OIC Members’ State
Stock Exchanges Forum
Opportunities in the
Islamic Capital Markets Segment
_________________________________________________
Raja Teh Maimunah
Global Head, Islamic Markets
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
2
Shari’ah-Compliant Products & Services
Sukuk market
Equity market
Islamic Derivatives ??
________________________
i.
Asset-backed
securities
ii. Asset-based
securities
iii. Equity-based
securities
iv. Sukuk listing
Shari’ah-compliant
stocks
ii. Islamic unit trusts
iii. Islamic REITs
iv. Islamic ETFs
i.
Hedging is important for risk
management and investor
protection
Islamic Structured
Product
Dual Currency
Structured
Investment
ii. Equity-linked
Structured
Investment
General
view
is
that
derivatives
instrument
for
hedging
purposes
is
permissible but not naked
trading of derivatives.
Stockbroking
i.
Shari’ah-compliant
trading
ii. Shari’ah-compliant
margin financing
i.
3
Sukuk Listing
Why listing?
Total Sukuk Listed on Selected
Exchanges (source: IFIS & S.E)
O/S Listed
USD 3.20 bil
Redeemed/Defaulted/Announced
USD 16.2 bil
USD 14.6 bil
USD 21.9 bil
2
Wider source of funding
through visibility
5
Reduces cost of capital
10
16
28
16
5
Luxembourg SE Nasdaq Dubai
London SE
Bursa Malaysia
Opportunities for business
venture through product
identification
In depth liquidity through
secondary market trading
Bursa Malaysia Sukuk listings @ August 2010
No. of Sukuk / Issuers
% of Total Listings
Programme value listed
Global Ranking
16 / 14 issuers
72.4 %
USD 21.9 billion
1
Better corporate governance
Higher standards of
regulatory framework
4
Shari’ah-compliant Securities
As of 31 May ’10…
88% or 847
Shari’ahcompliant
companies
64% or USD
206.93 billion
of market
capitalization
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.
12%
Notable Shari’ah-compliant Securities Listings :
Shari’ah-compliant companies
Non Shari’ah-compliant companies
5
Islamic Exchange Traded Funds (i-ETFs)
ETFs Trading Value 2008 – 2009
in selected Asia Pacific Exchanges
Comply to Shari’ah law
Competitive to conventional ETFs
Exchange-Traded basis
Liquidity through tight bid/offer
spreads
Thousands
What makes it attractive?
90.0
140
80.0
120
2009
70.0
2008
100
60.0
50.0
80
40.0
60
30.0
Flexibility to hold / sell
40
20.0
Transparency
20
10.0
International recognition –
UCITS III
0.0
0
Lower management fees
No. of ETF listed :
2008
2009
Source: World Federation of Exchange
Some liquidity issues…
Depends on liquidity of
underlying stocks
Rely on market maker
for continuous pricing
In-kind creation and
redemption
6
Islamic Real Estate Investment Trusts (i-REITs)
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.
Items
Malaysia
Indonesia
Singapore
Hong Kong
Thailand
Overall Potential
45%
37%
62%
53%
37%
Property Market Growth
46%
46%
54%
53%
40%
REIT Opportunity
44%
34%
60%
50%
35%
Regulatory Support
46%
30%
70%
55%
37%
Possible Advantages
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
Potential for REITs in Asia
Singapore retains the most potential
country in Asian REITs
 Listed 22 REITs
 Plans to list 2 Islamic REITs
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.
7
New Product – Commodity Murabahah
What is it?
A sale of certain certified
commodities, at a cost plus profit
basis.
Competitive Advantage
Using Tawarruq concept
Initiative by MIFC and supported
by BNM, SC and Bursa Malaysia
 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)
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.
8
Bursa Suq Al-Sila’
Transactional diagram
Broker A
1
Commodity
Supplier
Islamic Bank A
2
Broker B
Islamic Bank B
Trading & Clearing Engine
3
Commodity
Purchaser /
Buyer
3
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.
9
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
London SE
Channel Islands SE
Cayman Islands SE
Irish SE
Vienna SE
Luxembourg SE
Bahrain SE
Hong Kong SE
Nasdaq Dubai
Saudi SE
Bursa Malaysia
Singapore SE
Indonesia SE
10
London Stock Exchange (LSE)
PRODUCTS & SERVICES
Sukuk Listings & Trading
Retail Bonds
LSE introduced retail bond market in
February 2010 called Order book for
Retail Bonds (ORB).
Shari’ah-compliant Stocks
ORB Market
Islamic Exchange-Traded Funds
Islamic Securities (Sukuk)
Accessible to Gilts &
small denomination
bonds
Facilitating liquidity
& price discovery to
Private Investors
Listed 28 Sukuk (USD 17.7 bil)
This could increase retail-sized issuances
Listing
Main Market
PSM Market
Regulated under
MiFID
Admission without
full prospectus.
NO ANNUAL FEE CHARGED
Currently ORB market is applicable to
conventional bond but offers opportunities
to Sukuk wishing to access the retail
segment.
Source: London Stock Exchange
11
London Stock Exchange (LSE)
Islamic Exchange-Traded Funds
First ETF admitted
iShares FTSE 100
Index
Listing of ETF (‘09)
370
Trading Value (‘09)
> USD 123 billion
Total ETPs listed
~ 500
LSE contains 7 Islamic ETFs with AUM
of over USD 128 million.
Islamic Index listed on LSE
Shari’ah-compliant Stocks
Listed 4 Shari’ah-compliant securities
Listed under Alternative Investment
Market (AIM)
Updates on Islamic Finance in
United Kingdom
Islamic banking assets : $19.4 billion *
No. of full-fledged Islamic banks : 5
MSCI World Islamic
MSCI USA Islamic
MSCI Emerging Markets Islamic Indices
S&P Japan 500 Shari’ah
S&P 500 Shari’ah
No. of Islamic windows : 17
Gatehouse Bank in world-first crossborder transaction on Bursa Suq Al-Sila’
Source: International Financial Services London
* Data as of 2008
S&P Europe 350 Shari’ah
DJ Islamic Market titans Indices
12
Luxembourg Stock Exchange (Lux)
PRODUCTS & SERVICES
Sukuk Listings & Trading
Shari’ah-compliant Stocks
Islamic Securities (Sukuk)
The exchange hosted 16 Sukuk listed
worth EUR 5.1 billion (~USD5.5 billion).
Sukuk Listing &Trading
European
Regulated Market
Euro MTF Market
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.
traded on…
Universal Trading Platform (UTP)
13
Luxembourg Stock Exchange (Lux)
Facts on Islamic finance in Luxembourg
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.
Source: Luxembourg Stock Exchange, Luxembourg for finance, PWC
14
Hong Kong Exchanges & Clearing Limited (HKEx)
Hong Kong’s Islamic finance business is still at its infancy stage and the regulators
i.e. HKMA and HKSFC are looking for collaboration.
PRODUCTS & SERVICES
Sukuk Listings
Islamic Securities (Sukuk)
Currently, there are 4 Sukuk listed:
Regulators’ Active Role
HKMA and Central Bank of Malaysia
signed MOU on cooperation in
developing financial services, mainly in
Islamic finance area.
1Malaysia Sukuk Global Berhad
Cherating Capital Limited
Paka Capital Limited
Rafflesia Capital Limited
MOU signed between HKSFC, SSC of
Vietnam and SC of Malaysia to
strengthen regulatory cooperation in
Islamic finance.
15
Singapore Exchange (SGX)
PRODUCTS & SERVICES
Islamic Equity Index
The first Shari’ah-compliant pan-Asian
equity index launched (2006)
Sukuk Listings
Serves as benchmark to Islamic funds
investing in Asian equities.
Islamic Equity Index
Islamic Exchange-Traded Funds
Islamic Real Estate Investment Trust
Daiwa Islamic ETF FTSE Shari’ah Japan
100 Index (2009)
Islamic Securities (Sukuk)
As of August 2010…
Islamic REITs plans for listings
First Sukuk listed
MBB Sukuk Inc.
No. of Sukuk listed
4 Sukuk
Value
Islamic Exchange-Traded Funds
> USD 1 bil
Source: IFIS
Islamic REIT
Remarks
ARA & Regency Group
In 2010
Sabana REIT
Late 2010 /
early 2011
Source: Reuters
16
Bursa Malaysia
Islamic Capital Market Experience
_________________________________________________
17
Malaysian ICM Regulatory Framework
1st TIER
_____________
Applicable to both
Conventional & Islamic
Products
2nd
TIER
_____________
Only applicable to
Shari’ah-compliant
products
Bonds
Trust Deed, Mandatory Rating, Underwriting,
Utilisation of Proceeds,…, etc.
Funds
Investment Committee, Trustee, Deed of a Unit
Trust Fund, Investment Restriction & Limits, etc.
REIT
Constitution & Investment of REIT, Trustee,
Valuation, fees and expenses,…, etc.
Sukuk
Additional disclosure on Musharakah and
Mudharabah structure via Info Memo
Islamic
Funds
Role of Shari’ah Adviser, Islamic Fund
Management business via Islamic Window
Islamic
REIT
Rental of Real Estate by Islamic REITs, tenant’s
activities, properties ownership and Takaful usage
18
Bursa Malaysia
Bursa Malaysia’s Islamic Capital Market Products cut across all conventional
products and operates dual financial system.
Core Businesses
Shari’ah-compliant Businesses
Bond listing
(Exempt Regime)
Sukuk Listing
(Exempt Regime)
Equity
Islamic Equity
Derivatives
Islamic Markets
Stockbroking
i. Shari’ah-compliant securities
ii.
Islamic REITs
iii. Islamic ETFs
iv. Islamic Structured Products
Islamic Stockbroking
19
Bursa Malaysia i-REITs & i-ETFs Market Statistics
% Total Fees for ETF Revenue
@ 01 September 2010
% Total YTD ETF Trading
by Volume @ 01 September 2010
Syariah
18%
NonSyariah
82%
Syariah
18%
Syariah
23%
NonSyariah
77%
% Trading Fees for REITS @
1 September 2010
29%
71%
% Total YTD ETF Trading
by Value @ 01 September 2010
% Total REITS YTD Volume
@ 1 September 2010
Syariah
NonSyariah
NonSyariah
82%
20%
80%
% Total REITS YTD Trading
Value @ 1 September 2010
Syariah
NonSyariah
29%
Syariah
Non-Syariah
71%
20
Way forward for Greater Business Ties
Global Trading Pattern
Re-mutualization of exchange
Higher trading frequency
Ownership acquisition among trading
firms and market makers
Majority turnover in Europe, N.
America
Dedicated gateway access, colocation services and pricing certainty
MiFID Influence in Europe
Multilateral Trading Facility
(MTF Market)
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
21
THANK YOU
Islamic Markets
Bursa Malaysia Berhad
12th Floor, Exchange Square
Bukit Kewangan
50200 Kuala Lumpur
Tel:
Fax:
+60 3 2034 7000
+60 3 2072 4261
http://www.bursamalaysia.com
http://www.mifc.com
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.
Equity Market Share across Europe
POSIT (4.9%)
BATS (6.2%)
Nomura NX
(11%)
Liquidnet
(11.3%)
Smartpool (14.7%)
Equity Market Share Reporter
Turquoise
(24.9%)
(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
Chi-X (24.9%)
2010 (€10bn against €1.18tn) and
just 0.23% in January 2009 (€2.4bn
against €1.062tn).
Source: Thomson Reuters
23
3
Alternative Exchange Trading Platform
Turquoise Services Ltd.
An
authorized
providing:
investment
firm
1. Pan European Lit
2. Dark Equity trading
Listed around 1,700 securities from 17
countries.
London SE
acquired 51% of
shareholdings
49%
51%
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
24
Alternative Exchange Trading Platform
(1) UMEX Trader
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
(2) UMEX Liquid
Trading platform for Shari’ah-compliant Structured Investment Products.
25
Improving OIC ICM Network of Islamic Products
To facilitates greater trading and business ties
BM
Main
Markets
RETAIL
Local
Foreign
LSE Main
Markets
RETAIL
Local
Foreign
Royal Dutch
Shell plc
INSTITUTIONAL
Local
Foreign
BROKER
Shari’ah
Securities
Market
Shari’ah
Securities
Market
(Trading
Engine)
(Trading
Engine)
DMA Clients
(Institutional)
BROKER
INSTITUITIONAL
Local
Foreign
DMA Clients
(Institutional)
Clearing &
Settlement
Depository
Clearing &
Settlement
Depository
26