PAGE 1 : INTRODUCTION
PAGE 2 : DEFINITIONS
PAGE 3 : OBJECTIVES OF BI-RTGS
PAGE 4 : CLEARING SETTLEMENT MECHANISM
PAGE 5 : PAYMENT SYSTEM RISKS
PAGE 6 : CHARACTERISTICS OF BI-RTGS SYSTEM
A. V-SHAPED STRUCTURE
B. PARTICIPANTS OF BI-RTGS
C. BI-RTGS FUND TRANSFER MECHANISM
D. WINDOW TIME FRAME
E. RTGS TRANSACTION CHARGES
F. NO MONEY NO GAME
G. CAPPING
H. QUEUE MANAGEMENT AND GRIDLOCK RESOLUTION
I. INTRADAY LIQUIDITY FACILITY & SHORT-TERM FUNDING FACILITY
J. BI-SCRIPTLESS SECURITIES SETTLEMENT SYSTEM (BI-SSSS)
L. INFORMATION TECHNOLOGY SECURITY AND DISASTER RECOVERY PLAN (DRP)
M. IMPLEMENTATION OF BI-RTGS SYSTEM AT BANK INDONESIA BRANCH OFFICES
PAGE 7 : HISTORICAL REVIEW OF RTGS SYSTEM
DEVELOPMENT IN INDONESIA
INTRODUCTION
In recent years, nearly all developed countries that are members of G-10 have implemented a Real-Time Gross Settlement (RTGS) system for interbank transfer transactions. According to a BIS report, hitherto, at least 30 countries have introduced a RTGS system. Furthermore, the European Central Bank has mandated that each EU member must implement a RTGS system, which can assimilate with the EU’s TARGET RTGS system to help
support economy integration.
potential prior to the BI-RTGS system accounted for 92% of total payment transactions in Indonesia.
DEFINITIONS
“The Bank Indonesia Real-Time Gross Settlement system, hereafter referred to as the BI-RTGS system, is an electronic fund transfer system amongst participating members in rupiah, for which settlement is performed in real-time per individual transaction”.
Using the BI-RTGS system, members transmit fund transfers to the RTGS Central Computer (RCC) at Bank Indonesia through an RTGS terminal at their station for settlement processing. If the settlement process is successful the payment transaction proceeds automatically and electronically to recipient members. Success of the settlement process depends on sufficient funds of the sender participant because under the BI-RTGS system members are only permitted to credit other members. In other words, participants of BI-RTGS must ensure an adequate account balance is held at Bank Indonesia prior to transferring funds to other BI-RTGS members.
OBJECTIVES OF BI-RTGS
1. To minimize settlement risk in the national payment system;
2. To provide an additional fund transfer facility that is efficient, timely, secure and reliable;
4. To improve the efficiency and effectiveness of fund management for banks, through the centralized checking account policy at Bank Indonesia using the BI-RTGS system; and
5. To provide information that supports effective monetary policy as well
as operate as an early warning system for bank supervisors.
CLEARING SETTLEMENT MECHANISM
Prior to the BI-RTGS system, interbank transaction settlements, either in the interest of the bank or its customers, were processed through clearing. In contrast to the BI-RTGS system, which applies a gross settlement method (each payment transaction is settled individually), the clearing system uses a netting method in its settlement process. Netting or net settlement is a final settlement process conducted at the end of day, by offsetting payment liabilities with the rights of the recipients. As a result, at the end of the day there is just one net right or liability to be settled for each member account.
overdraft until the next day. The possibility of this debit balance has become relatively negligible since the application of Failure-to-Settle in the National Clearing System of Bank Indonesia.
PAYMENT SYSTEM RISKS
In general there are two types of risk in the payment system; credit risk and liquidity risk. Credit risk occurs when a counterparty cannot fulfill their obligation to make full payment, either on the due date or in the future. Whereas liquidity risk emerges when a counterparty is unable to make full payment on the due date, however, can (maybe) at a later date. This can create liquidity problems for the recipient counterparty and, in turn, increase the cost of funds as said counterparty is forced to seek funds on the money market.
Implementation of the BI-RTGS system is expected to minimize the possibility of such risks. With the ability to continuously process fund transfers in real-time during the specified window and due to the fact that new payment transactions are only calculated if the payer account held at Bank Indonesia is sufficient, the BI-RTGS system can minimize or perhaps even eliminate risks in the settlement process. Under the BI-RTGS system, providing that the payer account is sufficient, settlement and credit processing to the recipient account is instant with the funds received ready for immediate use, including to pay for business activities. Using such a system encourages the effective expansion of economic activities.
The implementation of BI-RTGS is expected to meet the range of requirements put forward by various parties regarding the availability of a faster payment mechanism that minimizes risk, as necessary when settling economic transactions through DVP, for instance the trade of stocks and securities papers. With the availability of such a mechanism, fund transfers through BI-RTGS (payment leg) can be coordinated with final the transfer of assets (delivery leg), thus simultaneous settlement can occur between the handover of assets and the respective payment. This will minimize risk in the securities market.
of a participant to cover its particular losses/liquidity shortfall due to the inability of another participant to fulfill its liabilities” is minimized. Second, the BI-RTGS system can prevent the possibility of unwinding payments, which can trigger systemic risk in a net settlement system. Third, as participating members can process settlements at anytime during the allotted window, settlements are no longer concentrated at specific times of the day. This allows sufficient time for banks to settle any liquidity shortfall by borrowing funds from other bank or await incoming transfers from other members.
CHARACTERISTICS OF THE BI-RTGS SYSTEM
The BI-RTGS system is the eighth RTGS system developed and operated by an EMEAP member country (Executive Meeting of East Asia/Pacific Central Bankers). The other seven are Thailand, Hong Kong, Singapore, Malaysia, South Korea, Australia and New Zealand.
Currently, the BI-RTGS system is implemented throughout Indonesia with 152 participating members, including 150 bank members (including Sharia Business Units) and 2 non-bank participants.
The characteristics of the BI-RTGS system are as follows:
A. V-SHAPED STRUCTURE
As applied by the majority of RTGS systems worldwide, the BI-RTGS system also uses a V-shaped structure in the process of message transmission, from sender participant to recipient participant through Bank Indonesia as operator of the BI-RTGS system (please refer to below figure).
Using such a structured approach, all information contained in a transaction is transmitted by the sender participant to the RTGS Central
V-shaped
SENDER RECIPIENT
massage RCC massage 2. Full payment 3. Full payment
Computer (RCC), which is subsequently forwarded to the recipient member when the transfer is settled by RCC at Bank Indonesia.
B. PARTICIPANTS OF BI-RTGS
Participating members of the BI-RTGS system comprise of banks and non-bank financial institutions. Participants are grouped into two categories, namely direct members and indirect members. Direct members can perform transactions directly using a RTGS Terminal owned by the Member. Indirect members can perform BI-RTGS transactions indirectly with assistance from Bank Indonesia officers using a RTGS Terminal owned by Bank Indonesia. Indirect members are obliged to become direct members within one year from their date of registration as an indirect member. The status of BI-RTGS participants is classified as:
STATUS ACTIVITY REASON
Active a. Can send outgoing transfers
b. Can receive incoming transfers
c. Can perform all other functions at
RTGS Terminal
Suspended
a. Can receive incoming transfers
b. Can perform all other functions at
RTGS Terminal
c. Cannot send outgoing transfers
a. Negative account balance at
cut-off time
b. Written request from an
lu supervision of the participant
Frozen a. Cannot send outgoing transfers
b. Cannot receive incoming
transfers
c. Can use the enquiry facility
Written request from an authorized
institution or party for supervision
of the participant
Closed a. All transactions forwarded to
participant will be rejected by
RCC
b. Transactions in the queue
system are automatically
cancelled
a. Written request from an
authorized institution or party for
supervision of the participant.
b. Decision of a merger or
consolidation; or the business
license is suspended
C. BI-RTGS FUND TRANSFER MECHANISM
A general description of the fund transfer mechanism among BI-RTGS participants is as follows:
1. Sender Participant inputs credit transfer into RTGS Terminal (RT), which is subsequently transmitted to RCC at Bank Indonesia.
2. RCC processes the credit transfer using the following mechanism:
b. If the account balance of sender participant is sufficient, posting is simultaneous from the sender participant (debited) account to the recipient participant (credited) account.
c. If the account balance of sender participant is insufficient, the credit transfer is queued in the BI-RTGS system.
3. Information on the settled credit transfer is automatically transferred by RCC to the RT of the recipient participant.
D. WINDOW TIME FRAME
The operational time frame for fund transfers among members in the interest of their customers is currently set between 06.30 and 16.30 (West Indonesia Time). This window is expected to provide generous flexibility for business players throughout Indonesia, which consists of three time zones, enabling them to transact smoothly.
However, if in certain cases a longer window is required, Bank Indonesia can extend the time to accommodate such needs.
E. RTGS TRANSACTION CHARGES
BI-RTGS transaction charges are set by Bank Indonesia as follows: (All times quoted in WIB (West Indonesia Time)
a. For transactions sent from 06:30 to 15:00 the fee is Rp7,000 per transaction.
b. For transactions sent after 15:00 to the cut-off time the fee is Rp15,000 per transaction.
2. Multiple credit transaction charges:
a. For transactions sent from 06:30 to 15:00 the fee is Rp35,000 per transaction.
b. For transactions sent after 15:00 until the cut-off time, the fee is Rp50,000 per transaction.
3. The charge for sending an Administrative Message is Rp2,500 per Administrative Message.
F. NO MONEY NO GAME
transactions are only settled once the respective participants receive sufficient incoming transfers.
G. CAPPING
To minimize payment risks due to the application of net settlement in the clearing process, Bank Indonesia has set a maximum cap on credit transfer transactions processed through clearing (clearing capping). Initially, the clearing cap was set at Rp1 billion but on 1st October 2002 it was amended to Rp100 million.
H. QUEUE MANAGEMENT AND GRIDLOCK RESOLUTION
If the account balance of the participant to be debited is less than the payment transaction sent, the transaction is automatically queued using the following procedure:
1. Queue in the BI-RTGS system is based on priority level and First-In-First-Out (FIFO).
2. Priority levels in the queue module of BI-RTGS system are:
a. First priority :clearing settlement
b. Second priority :transactions of BI-RTGS members with BI/Government.
3. If BI-RTGS detects gridlock, the gridlock resolution facility is applied, either automatically or manually based on balance sufficiency criteria or using the First–Available-First-Out (FAFO) method.
I. INTRADAY LIQUIDITY FACILITY and SHORT-TERM FUNDING FACILITY
As described previously, transactions settled in the BI-RTGS system use gross settlement, therefore, they are settled individually and continuously during the specified window. This is different to the clearing mechanism, which currently applies net settlement. Under the net settlement system, banks are not required to maintain relatively high liquidity on a daily basis, whereas under the RTGS system, participants are obliged to maintain high liquidity all day. Such a precondition precipitated the need for an intraday liquidity facility to boost the efficiency of interbank payments during the day.
To overcome the intraday gap, most RTGS systems around the world require a support facility like an Intraday Liquidity Facility, which is designed to improve the efficiency of real-time transactions. The terms and conditions of the Intraday Liquidity Facility for BI-RTGS include:
1. To qualify for the Intraday Liquidity Facility, BI-RTGS members must submit a proposal to Bank Indonesia.
2. Participants must pledge BI Certificates and/or other government bonds as collateral with a minimum value equaling the proposed Intraday Liquidity Facility in order to fully secure the facility.
3. The Intraday Liquidity Facility is automatically applied when the account balance is insufficient for outgoing transactions, providing the shortage does not exceed the value of the Intraday Liquidity Facility (provided when necessary).
4. When a bank receives an incoming transfer, the incoming transfer is automatically applied to reduce the balance of the Intraday Liquidity Facility used.
6. During T+1 up to 16:00 (West Indonesia Time), Bank Indonesia will request payments from members using “Super Priority” transactions, for which settlement is prioritized over other transactions.
7. In the case where the account balance is insufficient to settle the Short-Term Funding Facility before 17:00 (West Indonesia Time) and the respective participant does not request a new Short-Term Funding Facility before 18:15, the payment is settled by executing the collateral.
J. BI-SCRIPTLESS SECURITIES SETTLEMENT SYSTEM (BI-SSSS)
BI-SSSS was implemented on 16th February 2004 to replace the BER system and then on 17th March 2004 the BI-SSSS system was officially launched by the Governor of Bank Indonesia.
K. BYLAWS
In addition to the BI-RTGS regulations promulgated by Bank Indonesia, a number of Bylaws are also applicable to BI-RTGS participants in order to achieve standardized interbank payment operations among BI-RTGS members. Bylaws are valid for all payment activities conducted by each participating member in a payment series, commencing from the originator/initiator and concluding with the ultimate beneficiary. the Bylaws legislate the following:
1. Cut-off time for payment and settlement
Funds for intraday interbank money market payment transactions must be received in the borrower participant’s account no later than 30 minutes after transactions are closed. Whereas intraday interbank money market settlements should be made no later than 16.30 on the same day.
Same day value Money Market/Foreign Exchange deals performed prior to 16:00 must be settled no later than 16:30 (WIB). Settlement must be made no later than 16:30 (WIB) on the due date.
2. Compensation for interbank payment default
If interbank payment default occurs, the related parties can request compensation due to the payment default. Payment default can be in the form of late payments, early payments, overpayment, underpayment and incorrect transfers.
Compensation is calculated based on the different corrections, for instance currency date adjustment, payment return of incorrect transfer, late payment or settlement and beneficiary change. The interest rate applied for compensation is 120% of the average overnight JIBOR interest rate.
3. Compensation agreement to avoid unfair profit seeking
The payment of compensation is to ensure that BI-RTGS participants provide reparations to the aggrieved party should such conditions occur. Compensation is set up in a way that no member can unjustly be penalized or falsely enriched.
4. Dispute settlement by Arbitration Committee
L. INFORMATION TECHNOLOGY SECURITY AND DISASTER RECOVERY PLAN (DRP)
The BI-RTGS system is heavily reliant on information technology (IT). The use of hardware, software and sophisticated telecommunication tools require additional efforts to ensure that all aspects of the BI-RTGS system are secure. Various security layers are applied to the system; thus, the BI-RTGS system is expected to operate in a secure manner. To this end, Bank Indonesia employs independent IT auditors to examine all applications and networks associated with BI-RTGS. To testing the reliability of the BI-RTGS system, independent IT auditors also apply penetration testing to analyze any potential loopholes that could be exploited by hackers to break BI-RTGS security system. The current opinion of the independent IT auditors regarding the overall performance and security of the BI-RTGS system is very satisfactory, however, additional IT audits will be applied periodically in the future to maintain the security of the BI-RTGS system.
activated promptly if the main system fails. Consequently, payment system efficiency in the banking industry is not jeopardized. Periodically, all BI-RTGS participants are required to test their backup systems and DRP to ensure that all aspects are active.
M. IMPLEMENTATION OF BI-RTGS SYSTEM AT BI BRANCH OFFICES
After the successful initial phase of BI-RTGS implementation, the system was gradually introduced to BI branch offices from 2001. The integration of BI-RTGS at head office and the branch offices allowed for the member checking accounts held at BI branch offices to be moved and amalgamated at head office (Centralized Settlement Account or CSA).
The benefits of CSA implementation to participants of BI-RTGS are as follows:
1. To assist members control their liquidity position;
2. Money in transit is eliminated, therefore member cost of funds can be minimized; and
3. To assist members manage their funds effectively and efficiently.
Whereas for Bank Indonesia, CSA implementation yielded the following benefits:
2. To assist Bank Indonesia monitor liquidity because member accounts are consolidated nationally and can be monitored in real-time; and
3. To provide more accurate information for an early warning system of members suffering liquidity problems.
HISTORICAL REVIEW OF RTGS DEVELOPMENT IN INDONESIA
Year Activity
1995-97
Blueprint of the National Payment System (NPS) and establishment of the NPS Reform Committee
Implementation of BI-Line as an electronic fund transfer transition project to RTGS implementation
Analysis of RTGS development in Indonesia
1997 More detailed analysis on several policies related to RTGS
1998 Pyusunan Request For Proposal (RFP)
1999 Explanation of User Requirements
Communicate the RTGS plan to all banks in Jakarta Detailed explanation of User Requirement
Appoint security auditor for RTGS application Commence System design
Year Activity
2000 Establish the Internal Committee of RTGS for all RTGS member banks in Jakarta
COO Conference (Jakarta, Surabaya & Bandung) to acquaint banks with RTGS and its implications
System Development and Testing Purchase of RTGS support equipment
Installation of RTGS for all RTGS member banks RTGS training for all banks and internal BI
User Acceptance Test on 17 pilot banks
Network installation at 124 banks + Cilangkap DRC site Development of Cilangkap DRC site
Discussion on DRC scenario internally and with all RTGS participants Bank & industry testing
Development of fund transfer regulations (BI Regulation) Development of 17 pilot banks
Preparation of account relations legislation
Preparation of Intraday Liquidity Facility regulations Review all accounting/operations of BI
Year Activity
Associations
Preparation of contract documents with all RTGS participating banks Formation of Rupiah Transaction Settlement Unit as operator of BI-RTGS system
Simulation Test for 2 months to ensure all systems run effectively and efficiently
RTGS system went live on 17th November 2000 in Jakarta BI-RTGS system launching on 23rd November 2000 in Jakarta
2001 BI-RTGS system implementation at BI branch office in Bandung on 1/6/01
BI-RTGS system implementation at BI branch office in Surabaya on 6 /7/01 BI-RTGS system implementation at BI branch offices in Yogyakarta and Manado on 3/8/01
BI-RTGS system implementation at BI branch office in Samarinda and Balikpapan on 24/8/01
BI-RTGS system implementation at BI branch office in Semarang on 28/9/01
BI-RTGS system implementation at BI branch office in Denpasar on 2/10/01
Year Activity
BI-RTGS system implementation at BI branch office in Batam and Pekanbaru on 23/11/01
2002 BI-RTGS system implementation at BI branch office in Banjarmasin and Makasar on 25/2/02
BI-RTGS system implementation at BI branch office in Pontianak and Palangkaraya on 22/3/02
BI-RTGS system implementation at BI branch office in Jayapura and Ambon on 26/4/02
BI-RTGS system implementation at BI branch office in Kendari and Palu on 24/5/02
BI-RTGS system implementation at BI branch office in Bandar Lampung on 21/6/02
BI-RTGS system implementation at BI branch office in Kupang and Mataram on 26/7/02
BI-RTGS system implementation at BI branch office in Jambi and Bengkulu on 23/8/02
BI-RTGS system implementation at BI branch office in Palembang and Banda Aceh on 27/9/02
Year Activity
28/2/03
BI-RTGS system implementation at BI branch office in Purwokerto and Tasikmalaya on 28/3/03
BI-RTGS system implementation at BI branch office in Jember and Cirebon on 25/4/03
BI-RTGS system implementation at BI branch office in Kediri and Sibolga on 29/5/03
BI-RTGS system implementation at BI branch office in in Ternate on 27/6/03
BI-RTGS system implementation at BI branch office of Lhokseumawe on 16/10/03
For further information, kindly contact: HELP DESK BI-RTGS
Settlement Division
Bank Indonesia, Ged. D Lt. 3
Jl. MH. Thamrin No.2, Jakarta 10350 Telp.3818888, 3817575
