In an effort to bolster the liquidity of commodity futures trading transactions (“Transactions”), particularly through physical, sharia-based markets, the Commodity Futures Trading Regulatory Agency (Badan Pengawas Perdagangan Berjangka Komoditi – “Bappebti”) has decided to issue Regulation No. 5 of 2024 (“Regulation 5/2024”) on the Organization of Physical Commodity Markets Based on Sharia Principles (“Physical Sharia Markets”) at Futures Exchanges (“Exchanges”), which has been in force since 28 March 2024.[1] In this regard, it should be noted that any Bappebti regulatory frameworks that address the organization of the physical commodity market at Exchanges will remain applicable unless a given area is specifically addressed under the new framework of Regulation 5/2024.[2]

It should also be noted that any Exchanges and/or futures clearing agencies (“Clearing Agencies”) that were approved by Bappebti to organize Physical Sharia Markets through Exchanges prior to the enforcement of Regulation 5/2024 will continue to be permitted to do so. However, it should also be noted that said Exchanges must bring their operations into line with the various new requirements set out under the framework of Regulation 5/2024 within six months of its enforcement, i.e. by 28 September 2024. In this regard, any failure to make the relevant operational adjustments will result in the Exchanges in question being prohibited from participating in Physical Sharia Markets.[3]

At their core, Physical Sharia Markets may only be organized by Exchanges that have first been approved to operate as sharia Exchanges by the Head of Bappebti.[4] This prerequisite also extends to the organization of Physical Sharia Markets through sharia Exchanges, the organization of which is also first required to be approved by the Head of Bappebti.[5]

Given the importance of the Physical Sharia Market, this edition of Indonesian Legal Brief (ILB) offers a concise analysis of the various matters that are addressed under the framework of Regulation 5/2024. However, due to the broad nature of the provisions set out therein, our discussion has been limited to the following topics:

1. Requirements for Goods, Services, Rights and Other Interests, as Well as Any Derivatives Thereof That Can Be Traded and Are Subject to Futures Contracts, Sharia Derivative Contracts and/or Other Derivative Contracts (collectively referred to as “Commodities”);[6]
2. Requirements and Application Procedures for Sharia Futures Exchanges;
3. Rights and Obligations of Sharia Exchanges; and
4. Applicable Sanctions.

Requirements for Commodities

Pursuant to Regulation 5/2024, Commodities are first required to be approved by Bappebti in order to be traded through Physical Sharia Markets. Said approvals can be secured once the following requirements have been fulfilled:[7]

1. A Commodity must be determined by the Head of Bappepti as subject to futures contracts, sharia derivative contracts and/or other derivative contracts;
2. Must be covered by an opinion letter issued by the Sharia Supervisory Board (Dewan Pengawas Syariah – “DPS”) stating that the Commodity complies with sharia principles and can thus be traded through Physical Sharia Markets; and
3. Must be covered by proposals that are in line with contract regulations (including Commodities contract specifications for Physical Sharia Markets).

However, in the event that multiple procedures are in place across different organized Physical Sharia Markets for a single given Commodity, Regulation 5/2024 states that each organized Physical Sharia Market must secure the abovementioned opinion letter from the DPS prior to its submission for Bappepti approval.[8] Moreover, in terms of the above-mentioned Commodity proposals, Regulation 5/2024 mandates that said proposals should feature the following types of information:

It should also be noted that the various trading mechanisms that are utilized within Physical Sharia Markets are facilitated via electronic online trading systems that are based on sharia principles, which should be endorsed by opinion letters from and supervised by the DPS.[11]

Rights and Obligations of Sharia Exchanges

Regulation 5/2024 also outlines various rights and obligations that can be granted to sharia Exchanges during the organization of Physical Sharia Markets, as summarized in the following table:

Applicable Sanctions

Ultimately, Regulation 5/2024 states that any non-compliance with the various mandates and obligations introduced under this framework will result in the imposition of the following types of administrative sanctions by Bappebti:[16]

1. Written reprimands;
2. Fines;
3. Suspension of business activities; and/or
4. Revocation of approvals.

Source: hukumonline.com