OIC Members’ StateStock Exchanges Forum
Opportunities in the Islamic Capital Markets Segment_________________________________________________
Raja Teh MaimunahGlobal Head, Islamic Markets
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
Sukuk market Equity market
StockbrokingIslamic Structured Product
i. Shari’ah-compliant stocks
ii. Islamic unit trustsiii. Islamic REITsiv. 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
Sukuk Listing
Luxembourg SE Nasdaq Dubai London SE Bursa Malaysia
5
1628 16
10
52
Total Sukuk Listed on Selected Exchanges (source: IFIS & S.E)
O/S Listed Redeemed/Defaulted/Announced
No. of Sukuk / Issuers 16 / 14 issuers% of Total Listings 72.4 %Programme value listed USD 21.9 billionGlobal Ranking 1
Bursa Malaysia Sukuk listings @ August 2010
USD 21.9 bil USD 16.2 bil USD 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
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
Islamic Exchange Traded Funds (i-ETFs)
Austra
lian
Malays
ia
Hong K
ong
Indon
esia
Korea
India
Shang
hai
Singap
ore
Thaila
ndTok
yo0.0
10,000.0
20,000.0
30,000.0
40,000.0
50,000.0
60,000.0
70,000.0
80,000.0
90,000.0
0
20
40
60
80
100
120
140
20092008No. of ETF listed :
ETFs Trading Value 2008 – 2009in selected Asia Pacific Exchanges
20092008
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
Islamic Real Estate Investment Trusts (i-REITs)
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%
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 Advantages Potential for REITs in Asia
REITs in MalaysiaBursa listed 14 REITs (3 i-REITs)Market Cap (Aug ‘10): RM 9.6 billion.i-REITs covers 21.2% of total
Malaysian REITs.
8
New Product – Commodity MurabahahWhat 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 AdvantageInitiative 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
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
33
10
Islamic Finance on the global stageIslamic 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 SESingapore SE
Hong Kong SE
London SE
Luxembourg SE
Nasdaq DubaiBahrain SE
Saudi SE
Irish SE
Cayman Islands SE
Channel Islands SE Vienna SE
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 Market PSM Market
Regulated under MiFID
Admission without full prospectus.
NO ANNUAL FEE CHARGED
12
London Stock Exchange (LSE)Islamic Exchange-Traded Funds Shari’ah-compliant Stocks
Islamic Index listed on LSEMSCI 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
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 SecuritiesDeveloped / 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
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
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
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 FundsIslamic Real Estate Investment Trust
Islamic REITs plans for listings
Islamic REIT RemarksARA & Regency Group In 2010
Sabana REIT Late 2010 / early 2011
Source: Reuters
First Sukuk listed MBB Sukuk Inc.
No. of Sukuk listed 4 Sukuk
Value > USD 1 bil
Daiwa Islamic ETF FTSE Shari’ah Japan 100 Index (2009)
Source: IFIS
17
Bursa Malaysia Islamic Capital Market Experience_________________________________________________
18
Malaysian ICM Regulatory Framework
1st TIER_____________
Applicable to both Conventional & Islamic
Products
2nd 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
Bursa Malaysia
Core Businesses Shari’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 securitiesii. Islamic REITsiii. Islamic ETFsiv. Islamic Structured Products
Islamic StockbrokingStockbroking
20
20%
80%
% Total REITS YTD Vol-ume @ 1 September 2010
SyariahNon-Syariah
29%
71%
% Total REITS YTD Trad-ing Value @ 1 September
2010
SyariahNon-Syariah
29%
71%
% Trading Fees for REITS @1 September 2010
SyariahNon-Syariah
Syariah18%
Non-Syariah82%
% Total Fees for ETF Revenue @ 01 September 2010
Syariah23%
Non-Syariah77%
% Total YTD ETF Trading by Volume @ 01 September 2010
Syariah18%
Non-Syariah82%
% Total YTD ETF Trading by Value @ 01 September 2010
Bursa Malaysia i-REITs & i-ETFs Market Statistics
21
Way forward for Greater Business Ties
Re-mutualization of exchange Higher 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 operatorFacilitates 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
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.
http://www.bursamalaysia.comhttp://www.mifc.com
THANK YOUIslamic Markets
Bursa Malaysia Berhad12th Floor, Exchange Square
Bukit Kewangan50200 Kuala Lumpur
Tel: +60 3 2034 7000 Fax: +60 3 2072 4261
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
Alternative Exchange Trading Platform
Turquoise Services Ltd.An authorized investment firm providing:1. Pan European Lit2. Dark Equity trading
Listed around 1,700 securities from 17 countries.
51%49%
London SE acquired 51% of shareholdingsTurquoise 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
3
25
Alternative Exchange Trading Platform
(1) UMEX Trader
(2) UMEX LiquidTrading 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
Improving OIC ICM Network of Islamic ProductsTo facilitates greater trading and business ties
BROKER
RETAILLocal
Foreign
INSTITUITIONALLocal
Foreign
DMA Clients (Institutional)
BMMain
Markets
Shari’ahSecurities
Market (Trading Engine)
Shari’ah Securities
Market(Trading Engine)
Clearing & Settlement Depository
Clearing & Settlement Depository
LSE Main Markets
BROKER
RETAILLocal
Foreign
INSTITUTIONALLocal
Foreign
DMA Clients (Institutional)
Royal Dutch Shell plc
