Prohibition on Futures Brokers Carrying Out Transactions Without Customer Instructions

The Head of Commodities Futures Trading Supervisory Agency (Bappebti) has issued Circular Letter No. 141/BAPPEBTI/SE/10/2010 on the Prohibition for Future Brokers to Conduct Futures Contract Transactions in Favor of a Customer’s Account Without Instruction from the Customer (‘Circular Letter’). 

Point 1 explicitly states the rationale behind the issuance of the Circular Letter is to ensure strict enforcement, considering that recently a large number of futures brokers have been carrying out futures contract transactions, in favor of customers’ accounts, without any instruction from the customers. Furthermore, Bappebti wishes to ensure that every futures broker has the same interpretation of Article 52 (1) of Law No. 32 of 1997 on the Trading of Commodity Futures. Specifically, Article 52 (1) stipulates that the futures brokers are prohibited from conducting futures contract transactions in favor of the customer, unless written instructions for each transaction have been obtained from the customer, or its appointed proxy.

Furthermore, Points 5 (3) and (5) reconfirm the definition of ‘instruction’ from the customer, which is expressly stipulated in the elucidation of Article 52. The instruction from the customer must consist of, at least, the type and amount of contracts that will be purchased or sold. The instruction should also be evidenced by a written document from the customer. Failing to evidence the instruction can result in the futures broker being sanctioned pursuant to the prevailing laws and regulations.

In regard to the proxy, a customer can grant full authority to a proxy to conduct a transaction on their behalf, with full authority to determine the type and amount of the contract. However, it should be noted that according to Point 5 (4), the future broker is prohibited from holding a power of attorney to act as the proxy of its customers.

The Circular Letter was issued on 15 October 2010.