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The Role of Exchanges in Facilitating Islamic Liquidity Management Price Transparency

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					        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. 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.

				
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Description: The Role of Exchanges in Facilitating Islamic Liquidity Management Price Transparency