Issues on laws for Islamic instruments in capital market.

1. Issues on laws for Islamic instruments in capital market. By: Dr Asmadi Mohamed Naim

2. Introduction • The Securities Commission is a statutory body set up under The Securities Commission Act 1993 (SCA), reporting directly to the Minister of Finance. • It is sole regulatory body for the regulation and development of the capital market in Malaysia. • It is directly responsible for the regulation and supervision of the activities of the market institutions, including the stocks exchanges, clearing houses, and monitoring of licensees under the Securities Industry Act 1983 (SIA) and Future Industry Act 1993 (FIA).

3. Cont’d • The Commission, in developing the national capital market, has identified the development of the Islamic capital markets as one of its main agenda. • This was extended into the Capital Market Masterplan of Malaysia launched on 22 February 2001. • One of the main objectives set up by this plan is to establish Malaysia as an international Islamic capital market centre.

4. General overview • The Islamic Capital Market (ICM) refers to the market where the activities are carried out in ways that do not conflict with the conscience of Muslims and the religion of Islam. • In other words, the ICM represents an assertion of religious law in the capital market transactions where the market should be free from the involvement of prohibited activities by Islam as well as free from the elements such as usury (riba), gambling (maisir) and ambiguity (gharar).

5. Cont’d • The ICM today is one of the components in the overall capital market in Malaysia. • It plays similar important role as other capital market components in generating the economic growth of the country. • The ICM has functioned as a parallel market to the conventional capital market for capital seekers and providers, and has played a complementary role to the Islamic banking system in broadening and deepening the Islamic financial markets in Malaysia.

6. Cont’d • As the market becomes more complex and sophisticated, it must possess adequate infrastructure to enable the system to operate and function more efficiently and effectively. • The Commission's early initiative towards establishing infrastructure support is reflected in the setting up of a dedicated Islamic Capital Market Unit (ICMU) within its Market Policy and Development Division in 1993. • The mandate of ICMU is to carry out research and development activities including formulating and facilitating a long-term plan to further strengthen the ICM in Malaysia.

7. Cont’d • To advice the Commission on Syariah matters pertaining to the ICM, the Syariah Advisory Council (SAC) was established in May 1996. • Members of the SAC comprise of individuals who are in a position to present Syariah opinions and those who have vast experience in the application of Syariah, particularly in the areas of Islamic economics and finance.

8. Guidelines on the offering of Islamic Securities • Guidelines 2000 • Guidelines 2004 The difference between two guideline is the first defines the Islamic instrument as a debt instrument while the later gives broad definition of Islamic securities including sukuk al-mudarabah/ musyarakah.

9. Guidelines on the offering of Islamic Securities 2004 • This guideline consists 14 parts as follows: • Introduction • Submission of proposal under these guidelines • Offering of Islamic securities under a shelf registration scheme • Documents/information required • Eligible persons • Appointment of Syariah Adviser • Other regulatory approvals • Rating requirement

10. Cont’d 9. Underwriting 10. Mode of issue 11. Utilisation of proceeds. 12. Additional requirement for Islamic securities programmes 13. Disclose requirements to investors relating to Islamic Securities under principles of profit sharing (mudharabah)/ profit and loss sharing (Musyarakah). 14. Time frame for approval from the SC