Seminar on Islamic Capital Market The Role of Exchanges in Facilitating Islamic Liquidity Management Raja Teh Maimunah Global Head, Islamic Markets Challenges in Islamic Liquidity Management (ILM) Limited Instruments / Tools Access to those Instruments / Tools Profile Mismatch Pricing Difficulties Absence of Global Benchmark Issues Limited IFI Counterparties Lack of standard documents 2 Available Tools For ILM Commodity Murabahah Sudan Malaysia Sukuk Central Bank Commodity Murabahah Central Bank Notes Musharakah Certificates Interbank Mudharabah Government Certificates Gov. Musharakah Investment Certificates Islamic Accepted Bills Wakalah Placement Gov. Investment Negotiable Islamic Debt Certificates Certificates Iran Central Bank (or Gov.) Gov. Investment Issues Central Participation Ijarah Certificates Papers Islamic Treasury Bills Bahrain Bank Negara Negotiable Government Participation Papers Commodity Murabahah Notes Central Bank Wadi’ah Bank Negara Sukuk Al- Saudi Arabia Ijarah Certificates Commodity Murabahah Central Bank (or Gov.) Islamic REPO (SBBA) Compensating Mutual Ijarah Certificates Central Bank Wadi’ah Balances Sukuk Al-Salam Certificates 3 Role of Stock Exchange Enhance accessibility of Islamic Products to market players Promote organized trades vs Bilateral arrangements Enhance risk management processes by mitigating risks arising from bilateral arrangements Presenting players with an established counterparty Promoting standardization in trade execution and settlement Enabling Shariah regulatory oversight Promote product integrity Facilitate price transparency Enhance liquidity through active secondary market 4 Exchange Traded Products for ILM Commodity Sukuk Equities Murabahah Electronic market / Faster / High Volume Organised market Structured Depository and Settlement Price transparency Wide participant base Mitigated Counterparty Risks Regular Shariah Audit / Screening 5 Commodity Murabahah (CM) What is it? The purchase of goods from one party and sold to another at an agreed profit on a deferment payment basis. Typically those goods with thereafter will be onward sold to a third party for cash tawarruq Trading mechanisms Exchange-Traded Over the counter Between members Via Agent or Brokers Commodity is suitable if… 1. Non perishable Usage of Commodity Murabahah 2. Freely available 3. It is uniquely identifiable Deposit / Placement Financing 4. Commodities used as means of exchange e.g. gold, silver etc. are not acceptable 6 Commodity Murabahah (CM) (BASED ON BILATERL ARRANGEMENT) Islamic Bank Broker A A Commodity Market / Commodity Supplier Islamic Bank Broker B B Diagram Structure (Interbank placement using CM) 1. Islamic Bank A purchases commodity from Commodity Broker A on spot basis. 2. Islamic Bank A sells the commodity to the Islamic Bank B on deferred payment basis at cost price plus profit margin. 3. Islamic Bank B sells the commodity to Commodity Broker B for cash. 7 Bursa Suq Al-Sila’ Transactional flow Islamic Bank A Commodity Supplier Commodity Islamic Bank B Purchaser / Trading & Clearing Engine Buyer Commodity Payment (spot) Example : Islamic Bank A is financing Payment (deferred) Islamic Bank B 1. Islamic bank A buys commodity from 3. Islamic Bank B sells the commodity to Bursa commodity market on spot. Malaysia Islamic Services (BMIS), and then 2. Islamic bank A sells commodity to Islamic BMIS sells it back to the market. Bank B on deferred basis (debt created). 8 Sukuk Trading Platform Benchmark Sukuk Issue Case Study : 1Malaysia Sukuk Global Berhad (Details and Structures) Items Description Items Description Obligor Government of Malaysia 1. LFX Listing 2. Bursa Malaysia Issuer (SPV) 1Malaysia Sukuk Global Berhad 3. HKEx Trustee 1Malaysia Sukuk Global Berhad 1. HSBC Amanah Issue Date 04 June 2010 Lead Arrangers 2. CIMB Islamic Bank 3. Barclays Capital Maturity Date 04 June 2015 A- (Standard & Poor’s) Issued Rating USD 1.25 billion A3 (Moody’s) Amount Periodic Distribution Semi-annual Shari’ah Al-Ijarah (Lease & Buy Back) Profit Rate 3.93% fixed rate coupon principle Sale of Assets Certificates Purchase Price Proceeds ISSUER: Lease of Assets Periodic 1Malaysia Distribution INVESTOR: Rental Sukuk Global Sukuk Holders Berhad Redemption Sale of assets Government upon dissolution Certificates 10 Exercise Price Amt. redeemed 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. 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