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OIC Members’ State Stock Exchanges Forum Opportunities in the Islamic Capital Markets Segment _________________________________________________ Raja Teh.

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Presentation on theme: "OIC Members’ State Stock Exchanges Forum Opportunities in the Islamic Capital Markets Segment _________________________________________________ Raja Teh."— Presentation transcript:

1 OIC Members’ State Stock Exchanges Forum Opportunities in the Islamic Capital Markets Segment _________________________________________________ Raja Teh Maimunah Global Head, Islamic Markets

2 2 Contents of Presentation 1.Shari’ah-compliant products & services 2.Islamic Finance & World Stock Exchanges 3.Way forward for Greater Business Ties 4.Improving OIC ICM Network on Islamic Products

3 3 Sukuk marketEquity market Stockbroking Islamic Structured Product i.Shari’ah-compliant stocks ii.Islamic unit trusts iii.Islamic REITs iv.Islamic ETFs i.Shari’ah-compliant trading ii.Shari’ah-compliant margin financing i.Dual Currency Structured Investment ii.Equity-linked Structured Investment i.Asset-backed securities ii.Asset-based securities iii.Equity-based securities iv.Sukuk listing Islamic Derivatives ?? ________________________ General view is that derivatives instrument for hedging purposes is permissible but not naked trading of derivatives. Hedging is important for risk management and investor protection Shari’ah-Compliant Products & Services

4 4 Sukuk Listing No. of Sukuk / Issuers16 / 14 issuers % of Total Listings72.4 % Programme value listedUSD 21.9 billion Global Ranking1 Bursa Malaysia Sukuk listings @ August 2010 USD 21.9 bil USD 16.2 bilUSD 14.6 bil USD 3.20 bil Why listing? Wider source of funding through visibility Reduces cost of capital Opportunities for business venture through product identification In depth liquidity through secondary market trading Better corporate governance Higher standards of regulatory framework

5 5 Shari’ah-compliant Securities 88% or 847 Shari’ah- compliant companies 12% 64% or USD 206.93 billion of market capitalization Shari’ah-compliant companies Non Shari’ah-compliant companies As of 31 May ’10… i.The Shari’ah Advisory Council (SAC) of the Securities Commission of Malaysia provides screening facilities for foreign listed equities seeking for a secondary listing on Bursa Malaysia. ii.The world’s first jurisdiction allowing companies to request for a pre-IPO screening by the SAC. iii.Periodic review and monitoring by SAC on the Shari’ah-compliant status to facilitate investors’ decision making. Notable Shari’ah-compliant Securities Listings :

6 6 Islamic Exchange Traded Funds (i-ETFs)20092008 No. of ETF listed : ETFs Trading Value 2008 – 2009 in selected Asia Pacific Exchanges20092008 Source: World Federation of Exchange What makes it attractive? Comply to Shari’ah law Competitive to conventional ETFs Exchange-Traded basis Liquidity through tight bid/offer spreads Flexibility to hold / sell Transparency International recognition – UCITS III Lower management fees Some liquidity issues… Depends on liquidity of underlying stocks Rely on market maker for continuous pricing In-kind creation and redemption

7 7 Islamic Real Estate Investment Trusts (i-REITs) ItemsMalaysiaIndonesiaSingaporeHong KongThailand Overall Potential45%37%62%53%37% Property Market Growth46% 54%53%40% REIT Opportunity44%34%60%50%35% Regulatory Support46%30%70%55%37% According to survey by the Trust Company and Baker & McKenzie, market growth prospect in June 2010 has improved across all sectors to 54% from 46% in 2009. Singapore retains the most potential country in Asian REITs Listed 22 REITs Plans to list 2 Islamic REITs Tax Efficiency e.g. Malaysia, Bahrain Competitive Returns Highly liquid assets e.g. MENA region Low correlation to market volatility Efficient hedge against inflation Risk diversification Possible AdvantagesPotential for REITs in Asia REITs in Malaysia Bursa listed 14 REITs (3 i-REITs) Market Cap (Aug ‘10): RM 9.6 billion. i-REITs covers 21.2% of total Malaysian REITs.

8 8 New Product – Commodity Murabahah What is it? A sale of certain certified commodities, at a cost plus profit basis. Using Tawarruq concept  It is a sale of an asset to a purchaser on deferred payment basis.  The purchaser then onward sells the asset to the third party for cash. Bank Negara Malaysia introduced Commodity Murabahah Programme (CMP) Competitive Advantage Initiative by MIFC and supported by BNM, SC and Bursa Malaysia Exchange-regulated Islamic commodity trading platform Catered for Multi-commodity and Multi-currency platform Structured in line with internationally accepted Shari’ah standards. Fully electronic and web-based. Operated by Bursa Malaysia Islamic Services Sdn Bhd.

9 9 Bursa Suq Al-Sila’ Transactional diagram Commodity Payment (spot) Payment (deferred) Example : Islamic Bank A is financing corporate client B Islamic Bank B 1.Islamic bank A buys commodity from commodity market on spot. 2.Islamic bank A sells commodity to Islamic Bank B on deferred basis (debt created). 3.Islamic Bank B sells the commodity to Bursa Malaysia Islamic Services (BMIS), and then BMIS sells it back to the market. Islamic Bank A Islamic Bank B Commodity Supplier Trading & Clearing Engine Commodity Purchaser / Buyer Broker A Broker B 1 2 3 3

10 10 Islamic Finance on the global stage Islamic finance is becoming mainstream and is being acknowledged by financial centres globally as a product class that cannot be ignored and stock exchanges worldwide are also increasingly including Islamic investment products on their list of offerings Bursa Malaysia Indonesia SE Singapore SE Hong Kong SE London SE Luxembourg SE Nasdaq Dubai Bahrain SE Saudi SE Irish SE Cayman Islands SE Channel Islands SEVienna SE

11 11 London Stock Exchange (LSE) PRODUCTS & SERVICES Sukuk Listings & Trading Shari’ah-compliant Stocks Islamic Exchange-Traded Funds Islamic Securities (Sukuk) ORB Market Accessible to Gilts & small denomination bonds Facilitating liquidity & price discovery to Private Investors This could increase retail-sized issuances LSE introduced retail bond market in February 2010 called Order book for Retail Bonds (ORB). Retail Bonds Currently ORB market is applicable to conventional bond but offers opportunities to Sukuk wishing to access the retail segment. Source: London Stock Exchange Listed 28 Sukuk (USD 17.7 bil) Listing Main MarketPSM Market Regulated under MiFID Admission without full prospectus. NO ANNUAL FEE CHARGED

12 12 London Stock Exchange (LSE) Islamic Exchange-Traded FundsShari’ah-compliant Stocks Islamic Index listed on LSE MSCI World Islamic MSCI USA Islamic MSCI Emerging Markets Islamic Indices S&P Japan 500 Shari’ah S&P 500 Shari’ah S&P Europe 350 Shari’ah DJ Islamic Market titans Indices LSE contains 7 Islamic ETFs with AUM of over USD 128 million. Updates on Islamic Finance in United Kingdom Islamic banking assets : $19.4 billion * No. of full-fledged Islamic banks : 5 No. of Islamic windows : 17 Gatehouse Bank in world-first cross- border transaction on Bursa Suq Al-Sila’ Source: International Financial Services London * Data as of 2008 First ETF admitted iShares FTSE 100 Index Listing of ETF (‘09)370 Trading Value (‘09)> USD 123 billion Total ETPs listed~ 500 Listed 4 Shari’ah-compliant securities Listed under Alternative Investment Market (AIM)

13 13 Luxembourg Stock Exchange (Lux) PRODUCTS & SERVICES Sukuk Listings & Trading Islamic Securities (Sukuk) The exchange hosted 16 Sukuk listed worth EUR 5.1 billion (~USD5.5 billion). European Regulated Market Euro MTF Market Universal Trading Platform (UTP) traded on… Sukuk Listing &Trading Shari’ah-compliant Stocks Shari’ah-compliant Securities Developed / announced by Deutsche Bank. The platform meets standards imposed by AAOIFI. Allows for issuance of tradable Islamic money market products settling in T+0. This could enable liquidity in Islamic money markets.

14 14 The first European exchange entering Sukuk market in 2002 with the listing of Malaysian Global Sukuk. Domiciled for the first Takaful company in Europe. Hosted 51 Islamic funds at USD 500 million in assets. Platform for Shari’ah-compliant securities called Al-Mi’yar in 2009. Luxembourg Stock Exchange (Lux) Facts on Islamic finance in Luxembourg Source: Luxembourg Stock Exchange, Luxembourg for finance, PWC

15 15 Hong Kong Exchanges & Clearing Limited (HKEx) PRODUCTS & SERVICES Sukuk Listings Islamic Securities (Sukuk) Currently, there are 4 Sukuk listed: 1Malaysia Sukuk Global Berhad Cherating Capital Limited Paka Capital Limited Rafflesia Capital Limited Hong Kong’s Islamic finance business is still at its infancy stage and the regulators i.e. HKMA and HKSFC are looking for collaboration. Regulators’ Active Role HKMA and Central Bank of Malaysia signed MOU on cooperation in developing financial services, mainly in Islamic finance area. MOU signed between HKSFC, SSC of Vietnam and SC of Malaysia to strengthen regulatory cooperation in Islamic finance.

16 16 Singapore Exchange (SGX) PRODUCTS & SERVICES Sukuk Listings Islamic Equity Index Islamic Exchange-Traded Funds Islamic Securities (Sukuk) As of August 2010… Islamic Equity Index The first Shari’ah-compliant pan-Asian equity index launched (2006) Serves as benchmark to Islamic funds investing in Asian equities. Islamic Exchange-Traded Funds Islamic Real Estate Investment Trust Islamic REITs plans for listings Islamic REITRemarks ARA & Regency GroupIn 2010 Sabana REIT Late 2010 / early 2011 Source: Reuters First Sukuk listedMBB Sukuk Inc. No. of Sukuk listed4 Sukuk Value> USD 1 bil Daiwa Islamic ETF FTSE Shari’ah Japan 100 Index (2009) Source: IFIS

17 17 Bursa Malaysia Islamic Capital Market Experience _________________________________________________

18 18 Malaysian ICM Regulatory Framework 1 st TIER _____________ Applicable to both Conventional & Islamic Products 2 nd TIER _____________ Only applicable to Shari’ah-compliant products Bonds Funds REIT Sukuk Islamic Funds Islamic REIT Trust Deed, Mandatory Rating, Underwriting, Utilisation of Proceeds,…, etc. Investment Committee, Trustee, Deed of a Unit Trust Fund, Investment Restriction & Limits, etc. Constitution & Investment of REIT, Trustee, Valuation, fees and expenses,…, etc. Additional disclosure on Musharakah and Mudharabah structure via Info Memo Role of Shari’ah Adviser, Islamic Fund Management business via Islamic Window Rental of Real Estate by Islamic REITs, tenant’s activities, properties ownership and Takaful usage

19 19 Bursa Malaysia Core BusinessesShari’ah-compliant Businesses Bursa Malaysia’s Islamic Capital Market Products cut across all conventional products and operates dual financial system. Bond listing (Exempt Regime) Equity Derivatives Islamic Markets Sukuk Listing (Exempt Regime) Islamic Equity i.Shari’ah-compliant securities ii. Islamic REITs iii. Islamic ETFs iv. Islamic Structured Products Islamic Stockbroking Stockbroking

20 20 Bursa Malaysia i-REITs & i-ETFs Market Statistics

21 21 Way forward for Greater Business Ties Re-mutualization of exchangeHigher trading frequency Ownership acquisition among trading firms and market makers MiFID Influence in Europe Majority turnover in Europe, N. America Multilateral Trading Facility (MTF Market) Dedicated gateway access, co- location services and pricing certainty Global Trading Pattern MTF is operated by investment firm and market operator Facilitates multiple third party buying and selling interests in financial instruments. Offering alternative trading exchanges together with additional liquidity to the market players. Good for unstable Exchanges to… Improve entrepreneurial environment Access to small and medium-sized companies through shares, bonds and rights

22 Bursa Malaysia and its Group of Companies (“the Company”) reserve all proprietary rights to the contents of this Presentation. No part of this Presentation may be used or reproduced in any form without the Company’s prior written permission. This Presentation is provided for information purposes only. Neither the Company nor the Presenter make any warranty, express or implied, nor assume any legal liability or responsibility for the accuracy, completeness or currency of the contents of this Presentation. It is your responsibility to verify any information before using or relying on it. THANK YOU Islamic Markets Bursa Malaysia Berhad 12 th Floor, Exchange Square Bukit Kewangan 50200 Kuala Lumpur Tel:+60 3 2034 7000 Fax: +60 3 2072 4261

23 23 Equity Market Share across Europe Turquoise (24.9%) Chi-X (24.9%) POSIT (4.9%) BATS (6.2%) Nomura NX (11%) Liquidnet (11.3%) Smartpool (14.7%) (1)In June 2010, Equity Market Share showed that dark pool trading accounted for 1.36% of all on and off exchange trading in Europe across 50 trade venues. (2)The value was €21.9 billion of trading, against a total value of €1.62 trillion across all exchanges. That compares with just 0.85% of trading on dark pools in January 2010 (€10bn against €1.18tn) and just 0.23% in January 2009 (€2.4bn against €1.062tn). Equity Market Share Reporter Source: Thomson Reuters

24 24 Alternative Exchange Trading Platform Turquoise Services Ltd. An authorized investment firm providing: 1.Pan European Lit 2.Dark Equity trading Listed around 1,700 securities from 17 countries. London SE acquired 51% of shareholdings Turquoise contributed US$ 0.44 million revenue to LSE  As at 11 Jun 2010 the facility matched anonymous trades worth USD 2.1bn for the first 10 days of this month, giving it a 26% share of the European MTF dark pool market,  Compared to Chi-X Europe had traded deals worth USD 1.97bn so far this month, giving it a 24.4% share of the market. -Thomson Reuters

25 25 Alternative Exchange Trading Platform (1) UMEX Trader (2) UMEX Liquid Trading platform for Shari’ah-compliant Structured Investment Products. Shari’ah-compliant securities trading platform. Contains more than 10,000 Shari’ah-compliant stocks listed in over 40 countries. First share trading platform to offer institutional investors to view each of the world’s main market’s full list of Halal shares. Screening process: by Amiri Capital

26 26 Improving OIC ICM Network of Islamic Products To facilitates greater trading and business ties BROKER RETAIL Local Foreign INSTITUITIONAL Local Foreign RETAIL Local Foreign INSTITUITIONAL Local Foreign DMA Clients (Institutional) BM Main Markets Shari’ah Securities Market (Trading Engine) Shari’ah Securities Market (Trading Engine) Shari’ah Securities Market (Trading Engine) Shari’ah Securities Market (Trading Engine) Clearing & Settlement Depository LSE Main Markets BROKER RETAIL Local Foreign INSTITUTIONAL Local Foreign RETAIL Local Foreign INSTITUTIONAL Local Foreign DMA Clients (Institutional) Royal Dutch Shell plc

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