Bursa Malaysia launches Shariah-based framework

There is a strong domestic demand for Shariah-compliant SBL, says CEO


Bursa Malaysia Bhd launched the Islamic Securities Selling and Buying Negotiated Transaction (ISS-BNT) to provide a framework based on Shariah principles for parties to undertake transactions with similar outcomes to conventional securities borrowing and lending (SBL) transactions.

CEO Datuk Seri Tajuddin Atan (picture) said there is a strong domestic demand for Shariah-compliant SBL as 686 out of 902 companies listed on the exchange, or 76%, are Shariah-compliant.

In addition, the Shariah market capitalisation as of November 2017 makes up 61.1% of the total market capitalisation of RM1.84 trillion.

“Upon our research and market understanding, we see a strong demand to have a Shariah-compliant SBL, hence ISSBNT — the world’s first Shariah-compliant alternative to SBL transactions — is put in place.

“The framework between the two is about the same, the only difference is that ISSBNT has all Shariah principles which have already been approved by the Shariah committees of Bursa Malaysia and Security Commission Malaysia,” Tajuddin told reporters at the launch in Kuala Lumpur yesterday.

He added that SBL involves a borrowing and lending process where an interest fee is charged.

For ISSBNT, “lenders” have to sell the stocks first and “borrowers” need to buy the stocks from them. When they want to return the stocks to the original owners, the “borrowers” need to resell the stocks to the “lenders”.

Hence, Tajuddin said, no lending process and interest fee is charged for ISSBNT.

SBL has been an important market infrastructure that supports market liquidity and portfolio optimisation, and is an important contributor to well-functioning markets.

He said Bursa Malaysia’s SBL Negotiated Transaction (SBLNT) framework, which was introduced in 2009, has seen a remarkable growth from RM400 million in 2012 to RM4.7 billion in 2017.

The SBLNT framework was chosen as the preferred model to develop ISS-BNT because of its flexibility, allowing terms to be negotiated and agreed upon by parties of the transaction.

It is also widely used by the market compared to other SBL models in the market.

The key objectives of ISSBNT in the Islamic capital market (ICM) include enabling hedging and risk management strategies, increasing market liquidity and efficiency, limiting upward price manipulation, correcting overpriced stock, as well as facilitating share price discovery.

The launch of ISSBNT is also expected to advance the development of the Islamic exchange-traded funds market through improved liquidity, better facilitate hedging and risk management activities of Islamic fund and wealth managers, and reaffirm Bursa Malaysia’s position as a thought leader in the ICM sphere by being the first exchange to introduce a Shariah-compliant alternative for SBL transactions.

“For the first year alone, I hope we can achieve around 5% to 10% growth in transactions. But you must remember, when we introduce something new — especially in the exchange market — it will take a while to grow from this starting base, maybe in 12 to 24 months.

“The parties who are already looking into ISSBNT — and hopefully would use it immediately — are Lembaga Tabung Haji, as well as the Employees Provident Fund, and we will grow from that,” Tajuddin said.

Meanwhile, he added that as of Dec 11, 2017, the government issued a gazette with regard to the exemption on substantial shareholding reporting requirement from the Companies Commission of Malaysia.

Bursa Malaysia, in its part, welcomed this move — saying that it benefits the industry as a whole.