TRADING MECHANISM Concept

STOCK OPTION TRADING MECHANISM

Criterias of an Underlying Stock

• The stock has been listed in the Exchange for at least 12 months. 
• For the last 12 months, the stock must have:
  - 2,000 transactions per month
  - 0,5% of intraday volatility
  - Rp 500 billion of market capitalization
  - a minimum stock price of Rp 500 

General Information Related to Option Trading

• Stock option trading is processed through a facility called as JOTS 
• Stock option can only be traded by Exchange Members who have also become the Stock Option Clearing Members of the Indonesian
  Clearing and Guarantee Corporation (KPEI)
• Exchange Members are obliged to deposit collateral fund to KPEI (based on the regulations of KPEI)
• Exchange Members have to open settlemet accounts (sub accounts) for all of their customers at a Payment Bank
• Suspended Exchange Members must:
  - conduct offsetting transaction
  - transfer open position to the other Exchange Members inaccordance to the regulations of KPEI
  - perform Exercise on the same day as the suspension's effective day.

The Schedule of Option Trading

• Monday to Thursday:
  -Session I starts from 09:30 to 12:00 WIB, JOTS time
  -Session II starts from 13:30 to 16:00 WIB, JOTS time 
• Friday:
  -Session I starts from 09:30 to 11:30 WIB, JOTS time
  -Session II starts from 14:00 to 16:00 WIB, JOTS time
• Exercise and Automatic Exercise are executed every Exchange Day at 10:00 WIB - 16:15 WIB

Weighted Moving Average Price (WMA)

• WMA indicator will appear every 15 minutes, and is based on the last 30 minutes transactions data.
   
• WMA Schedule:
  
  - Monday to Thursday:
     -Session I starts from 10:00 to 12:00 WIB, JOTS time
     -Session II starts from 13:45 to 16:00 WIB, JOTS time
  - Friday:
     -Session I starts from 10:00 to 11:30 WIB, JOTS time
     -Session II starts from 14:15 to 16:00 WIB, JOTS time

Sell and Purchase Orders

• All orders, along with their types (Short/Long) and positions (Open/Close), must be registered in the sales division of Exchange Members. 
• Types of order: Open Short, Open Long, Close Short, Close Long

Trading unit & Premium Fraction

• 1 KOS (Stock Option Contract) is equal to 10,000 stock options
• The Premium Fraction of an option is Rp 1

Issuance of a Stock Option Series

• At the beginning of the trading period, 7 series of call options and 7  series of put options of 1 underlying stock are issued.  
• The seven series consist of 3 series of out-the-money options, 3 series of in-the-money options, and 1 at-the-money options. 
• The Exchange can issue a new Stock Option Series (KOS) before the end of a stock option's period if:   
     - Automatic Exercise is performed on the stock option series;
     - The Issuer performs Corporate Action.

Termination of a Single Stock Option Series
A stock option will be terminated if:

• the WMA exceeds the WMA’s limit; or
• the Validity Period has expired; or
• the Issuer holds a Corporate Action (the stock option's position will be liquidated)

Interval (Strike Price Range)

Closing Price *)	Interval
<=Rp 1,000	Rp 50
> Rp 1,000 - Rp 5,000	Rp 100
> Rp 5,000 - Rp 10.000	Rp 200
> Rp 10,000	Rp 500

*) the Closing Price on the last Exchange Day before the trading period starts Bid-Offer and the Exchange Transaction

• Every order must be validated by the KPEI 
• The process of stock option trading is the same as the equities trading in the Regular Market.

Exercise, Automatic Exercise & Liquidation

• The settement process of Exercise and Automatic Exercise transaction are carried out by the KPEI on the next Exchange Day after the trade (T+1), in accordance to the KPEI Regulations
• Automatic Exercise is executed by the KPEI for the benefit of the Taker
• KPEI performs liquidation to all positions of stock options if their validation periods have expired.

Stock Option Settlement
The settlement of stock option transaction is carried out by the KPEI on the next Exchange Day after the trade (T+1).
Suspension of the Stock Option Trading

• The Exchange can suspend the trading of a stock option if:
  
     - JATS and/or JOTS are not functioning as they should have,
     - There is a written inquiry frm the KPEI regarding the malfunctioning of
       the Risk Management System  and/or the KPEI’sclearing system, 
     - There is a Force Majeure,  
     - The underlying stock of the option is suspended
     - There is an Automatic Exercise on the stock option series.
   
• If a stock option is suspended due to its Underlying's suspension, the exchange Members will still be able to perform Exercises by referring to the prevailing WMA.
   
• If suspension occurs due to the malfunctioning of JOTS and the Underlying of the option is still traded in the exchange, then:
  
     - The Exchange will issue the WMA until the expiration date of the stock
       option trading period.
     - The Exchange Member can still perform Exercise.

Transaction Fees

• Exchange Member who make a transaction, is obliged to pay for the transaction, clearing and settlement fees amounted to Rp 2,000 per option.
• Transaction fee of Exercise and Automatic Exercise, amounted to Rp 2,000 per option, will be subjected only to the Taker.
• The transaction fee of an option should be at least of Rp 2,000,000 per month. 
• The Exchange Member must deposit guarantee fund, amounted to 0.01% of the total transaction value, to the KPEI for every transaction.
  By doing so, the KPEI will guarantee all transactions made by the Exchange Members.
• The obligations of paying the transation fees, guarantee fund and taxes are in accordance with the equities trading regulations.