Although buying physical gold has its own satisfaction, there are some risks that need to be considered. The first risk arises from the need to identify the legitimacy and purity of gold. Then there's also the storage issue. Along with the times, these risks have given birth to a new gold trading concept which we now call digital gold.

Digital gold allows investors to buy their gold online and does not depend on direct physical transactions, making it easier, safer and more practical. Physical gold, which is represented by digital gold, is stored in a vault that is insured by the seller on behalf of the customer. This is what helps investors overcome problems in conventional gold transactions.

Therefore, the Indonesian Commodity and Derivatives Exchange (BKDI) or ICDX as a futures exchange, as well as the Indonesia Clearing House (ICH) as a futures clearing institution, are here to support the development and need for more up-to-date gold trading activities – without compromising security and convenience. market participants. ICDX and ICH have been appointed as organizers of the Digital Gold Physical Market on September 9, 2021.

Digital Gold Trading Transaction Flow

In general, digital gold trading facilitated by ICDX is divided into two, namely digital gold trading with a matching process that occurs on the exchange, and digital gold trading with a matching process that occurs at Digital Gold Physical Traders.

A. Illustration of Matching Digital Gold Trading on Futures Exchange

Figure 1. Illustration of Matching Digital Gold Trading on Futures Exchange

Information:

1. Participants who act as Market Makers both as stand-by buyers and stand-by sellers need to deposit funds (for stand-by buyers) to the Futures Clearing House (LKB) in this case the Indonesia Clearing House (ICH) as collateral funds - and gold (for stand-by seller) in Storage Manager with an equivalent value.
2. The depository manager informs ICH that there is a certain amount of gold on behalf of the Participant (Market Maker); ICH records the volume of gold deposited by Participants (Market Maker).
3. ICH conveys information to the Futures Exchange in this case is the Indonesian Commodity and Derivatives Exchange (ICDX) that the amount of Physical Gold stored in the Depository Manager can be sold.
4. Participants who do not act as Market Makers (Non-MM) have begun to be able to trade gold by placing a certain amount of funds in a separate Trade Broker account and deposited in ICH. Trade Intermediaries will channel transactions at ICDX.
5. In the event that the participant submits a request for Physical Gold printing, the Participant may notify the Digital Gold Physical Trading Intermediary, then the Digital Gold Physical Trading Intermediary will submit it to ICH. Then ICH will verify gold ownership and then issue an order to issue gold from the Depository Manager to the Participant whose delivery is through a Delivery Service that has collaborated with the Depository Manager and LKB.

Based on the flow listed in the Digital Gold Trading Mechanism Working Paper (BAPPEBTI), there are several notes related to the flow on the futures exchange:

• If the Market Maker's gold stored in the storage area due to a transaction is reduced until the remaining 5 kg, then the Market Maker's obligation to increase the gold stored in the storage area so that it becomes a minimum of 20 kg.
• Regarding Seggregated Account: Any funds from Digital Gold Customers related to Physical Market transactions with matching transactions at Digital Gold Physical Traders must be kept in a separate account at the Bank (which has been approved by the Head of BAPPEBTI).

B. Illustration of Matching Digital Gold Trading in Digital Gold Physical Traders

Figure 2. Illustration of Matching Digital Gold Trading in Digital Gold Physical Traders

Information:

1. Digital Gold Physical Traders (PFED) deposit funds in the amount, for example IDR 1,000,000,000 to the Futures Clearing House (LKB) in this case the Indonesia Clearing House (ICH). On the other hand,
2. Digital Gold Physical Traders are required to place an amount of gold in the storage area manager as much as 10,000 grams or 10 kg of which 25% can be in the form of cash equivalents;
3. The deposit manager informs ICH that there is a certain amount of gold on the Digital Gold Physical Trader; ICH records the volume of gold deposited by Digital Gold Physical Traders;
4. ICH informs the Digital Gold Physical Merchant that the physical amount of gold held in the Repository Manager has been able to be sold;
5. Digital Gold Physical Traders have started to be able to trade gold;
6. Customer Deposits Funds to a Segregated Account in the name of the Physical Digital Gold Trader controlled by ICH for the purpose of Purchasing Digital Gold - PFED and Customer X makes a sale/purchase transaction of Digital Gold at the Physical Digital Gold Merchant, LKB functions as a DvP (delivery versus payment); Every transaction, ICH and Digital Gold Trader are required to record and settle directly; - Customers make transactions for buying/selling Digital Gold at Physical Digital Gold Merchants, ICH performing the function as DvP (delivery versus payment); Every transaction, ICH and Digital Gold Trader is required to record and complete it directly.
7. Digital gold physical traders report the settlement price at the end of each trading day sell/buy to the futures exchange;
8. The futures exchange in this case is ICDX, the manager of the depository and clearing institution in this case is ICH coordinating with each other in the implementation of gold buying and selling transactions;
9. In the event that the customer wants to get physical gold, the customer can notify the physical gold trader, then the physical gold trader submits it to ICH. ICH will verify gold ownership and then issue an order to issue gold from the storage manager to customers whose shipments are sent through shipping services that have collaborated with storage managers and ICH

Based on the flow listed in the Digital Gold Trading Mechanism Working Paper (BAPPEBTI), there are several notes related to the flow at the Digital Gold Trader:

• If the Digital Gold Physical Trader's gold stored in the storage area due to a transaction is reduced to 2.5 kg, the Physical Gold Trader's obligation is to increase the gold stored in the storage area so that it returns to 10,000 grams or 10 kg of gold;
• Regarding Seggregated Accounts: Every fund from Digital Gold Customers related to Physical Market transactions with matching transactions at Physical Digital Gold Traders must be kept in a separate account at the Bank (which has been approved by the Head of BAPPEBTI).

By: Muhammad Dzaki Adani

Get more information about digital gold and the role of clearing houses at The Source 22: ICDX 1st Quarter Update