Chapter 2
Introduction to Equity Market and Islamic Equity Market
What is Equity Market and Islamic Equity market?
- The equity market is where securities, shares and other exchange-traded instruments are bought and sold.
- Once the shares or securities are bought, shareholders have the freedom to sell them.
- This had led to the evolution of transfer of instruments that allows shareholders to redeem their money upon disposal of their shares or securities.
- The buying and selling of shares creates a ready market that pools resources and provides ready funds.
- In Islamic equity market, funds are transferred from surplus to deficit units. The market allows owners of capital to invest according to their preference in terms of the extent of risk involvement, rate of return, and period of investment. Without such market, owners of capital may not find sufficient opportunities to invest for the short-term since other asset classes are long-term in nature. The profits are mainly achieved through the capital gains by purchasing the shares and selling them when their prices are increased. Profit are also achieved by the dividends distributed by the relevant companies. These investments and all related market activities, however , must be based on Shariah principles
SUKUK
What about Sukuk Market?
- Sukuk ( the plural of sakk ) represent one of the most vibrant and significant components in Islamic finance. Sukuk refers to certificates of equal value which evidence undivided ownership or investment in the assets using Shariah principles and concepts endorsed by the SAC.
- Sukuk shall not include any agreement for a financing/investment where the financier/investor ad customer/investee are signatories to the agreement and where the financing/investment of money is in the ordinary course of business of the financier/investor, and any promissory note issued under the terms of such an agreement.
a.
Government Investment Issue (GII)
· GII stands for Government Investment Issue and
is another form of marketable government debt securities issued by the
Government Of Malaysia to raise funds from the domestic capital market to
finance the Government’s development expenditure.
· GII is Islamic securities issued in compliance
with Shariah requirements and is an alternative debt instrument for the
Government.
· Other forms of instruments are the Malaysian
Government Securities (MGS) , Malaysian Islamic Treasury Bills (MITB) and
Malaysia Treasury Bills (MTB).
· Both Islamic and conventional players can
subscribe and trade GII.
· Stucture of GII :
1.
To raise the required financing, Government will
first sell its Shariah-compliant assets
2.
Upon completion of sale, investor will
subsequently sell the assets back to Government at profit paid on deffered, and
GII will be issued to evidence the indebtedness
3.
Profit from sale will be paid periodically such
as semi-annual basis, representing the coupon on GII
4.
On maturity (i.e. deffered payment), Government
will pay the asset cost representating the principal amount, plus profit and
GII will be redeemed.
b.
International Islamic Bonds
·
Sukuk represents undivided shares in the ownership
of tangible assets relating to particular projects or special investment
acivity
·
A sukuk represents proportionate beneficial
ownership in the underlying asset, which will be leased to the client to yield
the return on the Sukuk.
CONVENTIONAL CAPITAL MARKET IN LINE WITH THE REQUIREMENTS OF
SHARIAH
Ø
SHARES
Shares are units of ownership interest in a
corporation or financial asset that provide for an equal distribution in any
profits, if any are declared, in the form of dividends.
The twi main types of shares are common
shares and preffered shares. Physical paper stock certificates have
been replaced with electronic recording of stock shares, just mutual fund
shares are recorded electronically
CALL WARRANTS
SHARIAH SCREENING ON STOCK PORTFOLIOS
SHARIAH
SCREENING METHOD
- Shariah screening methodology was formulated by the Shariah Advisory Council ( SAC ) of Securities Comission ( SC ) of Malaysia to assists investors in identifying Shariah – compliant securities
- This is to ensure that their investments are in accordance with Shariah principles which prohibit the elements of riba , maysir and gharar
Securities
Will Be Classified As Shariah Non Compliant Securities If They Are Involved :
- Financial services based on riba
- Gambling and gaming
- Manufacture or sale of non – halal products
- Conventional insurance
- Entertainment activities that are non- permissible
- Manufacture or sale of tobacco – based products
- Stockbroking
The reduced
business activity benchmarks
v The first tier of the quantitative assessment in the revised Shariah
screening methodology is the business activity benchmarks.
v Under the revised methodology , the business activity benchmarks
which previously consisting of four benchmarks had been reduced to only two
benchmarks.
The Five
Percent ( 5% ) Benchmark
i.
Conventional banking.
ii.
Conventional insurance.
iii.
Gambling.
iv.
Liquor.
v.
Pork and pork related activity.
vi.
Non – halal food.
vii.
Shariah non – compliant
entertainment.
The Twenty
Percent ( 20% ) Benchmark
i.
Hotel and resort operations.
ii.
Share trading.
iii.
Stockbroking business.
iv.
Rental received from Shariah
non – compliant activities.
v.
Other activities deemed non –
compliant according to Shariah.
a) Cash over total assets
-
Cash to be included in the
calculation includes cash placed in conventional accounts and instruments only.
If the company placed the cash in the Islamic account , it should be excluded
from the calculation.
b) Debt over total assets
-
Debt to be included in the
calculation includes interest – bearing debt only. If the company used Islamic
financing such as sukuk , it should be excluded from the calculation.
0 comments