Securities Borrowing and Lending - Settlement

In securities lending and borrowing (SLB) transactions, account structure used are as follows:
1. Lenders use:

a.    Depository Account (001 Account) / Securities Depository Sub Account (Sub Account 001) as depository account
b.    Borrower’s Securities Lending and Borrowing Account (003 Account) as receiving account in the form of cash (NRC / cash manufactured dividend)
c.    Lender’s Securities Lending and Borrowing Account (005 Account) / Client’s Securities Lending and Borrowing Sub Account (005 Sub Account) is an account used as:

  • Loaned stock placement
  • Stock returns (stock manufactured dividend) acceptance 
  • Loans recording 

2. Borrowers use multiple accounts as follows:

a.    Securities Settlement Account (002 Account) as the receiving account for lent stock
b.    Borrower’s Securities Lending and Borrowing Account (003 Account), an account used as:

  • Stocks reimbursement
  • Cash delivery (NRC / cash manufactured dividend).

c.    Collateral Account (004 Account) / Collateral Sub Account (004 Sub Account) as account for collateral placement
d.    Lender’s Securities Lending and Borrowing Account (005 Account) / Client’s Securities Lending and Borrowing Account Sub Account (005 Sub Account) as loans recording account 

The securities lending and borrowing transactions mechanism carried out by the lender and the borrower both for regular and front end SLB uses e-CLEARS system as seen in the chart below:

Securities Lending Mechanism

The chart above explains that SLB through the regular method can be done by Clearing Members (AK) through contacting KPEI via phone or email, while securities lending and borrowing through the front end method can be done by inputting on the front end application. Subsequently, Clearing Member inputs SLB orders in the e-CLEARS (for both methods) and e-CLEARS will then validate on three (3) things:
1. Borrower’s collateral availability (collateral)
2. The securities availability in lender’s account (lendable balance)
3. Borrowing limit, consisting of:

a. The loan value limit for each borrower (value borrowing limit)
b. Number of shares limits that can be lent compared to the number of shares outstanding shares on KPEI lendable pool (lendable Pool limit)
c. Number of shares limit that can be lent compared to the overall stock on KPEI lendable pool (securities borrowing limit)

When e-CLEARS system has finished validating the three (3) things above, the loan order status that originally is an order became matched order. Next, the securities lending book-entry process will take place. The lender whose securities are owned by the Clearing Member will perform securities book-entry from Depository Account (001 Account) to Lender’s SLB account (005 Account) whereas if the securities loaned are owned by the Clearing Member’s client from Securities Depository Sub Account (001 Sub Account) the securities is transferred to the Lender client’s SLB Sub Account (005 Sub Account). Next, from the 001 Account or 001 Sub Account will be transferred again to the KPEI SLB Settlement Account (005 Account). From KPEI’s 005 Account the securities will be transferred to the Securities Settlement Account (002 Account) of the borrower.

Meanwhile, related to the loan reimbursement process, the borrower will return the borrowed securities through Borrower’s SLB Account (003 Account) to be transferred to the Settlement Account to KPEI SLB Account (Account 005). If at maturity for loan reimbursement, in 003 Account the securities is not available, then the e-CLEARS system will automatically take securities available in the Collateral Account (004 Account) belonging to the Clearing Member or Securities Collateral Sub Account (004 Sub Account) owned by Clearing Member’s customer, depending on the parties as the borrower. The loan reimbursement process with auto debit from 004 account above is called the Embedded Action. Next, KPEI 005 Account will be transferred again to the 005 Sub Account or 005 Account, depending on the parties who became the lender and transferred to 001 Sub Account or 001 Account.

If the borrower cannot return the borrowed securities amount to KPEI, KPEI will enforce the Non Reimbursement Compensation/NRC mechanism valuing at 125% of the securities highest price of the non-reimbursed loan. The highest price is obtained from the securities highest price at the transaction date (T + 0) in session 1 and session 2, and on transaction settlement date (T + 3) sessions 1, whichever is the highest.

The loan reimbursement mechanism performed by the borrower is as follows:

Securities Reimbursement Mechanism

Presented below is a transaction costs simulation for regular and front end SLB:

On January 16, 2017 (T + 0), AK X sells 10,000 UNVR stocks. At T + 3 settlement day i.e. on January 19, 2017, AK X should submit UNVR stock to KPEI. However, on settlement date, AK cannot deliver the shares and eventually performs securities borrowing to KPEI. AK X lent for 4 days (January 19 to 24, 2017).

For reference, the UNVR stock's closing price:
January 19, 2017         Rp 10,120
20-22 January 2017     Rp 10,180
January 23, 2017         Rp 10,060
January 24, 2017         Rp 10,125

What is the total cost paid by the borrower and accepted by the lender for UNVR SLB transaction above?

Regular Method:

Front End Method:

Assuming the matched fee (borrower fee) through the front end at 8%, KPEI fee is 1% so that the lender fee is 7% (lender fee = borrower fee – KPEI fee).