Islamic Capital Market Quiz

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Questions and Answers

What is the primary purpose of the 5 percent benchmark?

To evaluate the acceptable rights of non-Muslim communities.

To access mixed contributions from clearly prohibited activities. (correct)

To measure the level of completely permissible activities.

To assess activities involving umum balwa.

Which of the following would be evaluated under the 10 percent benchmark?

Interest income from conventional current accounts. (correct)

Revenue from zakat collections.

Income generated from the sale of halal products.

Rental payments from mosques.

What types of activities fall under the 20 percent benchmark?

Investments in shariah-compliant funds.

Profits from community development projects.

Revenue from traditional Islamic banking services.

Contribution from mixed rental payments of non-compliant businesses. (correct)

Which benchmark is concerned with activities that may have a benefit to the public as per Shariah?

25 percent benchmark. Signup and view all the answers

Which of the following activities is an example of a clearly prohibited activity?

Operations of conventional banks. Signup and view all the answers

What role does Bursa Malaysia play in the context of Islamic securities?

Offering competitive and innovative products with market structure Signup and view all the answers

What initiative has Bursa Malaysia taken to promote potential growth in the Islamic Capital Market (ICM)?

Developing infrastructure for Shariah compliant transactions Signup and view all the answers

What is the purpose of the Shariah Index established by Bursa Malaysia?

To provide a weighted average of Shariah compliant securities Signup and view all the answers

What regulatory role does the Securities Commission (SC) hold?

Issuing rules and regulations for securities issuance Signup and view all the answers

How is the Securities Commission (SC) funded?

It is self-funding Signup and view all the answers

What is one of the functions of the Financial Market Trading Platform (FTMP) developed by Bursa Malaysia?

Order matching and trades reporting Signup and view all the answers

What is a primary goal of the Securities Industry Development Centre (SIDC) established by the SC?

Promoting research and training in securities and futures market Signup and view all the answers

What is a specific risk management practice implemented by Bursa Malaysia?

Implementing a voluntary guideline for stock broking services Signup and view all the answers

What is the main role of the Securities Commission of Malaysia?

To regulate securities laws in the country Signup and view all the answers

Which act empowers Bank Negara Malaysia to regulate financial institutions?

Central Bank of Malaysia Act 2009 Signup and view all the answers

What type of services does Bursa Malaysia provide?

Treasury management and exchange-related services Signup and view all the answers

Which entity is NOT mentioned as a supporter of the Islamic Capital Market in Malaysia?

Federal Reserve Signup and view all the answers

Which act is specifically related to promoting Islamic banking in Malaysia?

Islamic Financial Service Act 2013 Signup and view all the answers

What is the primary function of Bursa Malaysia as a stock exchange?

To provide access to capital for companies and investment opportunities for investors Signup and view all the answers

The Securities Commission of Malaysia collaborates with which of the following for regulatory purposes?

Bursa Malaysia and Bank Negara Malaysia Signup and view all the answers

Which of the following describes the type of market Bursa Malaysia facilitates?

An integrated exchange for securities trading Signup and view all the answers

What initiative is integral to the Securities Commission's agenda for overall capital market development?

Islamic Capital Market (ICM) Signup and view all the answers

What is one of the primary roles of the Shariah Advisory Council of the Securities Commission?

To standardize Shariah rulings Signup and view all the answers

What is the frequency of the Shariah Advisory Council's review of compliant securities?

Biannual Signup and view all the answers

Which aspect does the Securities Commission prioritize for enhancing corporate governance?

Transparency and accountability Signup and view all the answers

Which of the following is NOT a responsibility of the Shariah Advisory Council?

Conducting audits of conventional banks Signup and view all the answers

What is considered a criteria for examining companies by the Shariah Advisory Council?

Public perception or image Signup and view all the answers

What is the significance of ensuring instruments comply with Shariah principles?

It facilitates the growth of the Islamic capital market. Signup and view all the answers

What is NOT a focus of the Shariah Advisory Council's approach to financial instruments?

Evaluating the marketing strategies of financial products Signup and view all the answers

Study Notes

Malaysian Capital Market

The main driver of rapid growth in the Malaysian capital market (ICM) is consistent governmental support via Securities Commissions, Bank Negara Malaysia, and Bursa Malaysia.
These institutions play a crucial role in promoting the ICM and providing the necessary infrastructure to facilitate financial players.

Regulators

The Central Bank of Malaysia Act (CBA 2009) empowers the Central Bank to regulate institutions like banks, investment banks, and money brokers.
Bank Negara Malaysia (BNM) has implemented various legislations to promote Islamic banking and finance.
- Islamic Financial Service Act 2013 (IFSA 2013)
- Offshore Companies Act 1990
- Labuan Offshore Securities Industry Act 1998

Regulatory Authorities

The Securities Commission of Malaysia (SC) is the primary regulator for securities laws.
Bursa Malaysia Securities Berhad (Bursa Securities) is responsible for regulating listed companies and other stakeholders, functioning as the approved stock exchange.

Bursa Malaysia

Bursa Malaysia is a holding company overseeing the Capital Market under the Capital Market and Services Act 2007.
Main activities include treasury management and administrative services to subsidiaries.
The exchange provides a full range of services like trading, clearing, settlement, and depository services.
Bursa Malaysia empowers companies with access to capital and opportunities for investors to gain from company performance.
Bursa Malaysia aims to become a platform for Islamic securities trading, providing competitive and innovative products in a sophisticated market structure.
The company explores potential growth for the ICM, developing infrastructure to enable CPOs in Islamic banking transactions.
Bursa provides more Shariah-compliant Islamic funds to meet demands from local and foreign investors.
Bursa also establishes Shariah index, comprising securities from the Main Board approved by the SAC.
Bursa Malaysia fulfills regulatory and risk management duties, adhering to Shariah requirements for stock broking.
The company develops and maintains financial market trading platform (FTMP) functions, encompassing order matching, trade negotiation, and market surveillance.

Securities Commission (SC)

Established on March 1st, 1993, under the Securities Commissions Act 1993.
A self-funding statutory body holding investigative and enforcement capabilities.
Reports to the Ministry of Finance and its accounts are reviewed annually by Parliament.

Roles of Securities Commission (SC)

Regulatory Roles: Issues rules & regulations for securities issuance, Islamic securities offerings, and penalties/fines.
Developmental Roles: Facilitates development in securities and futures markets through the Security Industry Development Centre(SIDC).
Planning Roles: Initiates various measures with different institutions and market players leading to the development of a Capital Market Master Plan.
Foundational roles: Develops the core foundation of the ICM (Islamic Capital Markets).
Corporate Governance Enhancement: Priority areas crucial to creating transparent, accountable, and high-performing corporate bodies.

Shariah Advisory Council (SAC)

Established May 16, 1996, mandated to ensure the ICM complies with Shariah principles.
Conducts a twice-yearly review of Shariah-compliant securities, updating lists in May and November.
Advises the commission on Islamic capital market development and serves as a reference for Islamic capital market issues.
- Promotes standardization of Shariah rulings and ensuring compliance with Shariah perspectives for ICM products and services.
- Aims to promote harmonization and convergence of Shariah opinions in ICM transactions.

SAC Approach

Validity Study: Reviews conventional instruments for Shariah compliance, focusing on transaction structure and mechanism.
Innovation: Creates new financial instruments based on Shariah principles.

Shariah Criteria for Listed Securities

The SAC closely examines companies with mixed Shariah-compliant/non-compliant activities.
Established criteria that considers the companies’ image, core activities, and their positive contributions.
Maslahah (benefit) to Muslims and the country, and avoidance of ummum balwa (plight), uruf (custom) of the country's population, and non-Muslim rights.

Benchmarking

5% benchmark: assesses mixed activities (ex: interest-based companies, gambling, alcohol, pork trading).
10% benchmark: assesses activities involving umum balwa (e.g., interest income from conventional accounts).
20% benchmark: assesses mixed rental payments from non-compliant premises.
25% benchmark: assesses activities that are usually acceptable under Shariah but may influence Shariah status (e.g., operations in hotels, resorts, and stockbrokerage).

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Description

Test your knowledge on the benchmarks and regulations of the Islamic Capital Market in Malaysia. This quiz covers important aspects such as the role of Bursa Malaysia, Shariah compliance, and the functions of regulatory bodies like the Securities Commission. Challenge yourself and see how well you understand this specialized financial domain.