Partner

1. Partner KPEI Securities Borrowing & Lending Antonius H. Azwar 8th Asia-Pacific Central Securities Depository Group Cross Training Seminar June 27th – 28th, 2006, Bangkok

2. Objectives • Role of KPEI • KPEI SBL • Tax Implication • Statistics • Issues 8th ACG Cross Training Seminar June 27th – 28th, 2006, Bangkok

3. The Functional Relationship & The Role of KPEI Performs Securities Transactions EXCHANGES • Performs Clearing and Guarantee of securities transaction settlement: • As Central Counterparty • Central SBL Service • Managing the Guarantee • Fund KPEI/CCP Performs Central Custodian & Depository KSEI/CD

4. KPEI SBL

5. Purposes • To avoid settlement failure • To cover or to settle a short trading position/margin trading (Strategic Trading) • Clearing Member financing of stock exchange trade settlement for its Client (Securities Financing)

6. Market Players • KPEI as Intermediary/Principal and Guarantor • Lenders: • Institutional or individual investors through Clearing • Member and Custodian Bank. • Borrowers: • Allinvestors participating through Clearing Member only.

7. KPEI SLB Scheme -------Scope of KPEI SLB Agreement------ Client Borrower CM Client Lender CM/CB Client KPEI Borrower CM Client Lender CM/CB Borrower CM Client Client

8. Why KPEI ? Lender Borrower NOVATIE Borrower KPEI KPEI Lender WHY WHY? • Orderly function • Guaranteed intermediation • Management service: • System support • Collateral management • Default Handling • Entitlement processing • Fee management

9. Parameter Parameter Collateral 125 % Type of Collateral Cash, Stocks, Bank Guarantee, Deposit, Bonds NRC (Non ReimbursementCompensation) 125 % 1 day (Exchange Day) Min Loan Period Recall Period 4 days (Exchange Day) Borrowing Fee rate 15% p.a Lending Revenue rate 12% p.a Borrowing Instruction Fees IDR 20.000 Min Borrowing fee Borrowing fee x 1 day

10. Tax Implication Approved by tax authority Jan ‘06

11. Fee KPEI Lender Borrower Lender Fee = Z Borrowing Fee = X% Borrowing Fee = X% Lending revenue = X% - Z Fee = Y No income tax Income tax No income tax KPEI SBL System Investor “No levy of Income Tax as intended under Chapter 23 is imposed upon remuneration for Securities Lending and Borrowing receivables paid by the Borrower to KPEI, part of which is intended for pass-through to the Lender”. “Upon remuneration for lending and borrowing service paid to the ultimate lender client investor by a Stock Exchange Member and/or a Custodian Bank acting as mediator of Lender, which is deemed to be the equivalent of lease, and other income originating from sources pertaining to the utilization of wealth, Income Tax Deduction as intended under Chapter 23 of 15% (fifteen percent) against the projected net income of 40% of bruto income is imposed or as intended under Chapter 26 Income Tax a tariff of 20% is imposed or deducted in accordance with provisions under the Multiple Taxation Avoidance Agreement”.

12. Manufactured Dividend Issuer via Payment Agent Cash Dividen= X%, (income tax) Lender KPEI Borrower Cash Dividen = X% Cash Dividen= X% Cash Dividen= X% Cash Dividen = X% No Income tax No Income tax No Income tax KPEI SLB System Investor No levy of Income Tax as intended under Chapter 23 is imposed upon Dividend Replacement paid by the Borrower, whether originating from the Issuer or its own account, to KPEI for further pass-through to the Lender.

13. NRC(Non Reimbursement Compensation) KPEI Borrower Lender KPEI SLB System Fail to reimburse Penalty = NRC NRC Pass-through NRC Final Income tax = 0,1% NRC value No Income tax No income tax NRC Exchange trade Investor “KPEI, in its capacity as organizer of the stock exchange, is obligated to deduct Income Tax that is final in the amount of 0.1% (zero point one percent) against the value of Non Reimbursement Compensation paid to the Lender due to the inability of the Borrower to make reimbursement for borrowed Securities. This is due to the consideration that a default in a Securities Lending and Borrowing Transaction is deemed to be the equivalent of a Shares Buying Transaction”.

14. S t a t i s t i c Updated to June 22th, 2006 06’ Total Loan value: Rp. 988,190,617,500.- Daily average: Rp. 5,551,632,682.- Total Volume: 330, 555,500 unit shares

15. S t a t i s t i c • Eligible Stocks • Eligible Stocks : 84 • Active Eligible Stock : 70 • Members • Members : 83 (Brokers + Custodian Bank) • Active Members : 39

16. On Progress Agenda • Improve regulated short selling • Improve the regulation of short selling • Lift ban on regulation of selected shares for regulated short selling • Coordinate with SX and Bapepam (SEC) for surveillance and enforcement of regulated short selling transaction • Implementation new module: • Substitution Loan, Automatic SBL, Automatic Roll over • Develop different market for SLB (Fixed Term) • Sustainability & stability of supply and demand (Visit directly to member/”marketing program”) • Develop comprehensive KPEI SBL Website for information and order facility • Market education

17. Current Issues & Obstacles • Insufficient pool of Lendable Stocks • Membership only consists of brokers (Securities company) • Bapepam/SEC has recently permitted Custodian Bank only as a Lender Pension and Mutual Funds lending prohibition • Grey area of Short Selling Regulation • Product knowledge = Additional Education Is Required : • Product it self • Myths & Misconceptions: • SBL Creates Negative Market Conditions • Conflict of Interest for Fund Managers • Stock Lending and Short Selling are Bad for the Market

18. Thank You Contact: antonius@kpei.co.id P: 62-21-52995631