In an era that is relentlessly moving forward, keeping up with the evolution of technology plays a crucial role in the advancement of any industry. The Islamic equity market needs to bring itself to par with its conventional counterpart to create a level playing field for synergy in the equities sector. NABILAH ANNUAR explores the most recent developments and opportunities across the global Shariah compliant trading and stockbroking landscape.
Asia
Philippines: The Philippine Stock Exchange in April updated its list of Shariah compliant securities to 61 out of 259, an increase from 47 listed in December 2013. A quarterly review by the exchange saw the exit of 12 companies and admission of another 25 entities to the list including ATN Holdings, which had its ‘A’ and ‘B’ shares counted as one in the previous list, separated in the updated list.
Lebanon: The Beirut Stock Exchange will be launching an electronic trading system to encourage the listing of Sukuk on the bourse and attract financing through the country’s financial markets as well as the banking sector. The system will be run in collaboration with NYSE-EURONEXT International.
Middle East
Saudi Arabia: The region’s most diverse capital market according to its size and maturity will be opening its bourse to direct foreign investment and is looking to go public with an initial public offering. Tadawul also introduced a new method for calculating closing prices of trading shares. The new system ascertains the closing price of shares using the average of all trades in the final 15 minutes, weighted by the volume traded at each price. The change seeks to limit speculation and manipulation in trading. As a means to enhance its status, the Saudi Arabian stock exchange additionally gained affiliate membership with the International Organization of Securities Comissions.
Kuwait: The Capital Markets Authority of Kuwait issued new regulations to ease the process for joint-stock companies to list on the Kuwait Stock Exchange (KSE), which is hoped to broaden shareholder base, create an effective trading environment and enable companies to raise capital for expansion. Under the new regulations: instead of at 7.5%, companies intending to list only need an annual profit of 5% of their capital while shareholders’ equity have been lowered to 110% instead of 115%. Operating income of companies also need to stand at 75% of total revenues.
Additionally, the Kuwait Clearing Company and the Bahrain Bourse (BHB) signed an agreement implementing an electronic mechanism to promptly transfer shares of Bahraini companies listed on KSE as well as shares of Kuwaiti companies on the BHB. The arrangement is in line with initiatives to strengthen the link between systems and institutions in the GCC financial sector.
UAE: To encourage trading the Securities and Commodities Authority of the UAE issued new rules for Islamic and corporate bonds. The regulator also amended rules on securities lending and borrowing, facilitating the operations of foreign companies. From a minimum Sukuk listing size of AED50 million (US$13.6 million) previously, the new requirement for listing has been dropped to AED10 million (US$2.72 million).
Challenges, opportunities and outlook
One of the major challenges faced by the trading and stockbroking fraternity is technological advancement. Coming into an era of ‘paperless’ transactions and online trading, the tasks and duties of brokers could possibly be reduced to a supervisory role. Investors are now able to trade online encouraged by incentives that include a cheaper cost and direct acessibility to stocks.
In the next couple of years, market sentiments point towards opening up the markets to international cross-border investments. Regional initiatives are seen to take place across the GCC and ASEAN markets. Supplementary to these initiaitves is the need for a common trading system, including a well-regulated environment to accommodate these developments. Industry players have also called for an intergrated market such as the Euronext to facilitate market movement and generate high regional trading volumes.
To compete with our conventional counterparts, the proposition of Islamic stocks and trading must not only appeal to Shariah compliant investors, it must also be seen attractive to conventional investors. Market movers must be able to entice socially responsible investors to view Shariah compliant stocks as not only something that carries a religious stigma, but an untapped asset class of responsible investing.