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OIC Members’ State Stock Exchanges Forum

OIC Members’ State Stock Exchanges Forum. Opportunities in the Islamic Capital Markets Segment _________________________________________________ Raja Teh Maimunah Global Head, Islamic Markets. Contents of Presentation. Shari’ah-compliant products & services

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OIC Members’ State Stock Exchanges Forum

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

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

  3. Shari’ah-Compliant Products & Services Sukuk market Equity market 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 Asset-backed securities Asset-based securities Equity-based securities Sukuk listing Shari’ah-compliant stocks Islamic unit trusts Islamic REITs Islamic ETFs Islamic Structured Product Stockbroking Dual Currency Structured Investment Equity-linked Structured Investment Shari’ah-compliant trading Shari’ah-compliant margin financing

  4. Sukuk Listing Why listing? Wider source of funding through visibility USD 3.20 bil USD 16.2 bil USD 14.6 bil USD 21.9 bil Reduces cost of capital Opportunities for business venture through product identification In depth liquidity through secondary market trading Bursa Malaysia Sukuk listings @ August 2010 Better corporate governance Higher standards of regulatory framework

  5. Shari’ah-compliant Securities As of 31 May ’10… 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. The world’s first jurisdiction allowing companies to request for a pre-IPO screening by the SAC. Periodic review and monitoring by SAC on the Shari’ah-compliant status to facilitate investors’ decision making. 88% or 847 Shari’ah-compliant companies 64% or USD 206.93 billion of market capitalization 12% Notable Shari’ah-compliant Securities Listings : Shari’ah-compliant companies Non Shari’ah-compliant companies

  6. Islamic Exchange Traded Funds (i-ETFs) ETFs Trading Value 2008 – 2009 in selected Asia Pacific Exchanges 2008 2009 2009 No. of ETF listed : 2008 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

  7. 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. Possible Advantages Potential for REITs in Asia • 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 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. Efficient hedge against inflation Risk diversification

  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)

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

  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 London SE Channel Islands SE Vienna SE Irish SE Luxembourg SE Cayman Islands SE Bahrain SE Hong Kong SE Nasdaq Dubai Bursa Malaysia Saudi SE Singapore SE Indonesia SE

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

  12. London Stock Exchange (LSE) Islamic Exchange-Traded Funds Shari’ah-compliant Stocks Listed 4 Shari’ah-compliant securities Listed under Alternative Investment Market (AIM) Updates on Islamic Finance in United Kingdom LSE contains 7 Islamic ETFs with AUM of over USD 128 million. 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

  13. Luxembourg Stock Exchange (Lux) PRODUCTS & SERVICES Sukuk Listings & Trading Shari’ah-compliant Securities Shari’ah-compliant Stocks 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. 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 traded on… Universal Trading Platform (UTP)

  14. 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

  15. 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. Regulators’ Active Role PRODUCTS & SERVICES Sukuk Listings HKMA and Central Bank of Malaysia signed MOU on cooperation in developing financial services, mainly in Islamic finance area. Islamic Securities (Sukuk) Currently, there are 4 Sukuk listed: 1Malaysia Sukuk Global Berhad Cherating Capital Limited MOU signed between HKSFC, SSC of Vietnam and SC of Malaysia to strengthen regulatory cooperation in Islamic finance. Paka Capital Limited Rafflesia Capital Limited

  16. Singapore Exchange (SGX) Islamic Equity Index PRODUCTS & SERVICES 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 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 Source: IFIS Source: Reuters

  17. Bursa Malaysia Islamic Capital Market Experience _________________________________________________

  18. Malaysian ICM Regulatory Framework Trust Deed, Mandatory Rating, Underwriting, Utilisation of Proceeds,…, etc. Bonds 1st TIER _____________ Applicable to both Conventional & Islamic Products 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 2nd TIER _____________ Only applicable to Shari’ah-compliant products 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

  19. 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 • Shari’ah-compliant securities • Islamic REITs • Islamic ETFs • Islamic Structured Products Islamic Markets Stockbroking Islamic Stockbroking

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

  21. 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 MiFID Influence in Europe Dedicated gateway access, co-location services and pricing certainty 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. Improve entrepreneurial environment Good for unstable Exchanges to… Access to small and medium-sized companies through shares, bonds and rights

  22. THANK YOU Islamic Markets Bursa Malaysia Berhad 12th Floor, Exchange Square Bukit Kewangan 50200 Kuala Lumpur Tel: +60 3 2034 7000 Fax: +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.

  23. Equity Market Share across Europe POSIT (4.9%) Equity Market Share Reporter Turquoise (24.9%) BATS (6.2%) • 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. • 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). Nomura NX (11%) Liquidnet (11.3%) Chi-X (24.9%) Smartpool (14.7%) Source: Thomson Reuters

  24. Alternative Exchange Trading Platform Turquoise Services Ltd. • An authorized investment firm providing: • Pan European Lit • Dark Equity trading London SE acquired 51% of shareholdings Turquoise contributed US$ 0.44 million revenue to LSE Listed around 1,700 securities from 17 countries. • 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. Alternative Exchange Trading Platform (1) UMEX Trader (2) UMEX Liquid Trading platform for Shari’ah-compliant Structured Investment Products.

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

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