c ontents 8BURSA SUQ AL-SILA 10 SHARI AH COMPLIANT LISTED EQUITIES 2 THE MALAYSIA INTERNATIONAL ISLAMIC FINANCIAL CENTRE (MIFC) INITIATIVE 4 BURSA MALAYSIA 6 ISLAMIC MARKETS 12 SUKUK 14 ISLAMIC REAL ESTATE INVESTMENT TRUSTS (ireits) 16 SHARI AH COMPLIANT EXCHANGE TRADED FUNDS (ietfs)
2 THE MALAYSIA INTERNATIONAL ISLAMIC FINANCIAL CENTRE (MIFC) INITIATIVE MIFC encapsulates Malaysia s more than 30 years of Islamic finance expertise and experience, and has the world s most comprehensive Islamic financial system In August 2006, the Malaysia International Islamic Financial Centre (MIFC) initiative was launched to promote Malaysia as the international hub of Islamic finance, and to strengthen the country s role as an intellectual epicentre for Islamic finance. The MIFC initiative comprises a community network of financial and market regulatory bodies, Government Ministries and Agencies, financial institutions, human capital development institutions and professional services companies that are participants in Islamic finance activities. MIFC encapsulates Malaysia s more than 30 years of Islamic finance expertise and experience, and has the world s most comprehensive Islamic financial system which includes Islamic Banking, Islamic Capital Market, Takaful and Retakaful, and Islamic Interbank Money Market. The vibrancy and dynamism of Malaysia s Islamic financial system is reflected in its continual product innovation, ready pool of talent, diversity of financial institutions from around the world which is supported by a world-class legal and regulatory framework that is underscored by global Shari ah best practices. Therefore, Malaysia is well positioned as the Islamic finance hub for the following focus areas: Sukuk Origination Islamic Fund and Wealth Management International Islamic Banking International Takaful Human Capital Development Under the MIFC initiative, Malaysia welcomes global talents, leading players, investors and issuers to leverage on the comprehensive system and conducive environment to shape the future of Islamic finance together in this new financial evolution. Islamic finance meets in Malaysia.
4 BURSA MALAYSIA: OVERVIEW Bursa Malaysia offers a fair and orderly market that is easily accessible with diverse and innovative products and services Bursa Malaysia today is one of the largest bourses in Asia with about 1,000 listed companies offering a range of investment choices. Companies are either listed on Bursa Malaysia Securities Berhad s Main Market or ACE Market. Our vision is to be the preferred partner in Asia for fund-raising, trading and investment. Bursa Malaysia is an exchange holding company approved under Section 15 of the Malaysian Capital Markets and Services Act 2007. It operates a fully-integrated exchange, offering the complete range of exchange-related services including trading, clearing, settlement and depository services. Bursa Malaysia was listed on the Main Board of Bursa Malaysia Securities Berhad on 18 March 2005. The principal activities of Bursa Malaysia are: The provision, operation and maintenance of a securities exchange, futures and options exchange Registered electronic facility for secondary bond market Clearing house for the securities exchange and the futures and options exchange Central depository Disseminate prices and other information relating to securities quoted on exchanges within the group and nominee services for the central depository safe-custody Bursa Malaysia Islamic Services Sdn Bhd (BMIS) operates and maintains a Shari ah compliant spot commodity exchange. In assisting the development of the Malaysian capital market and enhancing global competitiveness, Bursa Malaysia is committed to maintaining an efficient, secure and active trading market for local and global investors. As the preferred partner, Bursa Malaysia offers a fair and orderly market that is easily accessible with diverse and innovative products and services.
6 To further enhance our product offerings to investors and in response to The Malaysia International Islamic Financial Centre (MIFC) initiative, Bursa Malaysia has established an Islamic Markets division dedicated to the development of Shari ah compliant capital markets products and trading platforms. Bursa Malaysia s Islamic Markets offer a wide range of Shari ah compliant products and services. Bursa Malaysia s Islamic Markets offer a wide range of Shari ah compliant products and services Our established Islamic products and services are: Bursa Suq Al-Sila' A Shari ah compliant commodity trading platform to facilitate Islamic financing and investment. Shari ah Compliant Listed Equities Listed equities screened by the Shari ah Advisory Council (SAC) of the Securities Commission of Malaysia (SC) based on a set of criteria determined by the SAC. Sukuk Islamic Securities or Sukuk, denominated in both Malaysian Ringgit and foreign currencies issued by local and international listed and non-listed entities, can seek for listing on Bursa Malaysia. Islamic Real Estate Investment Trusts (ireits) Collective investment schemes in real estate in which the tenant(s) operates permissible activities according to Shari ah principles. Shari ah Compliant Exchange Traded Funds (ietfs) Funds traded on Bursa Malaysia which track indices based on stocks that have been classified as Shari ah compliant listed equities.
8 Structured in line with internationally accepted Shari ah standards A Shari ah compliant spot commodity trading platform to facilitate Islamic finance Housed in and operated by Bursa Malaysia s wholly-owned Shari ah compliant subsidiary Bursa Malaysia Islamic Services Sdn Bhd (BMIS) Designed as a multi-currency and multi-commodity platform Fully electronic web-based trading capable with multiple security features; accessible worldwide Structured in line with internationally accepted Shari ah standards Participants include namely Islamic financial institutions, conventional financial institutions offering Islamic financial services and commodity suppliers The principle behind the development of Bursa Suq Al-Sila is to provide an efficient end-to-end Shari ah compliant platform for commodity trading for financial institutions using the various Shari ah contracts of Murabahah (sale and purchase of goods whereby the price, other costs and profit margin must be clearly stated at the time of the sale agreement and agreed by both parties), and Tawarruq (a sale of an asset to a purchaser based on deferred payment who thereon sells the asset to a third party on cash at a price less than the deferred price). Developed to accommodate Islamic financial structures like financing, deposit and Sukuk issuances and to facilitate liquidity management for Islamic Financial Institutions. It replicates a physical market where commodity or goods supplied are deliverable. AWARD-WINNING INNOVATION Bursa Suq Al-Sila has received multiple recognitions since its inception in 2009. These recognitions highlight BSAS commitment to improve their services continuously to serve the needs of Islamic Financial Institutions. Most Outstanding Islamic Finance Product by Kuala Lumpur Islamic Finance Forum Islamic Finance Awards 2009. Market Innovation by The Asset Triple A Awards 2010. Islamic Innovation Award 2010 by Ministry of Science, Technology and Innovation for being the first Shari ah compliant trading platform to facilitate Islamic financing worldwide.
10 SHARI AH COMPLIANT LISTED EQUITIES All listed equities undergo screening by the SAC upon being publicly quoted As at 31st December 2010, 88% of the securities listed on Bursa Malaysia are Shari ah compliant and representing around two-thirds of Malaysia s market capitalisation. All listed equities undergo screening by the SAC upon being publicly quoted. The SAC continuously monitors the activities of all companies listed on Bursa Malaysia to determine their status from a Shari ah perspective. Companies may also request for a pre-ipo screening by the SAC to determine whether their securities are Shari ah compliant. The SAC applies a standard criterion in focusing on the activities of the companies listed on Bursa Malaysia. Companies involved in the following core activities are classified as Shari ah non-compliant: Financial services based on riba (interest) Gambling and gaming Manufacture or sale of non-halal products or related products Conventional insurance Entertainment activities that are non-permissible according to Shari ah Manufacture or sale of tobacco-based products or related products Stockbroking or share trading in Shari ah non-compliant securities Other activities deemed non-permissible according to Shari ah The SAC also takes into account the level of contribution of interest income received by the company from conventional fixed deposits or other interest bearing financial instruments. In addition, dividends received from investment in Shari ah non-compliant securities are also considered in the analysis carried out by the SAC. For companies with both permissible and non-permissible activities, the SAC will determine the tolerable level of mixed contributions from these activities towards the company s turnover and profit before tax based on certain benchmarks set by the SAC. Bursa Malaysia operates a multi-currency securities framework that supports the listing, trading, clearing and settlement of securities in non-malaysian Ringgit which facilitates primary non-malaysian Ringgit listings or cross-listings from other stock exchanges.
12 The new rules for the listing of Islamic Securities or Sukuk denominated in Malaysian Ringgit and foreign currencies issued by local and international listed and non-listed entities on Bursa Malaysia include, but are not limited to: Commercial Papers Medium-Term Notes Asset-Backed Securities Other types of Islamic securities whether convertible into equity or not, and whether redeemable or otherwise SUKUK Islamic Negotiable Instrument which comprises Islamic Negotiable Instrument of Deposit and Negotiable Islamic Debt Certificate The listing of Sukuk will enhance transparency for investors and offers valuable profiling opportunities for issuers of the Sukuk. Malaysia, home to the world's largest Sukuk market, provides a facilitative framework and approval process for Sukuk issuance Malaysia, home to the world's largest Sukuk market, provides a facilitative framework and approval process for Sukuk issuance both for local and international issuers. In addition to issuing Ringgit Sukuk, the current issuance framework allows for issuers to issue a non-ringgit Sukuk in Malaysia. Governing laws of Malaysia, England or United States may be used for bond documentation for both Malaysian Ringgit and non-malaysian Ringgit denominated Sukuk. In addition, both resident and non-resident issuers are free to utilise proceeds from the issuance onshore and offshore. Malaysia's facilitative environment encompasses a sound infrastructure platform, consisting of the Electronic Trading Platform (ETP) and the Real-time Electronic Transfer of Funds and Securities (RENTAS) system. These systems allow for an efficient platform for the trading of Sukuk, with a high level of post-trade transparency and market liquidity. Malaysia has an active secondary market which enables greater trading activity and attracts more investors, including foreign-owned corporations, who are continuously tapping the market for funding. Tax neutrality has been accorded to Islamic finance instruments and transactions executed to fulfil Shari ah requirements. Malaysia s tax neutrality framework is to promote a level playing field between conventional and Islamic financial products.
14 ISLAMIC REAL ESTATE INVESTMENT TRUSTS (ireits) The thrust of the Islamic REITs guidelines is to provide new investment opportunities for those who wish to invest in real estate through Shari ah compliant capital market instruments The Securities Commission of Malaysia released the guidelines for Islamic Real Estate Trusts (Islamic REITs Guidelines) in November 2005, making the country the first jurisdiction to introduce such guidelines in the global Islamic finance sector and setting a global benchmark for the development of Islamic Real Estate Investment Trusts (Islamic REITs). The thrust of the Islamic REITs guidelines is to provide new investment opportunities for those who wish to invest in real estate through Shari ah compliant capital market instruments. The guidelines facilitate the creation of a new asset class for investors and allow fund managers to further diversify their investment sources and portfolios. Shari ah compliance criteria are provided in the guidelines to guide management companies in their activities relating to Islamic REITs, including the types of Shari ah permissible and non-permissible rental and investment activities of such a fund. The Islamic REITs guidelines require market players to appoint a Shari ah committee/ adviser to review, monitor and approve investments by Islamic REITs. The main criteria covered include rental of real estate for business purposes, investment, deposit and financing, Takaful schemes and forward sales or purchases of currency for risk management. Rental of real estate is permissible, except where the property is used for non-permissible activities such as financial services based on riba (interest), gambling/gaming, conventional insurance, entertainment activities that are forbidden by Shari ah law, manufacturing or sale of tobacco-based products or related products, stockbroking or share trading in non-shari ah compliant securities, and hotels and resorts.
16 SHARI AH COMPLIANT EXCHANGE TRADED FUNDS (ietfs) ietfs are designed to be a liquid, low cost financial instrument for investors ietfs are funds traded on Bursa Malaysia that track indices based on stocks which have been classified as Shari ah compliant listed equities. Shari ah compliant stocks are those that have been screened and determined by the Shari ah Advisory Council (SAC) of the Securities Commission of Malaysia (SC). Excluded are companies that represent lines of business comprising alcohol, tobacco, pork-related products, conventional financial services, defence/weapons, entertainment and any other activities deemed non-permissible by the Shari ah. ietfs are open-ended funds with a redemption mechanism supported by a system of participating dealers and liquidity providers. ietfs are designed to be a liquid, low cost financial instrument for investors seeking a performance generally similar to the benchmark index.