Profile

The primary function of JFX is to provide the facilities for members to meet and transact in futures contracts. Prices are determined via an electronic method, through the efficient interaction of demand and supply in a trading system. Bids to buy, and offers to sell, are entered in a computer trading system and are continuously matched by the system. This continuous auction system ensures competitive pricing within a fair and safe marketplace.

It is envisaged that at a later stage, entry into the Exchange Trading System can be done remotely from the members' offices.

As for its economic functions, JFX serves two highly important purposes namely price discovery and risk transfer. Through the continuous process of bidding and offering, the market will arrive at a price wherein both buyer and seller can agree to transact. The price agreed upon represents the best price at the time of transaction.

In addition, users of the markets trade futures for different reasons. Hedgers, who have an underlying exposure to price risk, use the market to transfer such risk exposure to speculators who assume the same risk in hope for trading profits.

Last but not least, the prices of contracts traded in JFX are captured instantaneously on the Exchange's real time trade matching and reporting system known as JAFeTS, and will be disseminated to market users worldwide via wire services and financial information agencies such as Reuters, Bridge News, Bloomberg, and many others, ensuring price transparency. Delayed price and market information will also be distributed through the local radio and television networks, local and international media, as well as through the Internet.

Market Safeguards

JFX has many safeguards of high standards to protect the integrity of the markets. They are as follows:

i) The Clearing House

In protecting the financial integrity of the marketplace, JFX together with its Clearing House, the PT Kliring Berjangka Indonesia(Persero) ("KBI"), adopts a financial and operational safeguard system that is comparable to the best international practices. This system is designed to provide the highest level of safety with very early detection of unsound practices on the part of any Member. Protection against market defaults is imperative and remains the ultimate goal of the clearing system.

Financial performance of all contracts traded in JFX is guaranteed, initially by the Clearing Members, and thereafter by the KBI, once the contract has been matched and accepted for clearing. All participants of the Exchange must have their trades cleared through a Clearing Member of KBI to ensure themselves of a financially strong backing to support their contracts as soon as they are transacted.

Once a contract has been accepted for clearing, the KBI substitutes itself as the buyer to the seller and vice versa. KBI will then hold each Clearing Member accountable for every position it carries regardless of whether the position is carried for the account of another Member, for the account of a non-Member client, or for the Clearing Member's own account. In short, the KBI looks solely to the Clearing Member carrying and guaranteeing the account to secure all payments and performance obligations.

ii) The Audit, & Surveillance (A&S) Division

The ACS division has the overall responsibility of upholding the integrity of JFX futures markets. The division carries out a wide range of duties through its carefully selected and competent audit staff which include daily and regular monitoring of the market and Members, regular visits to Members' offices for field audits and monitoring of the activities on the trading Floor of the Exchange.

The duties of the A&S division can be classified into the following major areas:

Responsible for detecting violations of the Rules and the Act, Conducts routine and surprise audits on Broker Members as well as reviewing the adequacy of their internal controls.

Responsible for detection of any failure by Members to meet the minimum financial requirements of the Exchange. Conducts regular monitoring of Members' financial positions and clients' funds in segregation. Early warning levels are established to facilitate more intensive monitoring where necessary, on the Broker Members' financial positions.

• Market Surveillance

Responsible for detection of any adverse situation that may threaten the orderly trading or liquidation of contracts on any JFX futures markets to avoid possible market disruptions. Conducts daily monitoring of the futures prices and prices of the underlying commodity in the cash and forward markets, and the prices of substitutes of the underlying commodity of the futures contracts, as well as the open positions of large traders.

 

iii) Legal and Membership Division

Responsible for detecting any fraudulent trading practices, abuses or any violation of JFX Rules and Regulations. Duties include ensuring all traders on the Floor maintain a high standard of conduct and professionalism, investigate complaints officially received from Members, Individuals, the Clearing House, and other sources.

Other than carrying out responsibilities of detecting violations that may affect the integrity of the market, this unit also adopts a proactive approach in assisting Members comply with the Rules. Members are strongly encouraged to consult this unit on regulatory issues. In addition, the unit regularly initiates amendments to the Rules in steering towards a more efficient marketplace.

The unit also acts as the Secretariat to the Membership Committee of the Exchange in settling disputes between Members and clients. Besides settling disputes between Members and clients, the Membership Committee itself has duties to give advice and recommendation to Directors if there are any violations against JFX Rules and Regulations.

iv) Registrations of Brokers

Under the Commodity Futures Trading Act 1997, a member of the Exchange, who handles client futures accounts must be licensed as a Futures Broker with the Commodity Futures Trading Regulatory Agency (CoFTRA). The CoFTRA is an independent national regulatory agency responsible for the regulation and supervision of all futures trading in Indonesia.

A Futures Broker must also ensure that all its employees who handle clients are registered as Futures Broker's Representatives (FBRs) with the Exchange and are licensed by the CoFTRA.

v) Reportable Position and Speculative Position Limits

Members are required to report to the Exchange when their proprietary accounts, or any of their clients', have a position equal to or in excess of the reportable level set by the Exchange for each contract.

These limits are enforced strictly to prevent price manipulation or cornering of the market, hence protecting the integrity of the Exchange.

Exemptions from position limits can be obtained for bonafide hedging traders.

vi) Segregation of Clients' Funds

Members are required to maintain a separate bank account for all clients' funds. Clients' funds cannot be withdrawn from the segregated account except for the purposes of payment of deposits and margins, payment of debits due to the member from the client, and monies drawn on client authority. Members are also not permitted to use monies belonging to one client for margining or financing the trades and positions of another client or the Member itself.

 

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