning Indicators, Security Fund Positions, and the amount of Collateral of CM and their clients;
  2. To withdraw any excess CMSecurity Deposit and CM Collateral and their clients’ (if any);
  3. To process the liquidation of Futures and Options positions;
  4. To issue clearing and settlement documents of Futures and Options transactions.
CALCULATION SIMULATION OF RIGHTS AND OBLIGATIONS OF INDONESIA GOVERNMENT BOND FUTURES TRANSACTION: