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Chapter 2 Capital Market (SYARIAH ADVISORY COUNCIL OF SECURITIES…
Chapter 2
Capital Market
(SYARIAH ADVISORY COUNCIL OF SECURITIES COMMISSION OF MALAYSIA)
Islamic Capital Market Department
Responsibilities
Conducting research and developing Islamic capital market products in equity, debt, and derivative sectors
Analyzing the securities of listed companies
it employs full time officers with shariah education background, especially in the disciplines of fiqh muamalat and modern finance.
Background
The Commission established the IISG in 1994 with a membership comprising Shariah consultants and corporate figures
The group discussed and made decisions on issues related to the Islamic capital market in Malaysia
Eight meetings held throughout 1995 - 1996
IISG assisted by the ICMD by carrying out research activities and functions as secretariat
The IISG has then succeeded in exploring the foundation for the foundation for developing an Islamic capital market in Malaysia.
Shariah Advisory Council (SAC)
Background
SC viewed that it was important for IISG to expand roles
IISG upgraded to a more formal body called as Shariah Advisory Council on 16 May 1996
SAC under section 18 of the Securities Commission Act 1993 (SCA)
SAC mandate to ensure to running Islamic Capital Market (ICM) with Shariah principles
Roles
To examine and endorse the validity of application of Islamic law in ICM
To issuing Shariah resolutions and decisions related to teh issues of the ICM
Act as a reference center for such Shariah issues in order to facilitate the efforts to promote centralization and harmonization of Shariah decisions across the industry
Act as independent body to increase the market confidence
Work on continuous assessment of sukuk and other new ICM products i.e Exchange traded funds, derivatives
Stock Screening Process
Data Collection
SC gather information on companies' activities from various sources such as annual financial reports, and published information in magazines, newspapers and KLSE references
Apart from that, the SC also conducted surveys and interview, sessions with respective companies' management
Evaluation and Report Preparation
Evaluation is focused on
core or primary
activities of the company w regard to the goods and services offered.
Primary activities
bring returns for the company
and are subsequently distributed to its shareholders in the form of
profit and dividends
Report Presentation
after conducting, the report will be forwarded to the SAC Board of the SC for approval
Announcement
Finally, the list of Shariah-compliant securities by SAC of the SC will be updated and made known to the public by the Security Commission
Shariah-compliant list is updated twice a year and released on the last Friday of May and November
Global Syariah Supervisory Board of Dow Jones
Index family includes thousands of Board-market, Blue-chip, fixed-income and strategy and thematic indices that have passed rules-based screens for Shariah compliance
To determine their eligibility for the indices, stocks are screened to ensure that they meet the standards set out in the published methodology
Companies must meet Shariah requirement for acceptable products, business activities, debt levels, and interest income and expenses.
Rating Agencies
Functions of Credit Ratings / Rating Agency
Investors Protection
Helps the investors in making informed decision. Early warning system if a particular debt being downgraded
Enlarged Investor Poo
l
Eliminates complexity in evaluating quality of instruments. The alpha-numerical symbol indicated the relative riskiness are very analytical. Ratings provide a simple yardstick thus widen the pool of investor
Efficient Capital Market
Theoretically, an efficient market is where all the information to determine the economic value of an asset is available to all market participants. in turn, it will reflect the market price of the asset.
Lower Cost of Borrowing
A high rating assigned translates into a lower cost of borrowing for the issuer because
Aids Issuer in Pricing Decision
Interest payable on corporate debts are linked to the rating assigned. Credible and objective rating is useful for investment bankers, underwriters and brokers to determine the price of the debt.