MASTER OF LAWS
Course Code: LAW 613
Course Title: Islamic Capital Markets
Instructor
: Hooman Sabeti-Rahmati
Title
: Adjunct Associate Professor of Law
Email
: hoomansabeti@yahoo.com
PRE-REQUISITE/CO-REQUISITE/MUTUALLY EXCLUSIVE COURSE(S)
None, but students will benefit from having taken Introduction to Islamic Law & Commercial
Transactions.
COURSE SPECIALISATION
LLM in Islamic Law & Finance
GRADING BASIS
Graded
COURSE UNIT
1 CU
TERM
Academic Year: AY2013/2014
Academic Term: Term 2
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COURSE DESCRIPTION
This course introduces Islamic capital markets and focuses on its most significant component,
sukuk, with the aim of providing a practical, working understanding.
The principal products and instruments, namely sukuk, shares, REIT units, money market
instruments and derivatives, will be covered. The roles of principal parties will be considered,
including issuers, underwriters, investors, Shari’a advisors and bodies, lawyers, accountants,
trustees, agents, rating agencies and regulators.
To convey the legal, regulatory and Shari’a framework, the course will discuss domestic law, the
choice of English/New York law in cross-border transactions, domestic and international
securities regulation and regulators, disclosure regimes, stock exchanges, Shari’a standards
bodies (eg, AAOIFI and IFSB) and Shari’a boards.
The range of existing sukuk structures and their legal documentation will be considered in detail.
These include ijara, istisna, musharaka, mudaraba, manfa’a and wakala structures. The few
existing Shari’a-compliant true securitisation transactions will also be examined. In doing so, the
course aims to provide a grasp of how to structure, negotiate, document and execute a
sophisticated cross-border sukuk transaction.
LEARNING OBJECTIVES
By the end of this course, students should be able to understand the following from the perspective
of a market participant:

the purpose and role of the capital markets generally;

the principal capital markets products and instruments;

the parties involved, their roles, interactions and motivations;

the legal, regulatory and Shari’a background;

the differences between domestic and international capital markets;

the differences and similarities between Islamic and conventional capital markets;

structuring, documenting, negotiating and executing sukuk; and

the principal legal, commercial and Shari’a constraints and how to work within them.
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RECOMMENDED TEXT AND READINGS
This course will have a practical focus and therefore involve a close examination of legal
documentation for particular transactions, which will be distributed in advance of class. Reading
material of a general nature will include excerpts of the following, assigned in advance of class
sessions:
Salman Syed Ali, Islamic Capital Markets: Products, Regulation and Development, Islamic Research
and Training Institute, 2008.
 Chapter 3, Sukuk Market: Innovations and Challenges
 Chapter 12, Investment in Stocks: A Critical Review of Dow Jones Shariah Screening Norms
 Chapter 18, Developing Capital Markets in Muslim Countries: Strategies and Policies for
Securities Regulation and Corporate Governance
 Chapter 20, Comparing The Development of Islamic Financial/Bond Markets in Malaysia and
Indonesia
Kabir Hassan and Michael Mahlknecht, Islamic Capital Markets: Products and Strategies, John Wiley
& Sons, 2011.
 Chapter 2, The Shariah Process in Product Development and Approval in ICM
 Chapter 8, Overcoming Incentive Problems in Securitization: Islamic Structured Finance
 Chapter 11, Building up an Islamic Capital Market: The Malaysian Example
 Chapter 17, The Current Financial Market Crisis: Lessons Learned, Risks and Strengths of
Islamic Capital Markets Compared to the Conventional System
 Chapter 18, An Islamic Perspective of Financial Engineering
 Chapter 19, Shariah-compliant Portfolio Management: Processes, Methodologies, and
Performances
Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), Shari’a Standards,
2010.
IIFM Sukuk Report: A Comprehensive study of the Global Sukuk Market, 3rd Edition, 2013.
Dubai International Financial Center, DIFC Sukuk Guidebook, 2009 (available online at www.difc.ae).
Transaction legal contracts, prospectuses, legal opinions and fatawa
ASSESSMENT METHOD
Class participation: 20%
Group assignment: 30%
Individual research paper: 50%
No examination will be required.
INSTRUCTIONAL METHODS AND EXPECTATIONS
This is a seminar in which classroom discussion and questions will be an important part of learning.
Therefore, each student is expected to have read and thought about the assigned material in
advance, and to be prepared to discuss it and raise questions. Careful thinking and creative problem
solving are valuable traits in this area of law, and students will have an opportunity to develop and
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demonstrate these. For purposes of assessment, thoughtfulness rather than frequency of class
participation counts.
Important: Academic Integrity
All acts of academic dishonesty (including, but not limited to, plagiarism, cheating, fabrication,
facilitation of acts of academic dishonesty by others, unauthorized possession of exam questions, or
tampering with the academic work of other students) are serious offences.
All work (whether oral or written) submitted for purposes of assessment must be the student’s own
work. Penalties for violation of the policy range from zero marks for the component assessment to
expulsion, depending on the nature of the offence.
When in doubt, students should consult the instructor of the course. Details on the SMU Code of
Academic Integrity may be accessed at http://www.smuscd.org/resources.html.
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COURSE SCHEDULE
The relative amount of time we spend on the various subjects outlined below will be a function of
the level of familiarity students bring to class. If students have limited capital markets background,
we are likely to spend more time on foundational aspects of capital markets.
Session Description
1.
Overview of capital markets, their history and development, the participants and roles, the
various component markets and current instruments and products
2.
Legal, regulatory and Shari’a framework of Islamic capital markets, both domestic and
international
3.
Sukuk: basic principles and existing structures
4.
Sukuk: structuring considerations and legal arrangements
5.
Sukuk: negotiation, documentation and execution of transactions, including contracts,
disclosure documents and legal opinions
6.
Sukuk: when things go wrong - legal challenges, default and restructuring
7.
Securitisation: basic principles, challenges, documentation and existing transactions
8.
Money and interbank markets: existing instruments, challenges and opportunities
9.
Shari’a-compliant shares
10.
Course summary, directions of future development and the characteristics of capable
Islamic capital markets practitioners
Session
1-3
4-7
8-9
10
Description
 Overview of capital markets, their history and development, the participants and
roles, the various component markets and current instruments and products
 Legal, regulatory and Shari’a framework of Islamic capital markets, both domestic
and international
Sukuk:
 basic principles and existing structures
 structuring considerations and legal arrangements
 negotiation, documentation and execution of transactions, including contracts,
disclosure documents and legal opinions
 when things go wrong - legal challenges, default and restructuring
 Securitisation: basic principles, challenges, documentation and existing
transactions
 Money and interbank markets: existing instruments, challenges and
opportunities
 Shari’a-compliant shares
 Presentation of group projects
 Course summary
 Directions of future development
 Characteristics of capable Islamic capital markets practitioners
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