Indonesia protects margin transfers in financial market transactions

Indonesia first protected close-out netting; now it also protects the collateral. The 2026 Financial Services Omnibus Law introduces, for the first time, a statutory safe harbour for margin transfers in financial market transactions, shielding both initial margins and variation margins from the bankruptcy and liquidation estate of a defaulting counterparty.

Background

Indonesia joined the close-out netting club through Law No. 4 of 2023 (the 2023 Financial Services Omnibus Law), which delivered a landmark statutory basis for close-out netting in Indonesia, addressing longstanding uncertainty as to the enforceability of close-out netting in the context of Indonesian bankruptcy proceedings. Close-out netting allows a non-defaulting party to terminate all outstanding transactions, calculate a single net sum owed, and enforce that single figure, rather than being left to prove individual claims in bankruptcy or other default scenarios.

For international market participants transacting under market-accepted financial market transaction frameworks such as ISDA's derivatives framework or ICMA's repo framework, these provisions represented a material step forward in counterparty risk management.

Key changes – Beyond close-out netting

Law No. 4 of 2026 (the 2026 Financial Services Omnibus Law) amends and builds on the foundation laid by the 2023 Financial Services Omnibus Law. Through a new Article 39A, it addresses the collateral ("margin") arrangements that support financial market transactions.

Article 39A does four things:

1. It affirms that a financial market transaction can be backed by margins, both initial margins and variation margins (or similar concepts).
2. It recognises that variation margins can be provided under a title transfer arrangement, ie through an outright transfer of ownership of the margin assets to the recipient.
3. It recognises that any variation margin that has been transferred can be re-used by the recipient, including by way of further transfer, pledge or other legal disposition (re-hypothecation), and that a margin provider can request the return of excess margin in equivalence.
4. Most importantly, it provides that an initial margin or variation margin that has been delivered and/or received in a financial market transaction does not form part of the bankruptcy estate or liquidation estate of the defaulting party (ie the margin recipient), so long as it was provided in accordance with "prevailing market practice". As further explained below, given that the law does not define or provide any guidance on what constitutes "prevailing market practice", this is one area that may benefit from further clarification, including through implementing regulations.

The first three points codify practices already familiar to international market participants. The fourth is the most transformative element of Article 39A: a statutory ringfencing of margin assets, placing them outside the pool of assets available to unsecured creditors in bankruptcy or liquidation proceedings.

Taken together, these provisions reflect a policy direction broadly consistent with the collateral protection frameworks seen in other major jurisdictions, which similarly seek to ringfence transferred margin from insolvency risk. Article 39A can therefore be seen as a significant step towards aligning Indonesia's legal infrastructure with international norms on collateral protection for financial market transactions.

Why it matters

The ringfence is a critical protection for margin providers. Absent such a statutory carve-out, in the event of the bankruptcy or liquidation of a margin recipient, variation margins transferred to such recipient under a title transfer arrangement would have been treated as part of that recipient's bankruptcy or liquidation estate, leaving the margin provider to prove only an unsecured claim and recover pari passu alongside other unsecured creditors. The 2026 Financial Services Omnibus Law removes that risk and shows a greater willingness by Indonesian financial sector regulators to follow international practices.

What to expect

Market practitioners can expect implementing regulations regarding margin transfers from the Indonesian Financial Services Authority (OJK) (for capital market instruments) and Bank Indonesia (for money market instruments), as Article 39A(6) expressly delegates further rulemaking to the relevant financial sector authorities. While the 2026 Financial Services Omnibus Law does not impose any deadline for these implementing regulations, several areas will require regulatory clarification.

First, the scope of "financial market transactions" eligible for Article 39A protection remains to be defined. It is not yet clear whether the provision extends to all derivatives and repo transactions, or only a subset thereof.

Second, the 2026 Financial Services Omnibus Law requires a "margin transfer agreement". However, it does not prescribe any form or mandatory clauses. It remains to be seen whether the implementing regulations will reference existing frameworks such as ISDA's Credit Support Annex (CSA) or the Global Master Repurchase Agreement, or whether OJK and/or Bank Indonesia will develop localised standard documentation, as they have done with the GMRA and ISDA Master Agreement.

Third, the interaction between Article 39A's ringfencing and Indonesia's general bankruptcy laws and regulations (including the position of the bankruptcy receiver and clawback actions) will need to be tested and clarified, whether through implementing regulations or judicial interpretation.

Fourth, Article 39A conditions the bankruptcy and liquidation safe harbour on the relevant margin having been provided in accordance with "prevailing market practice", without providing any additional guidance on what constitutes market practice. While this preserves flexibility for the law to accommodate both current and future market practice, further details on what should be accepted as market practice may be provided in implementing regulations to be issued. For instance, market participants would benefit from confirmation that the widely accepted international frameworks such as ISDA’s Credit Support Annex (CSA) or the ICMA’s Global Master Repurchase Agreement (GMRA) could satisfy this requirement.

Looking ahead, we anticipate the issuance of OJK and Bank Indonesia implementing regulations and potential development of Indonesian-law standard margin documentation (analogous to the CSA).

This bulletin is part of a series of legal updates on the 2026 Financial Services Omnibus Law. Please contact us if you have any questions about the implications of these changes for your business.