FINANCIAL SERVICES AUTHORITY REGULATION

NUMBER 15/POJK.04/2015

CONCERNING

THE IMPLEMENTATION OF SHARIA PRINCIPLES IN THE CAPITAL MARKET

BY THE GRACE OF GOD THE ALMIGHTY,

THE COMMISSIONERS OF THE FINANCIAL SERVICES AUTHORITY,

Considering:
a. that in order to support the development of the Capital Market based on Sharia principles, it is necessary to establish guidelines for Sharia Principles in the Capital Market for actors in the Capital Market sector; b. that based on the considerations as referred to in letter a, it is necessary to establish a Financial Services Authority Regulation concerning the Implementation of Sharia Principles in the Capital Market;

Recalling:

1. Law Number 8 of 1995 concerning the Capital Market (State Gazette of the Republic of Indonesia Year 1995 Number 64, Supplement to the State Gazette of the Republic of Indonesia Number 3608);
2. Law Number 21 of 2011 concerning the Financial Services Authority (State Gazette of the Republic of Indonesia Year 2011 Number 111, Supplement to the State Gazette of the Republic of Indonesia Number 5253);

THE FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA

COPY

RESOLVING:

Determining: FINANCIAL SERVICES AUTHORITY REGULATION CONCERNING THE IMPLEMENTATION OF SHARIA PRINCIPLES IN THE CAPITAL MARKET.

CHAPTER I

GENERAL PROVISIONS

Article 1

In this Financial Services Authority Regulation, the following terms are defined as:

1. Sharia Contract is a written agreement or contract between parties containing the rights and obligations of each party that does not conflict with Sharia Principles in the Capital Market.
2. Sharia Principles in the Capital Market are Islamic legal principles in Sharia Activities in the Capital Market based on fatwas of the National Sharia Board - Indonesian Ulema Council, insofar as the aforementioned fatwa does not conflict with this Financial Services Authority Regulation and/or other Financial Services Authority Regulations based on fatwas of the National Sharia Board - Indonesian Ulema Council.
3. Sharia Securities are Securities as referred to in the Law on Capital Market and its implementing regulations that:
   a. the contract, management method, and business activities; b. the assets underlying the contract, management method, and business activities; and/or
   c. the assets related to the aforementioned Securities and their issuers,
   do not conflict with Sharia Principles in the Capital Market.
4. Sharia Activities in the Capital Market are activities related to the Public Offering of Sharia Securities, trading of Sharia Securities, management of Sharia investments in the Capital Market, and Issuers or Public Companies related to the Sharia Securities they issue, Securities Companies whose business is wholly or partly based on Sharia principles, as well as institutions and professions related to Sharia Securities.
5. Sharia Supervisory Board is a board responsible for providing advice and suggestions and supervising the fulfillment of Sharia Principles in the Capital Market towards Parties conducting Sharia Activities in the Capital Market.
6. Capital Market Sharia Expert, hereinafter abbreviated as ASPM, is:
   a. an individual who has knowledge and experience in the Sharia field; or b. a business entity whose board members and employees have knowledge and experience in the Sharia field, which provides advice and/or supervises the implementation of Sharia Principles in the Capital Market in business activities and/or provides statements of Sharia compliance for Sharia products or services in the Capital Market.

Article 2

(1) Activities and types of business that conflict with Sharia Principles in the Capital Market include, among others:
a. gambling and games classified as gambling; b. interest-based financial services;
c. risk trading containing elements of uncertainty (gharar) and/or gambling (maisir); and
d. producing, distributing, trading, and/or providing among others:

1. goods or services that are inherently forbidden (haram lidzatihi);
2. goods or services forbidden not due to their substance (haram li-ghairihi) as determined by the National Sharia Board - Indonesian Ulema Council;
   and/or
3. goods or services that corrupt morals and are harmful.

(2) Transactions that conflict with Sharia Principles in the Capital Market include, among others:
a. trading or transactions with fake offers and/or demands; b. trading or transactions not accompanied by the delivery of goods and/or services;
c. trading of goods not yet owned;
d. purchase or sale of Securities using or exploiting insider information from Issuers or Public Companies; e. margin transactions on Sharia Securities containing interest (riba) elements; f. trading or transactions with the purpose of hoarding (ihtikar); g. conducting trading or transactions containing bribery (risywah) elements; and h. other transactions containing speculation (gharar), fraud (tadlis) including concealing defects (ghisysy), and efforts to influence other parties containing deception (taghrir).

Article 3

(1) Securities fulfill Sharia Principles in the Capital Market and thus become Sharia Securities if:
a. the activities and types of business, as well as the business management method of the Party issuing the Securities; b. the contract, management method, and assets of Mutual Funds;
c. the contract, management method, and financial assets forming the portfolio of Asset-Backed Securities issued by Collective Investment Contracts for Asset-Backed Securities;
d. the contract, management method, and assets of Real Estate Investment Funds in the form of Collective Investment Contracts; e. the contract and its portfolio consisting of Receivables Collections or home ownership financing; f. the contract, management method, and/or assets underlying Sukuk; or g. the contract, management method, and/or assets underlying other Securities determined by the Financial Services Authority, do not conflict with Sharia Principles in the Capital Market.

(2) The contracts as referred to in paragraph (1) used in the issuance of Securities must refer to legislation in the Capital Market sector regulating the contracts used in the issuance of Sharia Securities in the Capital Market and/or other contracts that do not conflict with Sharia Principles in the Capital Market.

CHAPTER II

PARTIES CONDUCTING SHARIA ACTIVITIES IN THE CAPITAL MARKET

Article 4

Parties conducting Sharia Activities in the Capital Market include:
a. Parties that declare their activities and types of business, and/or management method, and/or services provided are based on Sharia Principles in the Capital Market. b. Parties that do not declare their activities and types of business, and/or management method, and/or services provided are based on Sharia Principles in the Capital Market, however:

1. the party has a Sharia business unit;
2. is an Investment Manager conducting Sharia investment management activities;
3. is a Custodian for Sharia investments;
4. part of the party's operational business activities is conducted based on Sharia Principles in the Capital Market; and/or
5. provides other Sharia services.
   c. Parties that do not declare their activities and types of business, and/or management method, and/or services provided are based on Sharia Principles in the Capital Market, however issue Sharia Securities and/or play a role in assisting in the issuance of Sharia Securities in the Capital Market.

Article 5

Further provisions regarding other Sharia services as referred to in Article 4 letter b number 5 are regulated by a Circular Letter of the Financial Services Authority.

Article 6

Every Party conducting Sharia Activities in the Capital Market must comply with Sharia Principles in the Capital Market as regulated in this Financial Services Authority Regulation and other legislation in the Capital Market sector.

Article 7

Every Party conducting Sharia Activities in the Capital Market as referred to in Article 4 letter a must:
a. declare in the articles of association or similar documents that its business activities are conducted based on Sharia Principles in the Capital Market; and b. have a Sharia Supervisory Board.

Article 8

Every Party conducting Sharia Activities in the Capital Market as referred to in Article 4 letter b must:
a. have a Sharia Supervisory Board, for Investment Managers conducting Sharia investment management activities; or b. have a Sharia Supervisory Board or at least 1 (one) director or person in charge of activities mandated by the Board of Directors who has adequate knowledge and/or experience in Sharia finance, for parties conducting activities other than Investment Managers managing Sharia investments.

Article 9

(1) The Sharia Supervisory Board as referred to in Article 7 letter b and Article 8 letter a consists of 1 (one) member or more appointed by the General Meeting of Shareholders, an equivalent mechanism to the General Meeting of Shareholders, or appointed by the Board of Directors. (2) Members of the Sharia Supervisory Board as referred to in paragraph (1) must be individuals or business entities that have ASPM permission from the Financial Services Authority.

CHAPTER III

REPORTING

Article 10

(1) Every Party as referred to in Article 4 letter a must submit a report prepared by the Sharia Supervisory Board to the Financial Services Authority regarding the fulfillment of Sharia Principles in the Capital Market. (2) Every Party as referred to in Article 4 letter b must submit a report to the Financial Services Authority regarding the fulfillment of Sharia Principles in the Capital Market prepared by:
a. the Sharia Supervisory Board, for Investment Managers conducting Sharia investment management activities; or b. the Sharia Supervisory Board, director, or person in charge of activities mandated by the Board of Directors, who has adequate knowledge and/or experience in Sharia finance, for parties conducting activities other than Investment Managers managing Sharia investments.

Article 11

(1) Reports regarding the fulfillment of Sharia Principles in the Capital Market as referred to in Article 10 paragraph (1) and paragraph (2) are submitted to the Financial Services Authority simultaneously with the submission of annual reports or annual financial reports. (2) In the event that the party as referred to in Article 10 has an obligation to submit more than 1 (one) report as referred to in paragraph (1), the deadline for report submission follows the deadline for the latest report submission. (3) The report as referred to in paragraph (1) must at least contain the results of the review on the fulfillment of Sharia Principles in the Capital Market.

CHAPTER IV

OTHER PROVISIONS

Article 12

The Financial Services Authority is authorized to conduct examinations on the fulfillment of Sharia Principles in the Capital Market conducted by every Party conducting Sharia Activities in the Capital Market.

CHAPTER V

SANCTION PROVISIONS

Article 13

(1) Without prejudice to criminal provisions in the Capital Market field, the Financial Services Authority is authorized to impose administrative sanctions on every party violating the provisions of this Financial Services Authority Regulation, including parties causing the violation, in the form of:
a. written warning; b. fine, namely the obligation to pay a certain amount of money;
c. restriction of business activities;
d. suspension of business activities; e. revocation of business license; f. cancellation of approval; and g. cancellation of registration.
(2) Administrative sanctions as referred to in paragraph (1) letter b, letter c, letter d, letter e, letter f, or letter g may be imposed with or without preceding the imposition of an administrative sanction in the form of a written warning as referred to in paragraph (1) letter a. (3) Administrative sanctions in the form of fines as referred to in paragraph (1) letter b may be imposed separately or together with the imposition of administrative sanctions as referred to in paragraph (1) letter c, letter d, letter e, letter f, or letter g.

Article 14

In addition to administrative sanctions as referred to in Article 13 paragraph (1), the Financial Services Authority may take specific actions against every party violating the provisions of this Financial Services Authority Regulation.

Article 15

The Financial Services Authority may announce the imposition of administrative sanctions as referred to in Article 13 paragraph (1) and specific actions as referred to in Article 14 to the public.

CHAPTER VI

CLOSING PROVISIONS

Article 16

Upon the commencement of this Financial Services Authority Regulation, number 1 of Regulation Number IX.A.13 concerning the Issuance of Sharia Securities, Appendix of the Decision of the Chairman of the Capital Market Supervisory Board and Financial Institutions Number: Kep-181/BL/2009 dated June 30, 2009 concerning the Issuance of Sharia Securities is repealed and declared invalid.

Article 17

This Financial Services Authority Regulation takes effect on the date of enactment.

To ensure that everyone knows it, order the enactment of this Financial Services Authority Regulation by placing it in the State Gazette of the Republic of Indonesia.

Determined in Jakarta on November 3, 2015

CHAIRMAN OF THE COMMISSIONERS
FINANCIAL SERVICES AUTHORITY

signed
MULIAMAN D. HADAD

Enacted in Jakarta on November 10, 2015

MINISTER OF LAW AND HUMAN RIGHTS
REPUBLIC OF INDONESIA,

signed
YASONNA H. LAOLY

STATE GAZETTE OF THE REPUBLIC OF INDONESIA YEAR 2015 NUMBER 266

Copy matches the original
Director of Law 1
Department of Law

signed
Sudarmaji

EXPLANATION

OF

FINANCIAL SERVICES AUTHORITY REGULATION

NUMBER 15/POJK.04/2015

CONCERNING

THE IMPLEMENTATION OF SHARIA PRINCIPLES IN THE CAPITAL MARKET

I. GENERAL

In order to develop the Sharia Capital Market so that it can grow stably and sustainably, the development of adequate market infrastructure is required. One of the important market infrastructures is the availability of clear, easily understood, and implementable regulations so that the regulation becomes market-friendly.

The dynamic development of the Sharia Capital Market requires the improvement of Regulation Number IX.A.13, Appendix of the Decision of the Chairman of the Capital Market Supervisory Board and Financial Institutions Number: KEP181/BL/2009 dated June 30, 2009 concerning the Issuance of Sharia Securities, to be in accordance with the needs of the Sharia Capital Market industry, common practices, and international standards.

This Financial Services Authority Regulation improves Regulation Number IX.A.13, Appendix of the Decision of the Chairman of the Capital Market Supervisory Board and Financial Institutions Number Kep-181/BL/2009 dated June 30, 2009 concerning the Issuance of Sharia Securities, which regulates among others the implementation of Sharia Principles in the Capital Market in Sharia Activities in the Capital Market and/or activities and types of business, business management methods conducted, as well as products or services issued based on Sharia principles. Several main improvements in this Financial Services Authority Regulation include among others types of business activities conflicting with Sharia Principles in the Capital Market, transactions conflicting with Sharia Principles in the Capital Market, obligations for Parties conducting Sharia Activities in the Capital Market, and reports on the fulfillment of Sharia Principles in the Capital Market.

II. ARTICLE BY ARTICLE

Article 1

Sufficiently clear.

Article 2

Paragraph (1)

Letter a

Sufficiently clear.

Letter b

Examples of interest-based financial services include interest-based banks and interest-based financing companies.

Letter c

The term "gharar" refers to ambiguity that causes disputes.
Examples of risk trading containing uncertainty (gharar) elements include conventional insurance and derivative transactions (forward, futures, swap) or options containing speculation.
The term "maisir" refers to any activity involving gambling where the winner of the gambling takes the bet and the loser loses the bet.

Letter d

Number 1

Examples of goods or services that are inherently forbidden (haram lidzatihi) include alcoholic beverages, animals forbidden by Sharia, and their derivatives.

Number 2

Examples of goods or services forbidden not due to their substance (haram li-ghairihi) include meat from animals that are halal by Sharia but slaughtered without reciting Bismillah.

Number 3

Examples of goods or services that corrupt morals and are harmful include cigarettes, media and/or service providers containing elements of pornography and obscenity.

Paragraph (2)

Letter a

Examples of trading with fake offers or demands (najsy) include:

1. Securities transactions initiated by price movements tending to rise (uptrend), caused by a series of transactions deliberately conducted by the buy initiator to form prices rising to the highest level desired. After the Security price reaches the highest desired level, parties interested in the price increase conduct transactions as the sell initiator with significant volume (pump and dump).
2. Transactions of a Security initiated by price movements tending to rise (uptrend) caused by a series of transactions deliberately conducted by the buy initiator to form prices rising to the highest desired level, accompanied by false, exaggerated, or misleading positive information. After the price reaches the highest desired level, parties interested in the price increase conduct a series of transactions as the sell initiator with significant volume (hype and dump).
3. Fake demand or supply (creating fake demand/supply), namely the presence of 1 (one) or more specific parties placing buy or sell orders at the best price level, but if the placed buy or sell order has reached the best price (best price), the order is removed (deleted) or replaced (amended) by repeatedly lowering the quantity and/or price. This is done to give the impression of high demand or supply so that the market is influenced to buy or sell.

Letter b

Sufficiently clear.

Letter c

An example of trading goods not yet owned is the trading of Sharia Securities not yet owned (bai’ al-ma’dum/short selling).
The term "goods" also includes Sharia Securities.

Letter d

The term "insider information" refers to Material Information owned by insiders that is not yet available to the public as referred to in the explanation of Article 95 of the Law on Capital Market. The term "insider" refers to insiders as referred to in the explanation of Article 95 of the Law on Capital Market.

Letter e

Sufficiently clear.

Letter f

The term "hoarding (ihtikar)" refers to buying a good that is highly needed by society at a high price and hoarding it with the intention of selling it back at a higher price. Actions included in the hoarding (ihtikar) category include:

1. Pooling interest, namely transaction activities over a Security that appears liquid (liquid), with or without price movement, during a certain period and only enlivened by a group of members of a specific Stock Exchange (in both purchases and sales). In addition, the transaction volume every day during that period is always in almost the same amount and/or within a certain period the transaction activity suddenly increases drastically. The purpose is to create opportunities to sell or accumulate shares or to make the activity of a certain share serve as a benchmark.
2. Cornering, namely a transaction pattern intended to create a false supply that causes prices to drop in the morning and causes public investors to sell shares they do not yet own (short selling). Then there are purchase efforts that cause prices to rise in the afternoon session, causing sellers of shares they do not yet own (short selling) to experience failed delivery or suffer losses because they must buy at a higher price.

Letter g

The term "bribery (risywah)" refers to a gift intended to take something that is not one's right, justify what is wrong, and make what is wrong appear as something correct.

Letter h

The term "fraud (tadlis)" refers to the action of concealing defects in the object of the contract conducted by the seller to deceive the buyer as if the object of the contract were not defective. Actions classified as fraud (tadlis) include:

1. conducting transactions first based on information that a person will conduct a large volume transaction (front running).
2. misleading information, namely making statements or providing information that is materially untrue or misleading so as to influence the Security price.
   The term "concealing defects (ghisysy)" is when the seller explains or presents the advantages or special features of the goods sold while concealing its defects.
   Actions included in the category of presenting advantages or special features and concealing defects (ghisysy) include:
3. Marking at the close, namely the placement of sell or buy orders conducted at the end of the trading day with the intention of creating a closing price as desired.
4. Transactions by a group of actors acting as buyers and sellers alternately and conducted with volumes that appear normal so as to give the impression that a Security is actively traded (alternate trade).
   Actions included in the category of efforts to influence other parties containing deception (taghrir) include:
5. Fake trading that does not change ownership in order to form prices by giving the impression that prices are formed through transactions that appear normal and to actively trade (wash sale).
6. Transactions occurring through the placement of buy and sell orders in almost the same time frame due to prior agreements between buyers and sellers in order to form prices or other interests, both within and outside the exchange (pre-arrange trade).

Article 3

Paragraph (1)

Letter a

Sufficiently clear.

Letter b

Contracts include both Sharia Contracts as referred to in Article 1 of this Financial Services Authority Regulation and other contracts.

Letter c

The term "financial assets" refers to a collection of claims/receivables.

Letter d

Sufficiently clear.

Letter e

The term "portfolio" refers to Receivables Collections consisting of receivables arising from home ownership financing including collateral/guarantees and attached mortgage rights as referred to in Financial Services Authority Regulation Number 23/POJK.04/2014 concerning Guidelines for the Issuance and Reporting of Asset-Backed Securities in the Form of Participation Certificates in the Context of Secondary Housing Financing. The aforementioned "Receivables Collections" refers to Financial Assets as referred to in Financial Services Authority Regulation Number 23/POJK.04/2014 concerning Guidelines for the Issuance and Reporting of Asset-Backed Securities in the Form of Participation Certificates in the Context of Secondary Housing Financing. Whereas the aforementioned "Financial Assets" refers to receivables obtained by the Original Creditor from the provision of Home Ownership Credit to debtors, including collateral/guarantees and attached mortgage rights as referred to in Financial Services Authority Regulation Number 23/POJK.04/2014 concerning Guidelines for the Issuance and Reporting of Asset-Backed Securities in the Form of Participation Certificates in the Context of Secondary Housing Financing.

Letter f

The fulfillment of all or part of the Sharia elements over the contract, assets, and/or management method underlying Sukuk in this letter depends on the Sukuk contract.
For example, for Sukuk with a mudharabah contract, the contract elements, assets, and asset management method underlying the Sukuk do not conflict with Sharia Principles in the Capital Market.

Letter g
Clearly stated.

Paragraph (2)
Clearly stated.

Article 4
Letter a
An example of a Party that declares that its activities, business types, and/or management methods, and/or services provided are based on Sharia Principles in the Capital Market is a company that states in its articles of association that its business activities are in accordance with Sharia principles.

Letter b
An example of a Party that does not declare that its activities, business types, and/or management methods are based on Sharia Principles in the Capital Market but has a Sharia business unit is a conventional company that has a Sharia business unit.

An example of a Party that does not declare that its activities, business types, and/or management methods are based on Sharia Principles in the Capital Market, but conducts Sharia investment management activities is an Investment Manager that manages Sharia Mutual Funds.

An example of a Party that does not declare that its activities, business types, and/or management methods are based on Sharia Principles in the Capital Market, but where part of the Party's operational business activities are conducted based on Sharia principles, is a Securities Company that provides Sharia online trading services.

Letter c
An example of a Party that does not declare that its activities, business types, and/or management methods, and/or services provided are based on Sharia Principles in the Capital Market, but issues Sharia Securities and/or plays a role in assisting in the issuance of Sharia Securities in the Capital Market includes Issuers that issue Sukuk or Securities Companies that provide Sukuk underwriting services.

Article 5
Clearly stated.

Article 6
Clearly stated.

Article 7
Clearly stated.

Article 8
Letter a
Clearly stated.

Letter b
In the event that the Party conducting Sharia Activities in the Capital Market is a Branch Office of a Foreign Bank, the term "Board of Directors" refers to the highest leadership of that Foreign Bank Branch Office.

The term "having adequate knowledge in the field of Sharia finance" includes, among other things, knowing matters that contradict Sharia Principles in the Capital Market.

Article 9
Clearly stated.

Article 10
Clearly stated.

Article 11
Paragraph (1)
Reports regarding the fulfillment of Sharia Principles in the Capital Market submitted concurrently with the submission of:
a. Annual reports are intended for, among others, Issuers or Public Companies. b. Annual financial reports are intended for, among others, Investment Managers that manage Sharia Mutual Funds.

Paragraph (2)
As an example, Issuer A has an obligation to submit annual financial reports no later than March 31, 2015, and an obligation to submit annual reports no later than April 30, 2015; the deadline for submitting the report on the fulfillment of Sharia Principles in the Capital Market is April 30, 2015.

Paragraph (3)
Clearly stated.

Article 12
Clearly stated.

Article 13
Clearly stated.

Article 14
Clearly stated.

Article 15
The term "specific actions" may include, among other things, the postponement of the issuance of an effectiveness statement, for example, an effectiveness statement in the context of a Public Offering of Sukuk.

Article 16
Clearly stated.

Article 17
Clearly stated.

SUPPLEMENT TO THE STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 5755 ---