According to Bursa Malaysia, Islamic stock lending will provide “a more facilitative trading environment and improve trading liquidity and velocity of securities compliant with Shariah principles”.
The introduction of Islamic stock lending aims to provide a Shariah-compliant alternative to the securities borrowing and lending negotiated transaction framework (ISSBNT), which has been active in Malaysia since 2009.
The framework, though structured based on Shariah principles, delivers the same outcome of a conventional securities borrowing and lending transaction, which were endorsement by the Shariah Advisory Council of the Securities Commission Malaysia.
The endorsement was resolved on 26 February 2015 and structured on two main rules and principals.
A circular, released by Burma Malaysia this week, explained the rules and principles of the exchange’s Islamic stock lending.
It said:“Sale transactions (Bai’) that includes the features of wa’dan (two unilateral undertakings), khiyar al-shart and the provision of collateral as security for indebtedness is permissible”.
Settlements must be negotiated and agreed on the terms of the ISSBNT, which will be reported to and facilitated by BMSC—the securities eligible for ISSBNT shall only be those accepted by BMSC.
Burma Malaysia also said: “Shariah-compliant trades may only be undertaken to settle a regulated short sale in ISSBNT eligible securities executed in accordance with BMSC, or to settle a sale of ISSBNT eligible securities where there are no or insufficient securities in the securities account of the seller.”
Any person approved by BMSC to be an approved supplier may enter into an ISSBNT to sell its own ISSBNT eligible securities.
An approved user is required to have a minimum of RM 50 million (USD 12.2 million) in shareholders funds.
Initially, close attention will be given to extending Islamic exchange traded funds in particular, as well as enhancing levels of liquidity.