Islamic Capital Market Quiz

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).

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.