Guidelines
for closing-out outstanding
Indonesian Rupiah
IDR TRANSACTIONS
The
Singapore Foreign Exchange
Markets Committee has formulated
a set of guidelines for closing-out
outstanding Indonesian Rupiah
(IDR) transactions on a consensual
basis for market participants.
The SFEMC chairman issued
the following to all treasury
managers of Member Banks
on 2 February 2001
To: All Treasury Managers
Notes of Meeting on Settlement
of Indonesian Rupiah (“IDR”)
Transactions
Following the announcement
earlier this month of imposition
of currency restrictions
on transactions involving
IDR in Indonesia, the Singapore
Foreign Exchange Markets
Committee (“SFEMC”)
has held meetings with market
participants on this matter.
A meeting was held on 1 February
2001 to discuss new regulations
issued by Bank Indonesia,
and their implications for
outstanding IDR transactions.
At the meeting, participants
noted that the market for
IDR had been severely disrupted
by the recently announced
measures, giving rise to
settlement issues and potential
risk exposures. After considered
discussion, market participants
agreed that the following
guidelines, in the current
circumstances, represent
best practice for closing-out
outstanding IDR transactions
on a consensual basis:
a. Financial institutions
should close-out all IDR-related
transactions with counterparties
by netting all outstanding
transactions and settling
the difference in USD. This
relates to transactions maturing
on or after 7 February 2001.
Transactions maturing prior
to 7 February 2001 will continue
to be settled in accordance
with normal market practice;
b. It was noted that the
currency restrictions were
issued as of 12 January 2001
and accordingly the last
normal trading day in IDR
prior to the currency restrictions
was 11 January 2001. As such,
it is recommended that the
following methodology be
used as it is considered
a fair and equitable basis
for valuing future payments
with a view to discounting
future cash flows:
The
foreign exchange swap
points, long dated swap
rates, and
foreign exchange option
volatility rates prevailing
at close
of business Singapore
time on 11 January 2001
are representative
rates, and should be
used as the guideline for
bilateral
settlement.
In order to impute the
benchmark IDR yield curves
falling under one year
as of close of business
Singapore time on 11 January
2001, a spot USD/IDR rate
as of 11am Singapore time
on 2 February 2001 posted
on Telerate page 50157,
together with the USD Libor
rate posted on Telerate
page 3750 at 11am London
time on 1 February 2001
for USD interest rates
falling under one year,
will be used. Subsequent
to this, the implied IDR
interest rate curve as
of close of business Singapore
time on 11 January 2001
will be calculated and
thereafter posted on 2
February 2001 by the SFEMC
.
For USD interest rates
extending beyond one year,
the Telerate page 19901
as of close of business
New York time on 1 February
2001 will be utilised.
The underlying rationale
for the above methodology
is that the USD/IDR forward
points as at close of business
Singapore time 11 January
2001 should be as accurate
a reflection of market
activity as of that date
as possible. The rationale
for utilising the USD interest
rate curves as of 1 Feburary
2001 to impute benchmark
IDR yield curves is based
on the fact that the USD
markets were open and freely
tradeable over that period.
Conversions of residual
IDR balances will be settled
in USD using the spot USD/IDR
rate as of 11am Singapore
time on 5 February 2001
posted on Telerate page
50157.
The above rates will
be made available by the
SFEMC via The Association
of Banks in Singapore on
2 February 2001. Further
details of the methodology
and other technical matters
are attached at Appendix
1.
c. It is recommended that all
affected parties should exert
their best efforts to reach
appropriate, and consensual,
close-out arrangements with
counterparties as soon as
practicable. A practical
date for making the net USD
payment would be for value
7 February 2001.
Jeanette
Wong CHAIRMAN
Appendix 1
I Spot US$ / IDR = 9543
as at 11am Singapore time
2 February 2001
MATURITY
NO.
OF DAYS
MKT
FWD POINTS
IDR
ZERO COUPON RATES
(%)
US
Dollar LIBOR RATE
(%)
S/N
1
1.9
12.81868
5.65000
1
week
7
13.4
12.80928
5.58000
1
month
31
67.0
13.75228
5.56000
2
month
59
132.9
14.05380
5.48000
3
month
90
219.0
14.69320
5.39000
6
month
181
464.6
15.15732
5.22000
9
month
273
692.9
15.06646
5.12000
12
month
365
921.9
15.13180
5.11000
IDR
CROSS CURRENCY
SWAP RATES
s.a A/365 (%)
US
Dollar Interest
Rate Swap Curve
annual, A/360 (%)
2 years
15.10
5.19750
3 years
15.20
5.33300
4 years
15.30
5.45950
5 years
15.30
5.55250
7 years
15.30
5.71600
10
years
15.30
5.88500
Straight
line interpolation of
zero coupon rates to
be used
The
cross currency swap
rates will also be
used to settle interest
rate swaps contract
Conversions
of any residual IDR
balances will be settled
in USD using the spot
USD/IDR rate as of
11am Singapore time
on 5 February 2001
posted on Telerate
page 50157
Appendix
2B
II Option Volatility
Spot
FX
Vol % (ATM)
1
week
21.00
1
month
20.00
2
month
20.75
3
month
22.30
6
month
23.90
12
month
25.60
Use
of US$ forward delta
for everything.
Use zero correlation
for curves and ATM volatility
curves for both currency
legs.
