A Review of Malaysia Stock Market: Lesson for Bangladesh
This report is based on Islamic Stock Market and Malaysia Stock Market has been selected for this case study. The rules and regulation of Malaysia Stock Market conducted absolutely by Islamic Capital Market policy. This report is mainly based on secondary sources of information. This report will help us to realize the importance of Islamic Stock Market as the remedial strategy from the contemporary imbalanced situations in Bangladesh Stock Exchange. If we observe the index of last ten years of Bursa Malaysia Berthed, we will see that there was no major fall in their Stock Market.
This report is divided into three parts. In the First, it is tried to describe about the Islamic Stock Market and at the same time it is described the efficiency of Islamic Stock Market in the present world. And the second part is described about the Malaysia Stock Market, the various rules and regulations which is followed by Malaysia Stock Market, the foundation and structure of Sharian Advisory Council and it’s principles. In the last part it is tried to show the rationality of converting Bangladesh Stock Market into Islamic Stock Market.
Islamic Stock Market refers to a market where fund raising activities are carried out in ways that the Stock market transactions where the market should be free from the involvement of prohibited activities by Islam such as (Riba)-excess or surplus over and above the loan Stock,( Maisir) –gambling, (Gharar) – ambiguity / element of deception. Islamic Stock Market is a efficient market which stable market position where violent price swings due to irrational behavior of the participants.Malaysia has been recognized as the pioneer and at the forefront in Islamic finance. Presently, Malaysia far surpasses other Muslim countries in terms of market infrastructure In 1964, the Stock Exchange of Malaysia was established. On April 14, 2004, Kuala Lumpur Stock Exchange was renamed Bursa Malaysia Berhad, following the demutualization exercise, the purpose of which was to enhance competitive position and to respond to global trends in the exchange sector by making themselves more customer-driven and market-oriented. It consisted of a Main Board, a Second Board and MESDAQ with total market capitalization of MYR700 billion (US$189 billion).To advise the Commission on Shariah matters pertaining to the Islamic Stock Market the Shariah Advisory Council (SAC) was established in May 1996. In the last few years it is shown that Bangladesh stock market is still not functioning efficiently and that manipulators are still working behind the scenes to effectively ‘steal’ cash from less informed investors. If we want to run our stock market efficiently and also remove all kind of manipulation then we have to practice Islamic stock Exchange system in our country as soon as possible.
Background of Study
In recent years, the appetite for investment in the market of developing countries has increased manifold. A good of such enveloping market are in Islamic countries such as Egypt, Turkey, Bangladesh, Pakistan and Malaysia. Well-developed Islamic Stock Markets would contribute toward economic development by attracting capital inflow and checking capital flight from the nations. Bangladesh is most developing country now a day. In Bangladesh Stock market is contribute to develop its economy.
The major task of this study is to discuss the “Islamicity” of the main activities the conventional Stock markets and the Malaysia “Islamic” Stock market instrument in the light of Islamic Principle.
Dhaka, April 7 2011(IANS) A probe committee said Thursday that systemic failure has allowed massive manipulation of the stock exchanges in Bangladesh, and also dismissed the view that political involvement led to the repeated market crashes in December-January. The report cited 15 case studies that showed how the market was heavily manipulated through rigging of shares by individuals and cartels.
Apart from the SEC, the committee named Dhaka Stock Exchange, Investment Corporation of Bangladesh (ICB), stock market issue managers, issuers, values and auditors as those who had colluded in turning the market volatile.
The majority people in our country are Muslim. As a Muslim they believe Almighty Allah. We should follow all Islamic rules, regulation; principle that is all guideline to do everything. On the basis of this concept author of this report tried to present enlighten way in core of Stock Market in Bangladesh. If we practice Islamic Stock exchange System then there will be no change to manipulate in stock market. When implementing these Best Practices, the Islamic Participating Organizations should implement them flexibly and sensibly to suit their Respective needs and circumstances.
Objective of the study
In this OCP Report, we tried to furnish all sorts of practical dealings that are conducted in case handling activities of Islamic Stock Market, the theoretical aspect, That is what should be the procedures and requirement maintained from first to last, and as case study we selected Malaysian Stock Market which is practicing Islamic Stock Exchange. So the core purpose and objective are:-
Ø To know the Islamic Stock Market with its Rules and Regulation.
Ø To know the Malaysia Stock Market.
Ø Recommendation & lessons for Bangladesh.
Importance of study
In this report we know about Islamic stock market and we also know Now a day Islamic Stock Market are how much essential in the world, especially in Bangladesh. In a resent time we saw so many manipulations in our Stock market. If we practice Islamic stock Exchange system then there is no change to Unethical Activity.
The Islamic Stock Market refers to the market where activities are carried out in ways which does not conflict with the principles of Islam. The Islamic Stock Market represents an assertion of religious law in Stock market transactions where the market is free from prohibited activities and elements such as riba (usury), maisir (gambling) and gharar (ambiguity).
Methodology of study
Nature of the Study is theoretical and descriptive. So the author of this report calculate and analysis all the data from secondary sources without taking any question year that’s why no primary survey is require for this report. The proposed study has been focused on the Islamic Stock Market on behalf of Malaysia stock market. This report is mainly prepared by the secondary sources of information & some few primary sources of information like –
Primary sources of my information:
Ø Information discussion with professionals.
The secondary sources of my information: –
Ø Different reference books of the library.
Ø Some of my course elements as related to this report.
Ø So many website which is related to my topics.
Ø Some thesis report.
Data processing and Analyzing:
After collecting both the primary and secondary it process through various ways. Data has been computerized and processed by using MS world, MS Excel. For the purpose of analyzing the data we have present in tabular from, parentage from with necessary chart and graph. After computerized processing, the data are analysis for making the report.
Limitations of study
We have selected Malaysian Islamic Stock market for my research which is so far off place. So I faced lot of problems to collect information. Beside this. Bangladesh is not practices Islamic stock market system. Here all information are not available I faced so many problems to collect the data. In Bangladesh Primary sources are not available that’s why this Report is mainly based on secondary sources. Any OCP reports are not easy to complete without primary sources.
In the contemporary corporate world, the stock exchange plays an important role as financial intermediary between those who have surplus funds, and those who need the money. The former are the investors while the latter are the entrepreneurs. Therefore, the stock exchange is playing the role of a middleman or intermediary between these two parties. Any activities concerning Muslims, including business activities and other pave ways of money generation, should be in accordance with the Islamic disciplines, rules and regulations. In one hand, Islam permits money-generating activities; while in the other, it sets certain regulations, which are apt for the betterment of Muslims and humanity in general. Together, both hands are capable of bringing about prosperity into this world, the Islamic way.
Money managements involving usury and gambling; manufacturing and/or selling of forbidden products (for example, liquor, pork and pornography related materials); and engaging in operations surrounding the elements of uncertainty and cheating (like the traditional insurance practices) are forbidden by the Shari’ah. These activities are considered as un-Islamic in nature, as regulated by the Shari’ah frameworks.
Islamic Stock Market
In an Islamic capital market (ICM) market transactions are carried out in ways that do not conflict with the conscience of Muslims and the religion of Islam. Here, there is assertion of religious law so that the market is free from activities prohibited by Islam such as usury (riba), gambling (maisir) and ambiguity (gharar). Today, various capital market products are available for Muslims who only seek to invest and transact in the ICM. Such products include the SC list of Shariah-compliant securities, sukuk, Islamic unit trusts, Shariah indices, warrants (TSR), call warrants and crude palm oil futures contract.
In an Islamic stock market, by definition, concerns about Islamic ethics dominate all other concerns, including concerns about various types of market efficiency. However, this does not imply that an Islamic stock market would be less efficient than a conventional stock market. In fact, the concerns about efficiency are explicitly addressed within the Islamic ethico-legal framework; in the framework of maslahah mursalah or unrestricted public interest. The carefully outlined system of priorities in the Islamic ethicolegal framework requires that the norms that emanate directly from the holy Quran, Sunna, and Ijma must be accorded priority over concerns about maslahah.
An overview On the Global Front
The Islamic Capital Market (ICM) refers to the market where activities are carried out in ways which does not conflict with the principles of Islam. The ICM represents an assertion of religious law in capital market transactions where the market is free from prohibited activities and elements such as riba (usury), maisir (gambling) and gharar (ambiguity).
The growing awareness of and demand for investing in accordance to Islamic principles on a global scale has created a flourishing Islamic capital market, more so today due to increasing wealth in the hands of Muslims worldwide who are actively involved in corporate and business activities.
Consider these statistics:
Ø The Muslim population of the world today is estimated at about 1.5 billion, representing a sizeable 24% of total world population of 6.3 billion
Ø Latent Islamic funds in global financial institutions is said to be at US$1.3 trillion while the Islamic financial market is estimated to be US$230 billion in size, with an annual growth rate of 12% to 15%
Ø There are over 250 Islamic financial institutions currently operating in about 75 countries worldwide, with more than 100 Islamic equity funds managing assets in excess of US$5.0 billion.
Indeed, the pace of development in the Islamic financial market has gathered momentum with the formation of various international Islamic organisations to study and promote this alternative market.
These organisations include the Islamic Financial Services Board (IFSB), the International Islamic Financial Market (IIFM) and the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI).
Today, the Islamic Stock Market runs parallel to the conventional Stock market and provides investors with an alternative investment philosophy that is rapidly gaining acceptance. The fact that the Islamic Stock Market does not prohibit participation from non-Muslims creates unlimited upside to the depth and breadth of this market.
Islamic Stock Market Efficiency
The criteria to measure efficiency of the stock market are well-defined in financial literature. A stock market, in addition to providing liquidity to stocks issued by firms, performs a very important function. It provides a vehicle for continuous valuation of firms and allocation of funds among them. The market prices are supposed to serve as indicators for flow of funds into the firms. The notion of allocation efficiency implies that funds should flow into desirable firms. More funds should flow into firms with higher profitability and lower risk (hence, higher value or intrinsic worth) and vice versa. This implies that stocks issued by such firms should command a higher price in the market. Prices should reflect intrinsic worth of stocks. Pricing efficiency is a prerequisite for allocation efficiency which means prices of stocks must equal their respective fundamental values at all times.
The equality between price and value of a given stock would be achieved only when there is informational efficiency. For instance, in the secondary market where stocks are continuously traded, a change in the value of a stock may occur with new information which either changes profitability or risk or both. With a change in value, there is price adjustment. In an efficient market, this reaction would be instantaneous and accurate. Only then the equality between price and value would be maintained at all times. Informational efficiency implies that there are no lags in the dissemination and assimilation of information and is a prerequisite to pricing efficiency. Another prerequisite to pricing efficiency is operational efficiency, which implies that transactions should be executed at minimal costs. High transaction costs prevent price adjustment to take place instantaneously and accurately. From the above, it is clear that any move or regulation that reduces transaction costs, simplifies trading system, increases the availability and accuracy of information, improves information processing by participants is a step towards improving the allocational efficiency of the system. Instantaneous and accurate price adjustment also presupposes that intense competitive pressures force all participants to react without any lag and that the markets are dominated by rational investors who would not overreact or under react. An efficient market is also a stable market where violent price swings due to irrational behavior of the participants is ruled out.
Malaysia Stock Market
Malaysia is the first Islamic country to have demutualised it’s exchange, Bursa Malaysia Berhad, and list on it’s own bourse. Bursa Malaysia Berhad listed on 18 March 2005, represents a single consolidated group comprising equities, derivatives and offshore markets. The equities market is then subdivided into the Main Board, Second Board and a high growth market called MESDAQ.
Malaysia has been recognised as the pioneer and at the forefront in Islamic finance. Presently, Malaysia far surpasses other Muslim countries in terms of market infrastructure with unflagging support by the Government providing the impetus for growth of the local ICM.
As the market became more complex and sophisticated, it needed supportive infrastructure so that the system could operate and function more efficiently and effectively. The SC’s early initiative in setting up a dedicated Islamic Capital Market Department (ICMD) within its Strategy and Development Business Group was to provide the much needed infrastructure support. The mandate of the ICMD is to carry out research and development activities including formulating and facilitating a long-term plan to further strengthen the ICM in Malaysia.
The Shariah Advisory Council (SAC) was established in May 1996 to advise the Commission on Shariah matters pertaining to the ICM. Members of the SAC are qualified individuals who can present Shariah opinions and have vast experience in the application of Shariah, particularly in the areas of Islamic economics and finance.
Bursa Malaysia (MYX: 1818) previously known as Kuala Lumpur Stock Exchange (KLSE, Bursa Saham Kuala Lumpur in Malay) dates back to 1930 <href=”#cite_note-1″> when the Singapore Stockbrokers’ Association was set up as a formal organisation dealing in securities in Malaya. The first formal securities business organisation in Malaysia was the Singapore Stockbrokers’ Association, established in 1930. It was re-registered as the Malayan Stockbrokers’ Association in 1937. The Malayan Stock Exchange was established in 1960 and the public trading of shares commenced. The board system had trading rooms in Singapore and Kuala Lumpur, linked by direct telephone lines.
In 1964, the Stock Exchange of Malaysia was established. With the secession of Singapore from Malaysia in 1965, the Stock Exchange of Malaysia became known as the Stock Exchange of Malaysia and Singapore. In 1973, currency interchangeability between Malaysia and Singapore ceased, and the Stock Exchange of Malaysia and Singapore was divided into the Kuala Lumpur Stock Exchange Berhad and the Stock Exchange of Singapore. The Kuala Lumpur Stock Exchange which was incorporated on December 14, 1976 as a company limited by guarantee, took over the operations of the Kuala Lumpur Stock Exchange Berhad in the same year.
On April 14, 2004, Kuala Lumpur Stock Exchange was renamed Bursa Malaysia Berhad, following the demutualization exercise, the purpose of which was to enhance competitive position and to respond to global trends in the exchange sector by making themselves more customer-driven and market-oriented. It consisted of a Main Board, a Second Board and MESDAQ with total market capitalisation of MYR700 billion (US$189 billion).
Bursa Malaysia has since then focused on various initiatives aimed at improving its product and service offerings, increasing the liquidity and velocity of its markets, improving the efficiency of its businesses and achieving economies of scale in its operations. On 18 March 2005, Bursa Malaysia was listed on the Main Board of Bursa Malaysia Securities Berhad with a 17% or RM0.50 premium over its retail price of RM3.00.
Overview of the Malaysian Stock Market
The following are the instruments in the Malaysian capital market and their relative governing bodies:
Stock are traded on the Kuala Lumpur Stock Exchange(KLSE) and Malaysia Exchange of Security Dealing and Automated Quotation (MESDAQ). Order to buy and sell shares are routed to the security Clearing Automated Network Services Sdn Bhd((SCANS) ; SCANS plays a role in the delivery and settlement of share , and also in receiving and paying of amount payable to or by broking firm. On the others hand , the issuing house facilitates the issuance of new shares for sale to the public. To trade in the KLSE listed companies, a person has to new open a trading account and a Central Depository System(CDS) account with one of the stock broking companies. The CDS uses book entry system to keep tack of movement of shares traded; thus no physical delivery of shares is present under the CDS.
While the Bank Negara Negara supervise the trading of bond security, the Malaysia Dervatives Exchange Bhd )MDEX) facility the trading of the following contracts that are traded on an electronic screen based system:
Ø Kuala Lumpur Stock Exchange Composite Index(KLSECI) Futures or FKLI;
Ø Kuala Lumpur Stock Exchange Composite Index(KLSECI) Option or OKLI
Ø Crude Palm Oil (CPO) Futures or FCPO;
Ø 3-Month Kuala Lumpur Interbank offered Rate (Klibor) Futures or FKB3;
Ø 5-Year Malaysia Government Security (MGS) Futures or FMG5
The Malaysia Derives Clearing House ( MDCH) on the others hand plays a role in registering, monitoring, matching, guaranteeing and caring out the financial settlement of futures and option transaction traded on the MDEX.
The wholly owned subsidiaries of Bursa Malaysia own and operate the various businesses, as set out below:-
- Bursa Malaysia Securities Bhd – Provide, operate and maintain securities exchange
- Bursa Malaysia Derivatives Bhd – Provide, operate and maintain a futures and options exchange
- Labuan International Financial Exchange Inc. – Provide, operate and maintain offshore financial exchange
- Bursa Malaysia Bonds Sdn Bhd – Provide, operate and maintain registered electronic facility for secondary bond market
- Bursa Malaysia Securities Clearing Sdn Bhd – Provide, operate and maintain a clearing house for the securities exchange
- Bursa Malaysia Derivatives Clearing Bhd – Provide, operate and maintain a clearing house for the futures and options exchange
- Bursa Malaysia Depository Sdn Bhd – Provide, operate and maintain a central depository
- Bursa Malaysia Depository Nominees Sdn Bhd – Act as a nominee for the central depository and receive securities on deposit for safe-custody or management
- Bursa Malaysia Information Sdn Bhd – Provide and disseminate prices and other information relating to securities quoted on exchanges within the group
- Bursa Malaysia Islamic Services Sdn Bhd – Operate all Islamic Markets businesses and activities initiated under Bursa Malaysia
Regulations or rulings issued by the SAC or SC
Ø An Islamic Participating Organisation should ensure that its Islamic
stockbroking services are carried out in such way that it adheres to and
complies with the Shariah principles and regulations, standards or
rulings issued by the SAC or SC, as may be amended from time to time.
For example, dealings in securities traded on the Bursa Securities by an
Islamic Participating Organisation should be limited to the Shariah
compliant securities, as determined and endorsed as such by the SAC or
SC. A list of the Shariah compliant securities, which is amended from
time to time by SC with the advice of SAC, can be obtained from the
Ø Dealings in securities traded on the stock exchanges other than Bursa
Securities should be allowed to be undertaken by the Islamic
Participating Organisations only in respect of securities traded on any of
the recognised stock exchanges, which are endorsed to be Shariah
compliant securities by the recognised stock exchange or by a competent
shariah standard setting body or a reputed or competent shariah scholar,
either in Malaysia or elsewhere.
Ø An Islamic Participating Organisation should, in respect of dealings
under item no. 2.2 above, maintain or retain all records relating to the
Dealings thereof, including the relevant advice or confirmation or
Publication given or made by the recognised stock exchange or the
Competent shariah standard setting bodies or shariah scholar, either in
Malaysia or otherwise that the securities is Shariah compliant securities
Shariah Advisory Council of the SC
The Securities Commission (Commission) is a statutory body set up under the Securities Commission Act 1993 (SCA), reporting directly to the Minister of Finance. It is the sole regulatory body for the regulation and development of the capital market in Malaysia. It is directly responsible for the regulation and supervision of the activities of the market institutions, including the stock exchanges, clearing houses, and monitoring of licensees under the Securities Industry Act 1983 (SIA) and Futures Industry Act 1993 (FIA)
The Commission, in developing the national capital market, has identified the development of the Islamic capital market as one of its main agendas.2 This agenda was later incorporated into the Malaysian Capital Market Masterplan, launched on 22 February 2001. One of the main objectives set by this plan is to establish Malaysia as an international Islamic capital market centre.
The Commission has taken the following two approaches in meeting this objective:
Ø Supply the necessary infrastructure for research, discussions and dialogues; and
Ø Undertake specific efforts to develop and strengthen the market.
Using these approaches, a dual market system will be created similar to the existing banking and insurance sectors. The Commission has taken numerous steps in priming the infrastructure for the development of the Islamic capital market. These include:
Ø Establishing the Islamic Capital Market Department (ICMD, formerly known as
Islamic Capital Market Unit);
Ø Establishing the Islamic Instrument Study Group (IISG); and
Establishing the Shariah Advisory Council (SAC).
Ø The following is an elaboration of the above-mentioned measures.
The ICMD carries out research activities and functions as the secretariat to the IISG. The latter succeeded in exploring the foundation for developing an Islamic capital market in Malaysia. Thus, the Commission viewed that it was important for the IISG to expand its role, and consequently, it was upgraded to a more formal body called the SAC on 16 May 1996. Its establishment was endorsed by the Minister of Finance and it was given the mandate to ensure that the implementation of the Islamic capital market complied with Shariah principles. Its scope of jurisdiction is to advise the Commission on all matters related to the comprehensive development of the Islamic capital market and to function as a reference centre for all Islamic capital market issues.6
In introducing the Islamic capital market instruments, the SAC adopted two approaches. The first approach was to study the validity of conventional instruments used by the local capital market from the Shariah perspective. The study focused on the structure, mechanism and use of the instruments to ascertain whether they were against Shariah principles. The second approach entailed formulating and developing new financial instruments based on Shariah principles.
The SAC is also responsible for issuing a list of Shariah-compliant securities (formerly known as list of Shariah-approved securities). Up to 28 October 2005, 857 securities were classified as Shariah-compliant securities by the SAC. This represented 85% of securities listed on Bursa Malaysia. The list is constantly updated and the Commission announces the updated list twice a year. It is essential for helping Muslim investors identify Shariah-compliant securities and at the same time, increase their confidence when making investments.
The list of Shariah-compliant securities was used as the basis for developing the Shariah Index launched by Bursa Malaysia on 17 April 1999. With the launch, investors will be able to monitor the performance of their investments more efficiently and effectively. Although the SCA does not expressly state the formation of the SAC, section 16 of the SCA stipulates that the Commission has full jurisdiction in carrying out its duties based on securities laws.
Moreover, section 18 of SCA specifies that the Commission is empowered to form a committee to help it carry out its duties based on the Act, and the Commission is also permitted to appoint anyone it deems fit to be a member of such a committee.7 Members of the SAC are appointed by the Commission once every two years
Members of the SC’s Shariah Advisory Council
(July 2010 – 30 June 2012)
|Tun Abdul Hamid Haji Mohamad|
Former Chief Justice of The Federal Court
Malaysia Tan Sri Sheikh Ghazali Hj Abdul Rahman
Shariah Legal Adviser
Shariah Section, Advisory Division
Attorney General’s Chambers Datuk Hj. Md Hashim Hj Yahaya
Very Distinguished Academic Fellow
Ahmad Ibrahim Kulliyyah of Laws
International Islamic University Malaysia Dato’ Dr Abdul Halim Ismail
BIMB Securities Sdn Bhd Dr Mohd Daud Bakar
Amanie Business Solutions Sdn Bhd Prof. Madya Dr. Shamsiah Mohamad
Lecturer, Department of Fiqh and Usul
Academy of Islamic Studies
University Malaya Professor Mohammad Hashim Kamali
Founding Chairman and CEO
International Institute of Advanced Studies
Malaysia Professor Dr. H. Fathurrahman Djamil
Vice Chairman of Fatwa Commission
Indonesian Council of Ulama Dr. Aznan Hasan
Lecturer, Ahmad Ibrahim Kulliyyah of Laws
International Islamic University Malaysia Ahmad Suhaimi Yahya
Chief Officer and Regional Head of Shariah
Kuwait Finance House (Malaysia) Berhad Rafe Haneef
Global Markets, HSBC Amanah
Principles of Securities Regulation
Ø The responsibilities of the regulator should be clear and objectively stated.
Ø The regulator should be operationally independent and accountable in the exercise of its functions and powers.
Ø The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.
Ø The regulator should adopt clear and consistent regulatory processes.
Ø The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality.
Ø The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets.
Ø SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.
Ø The regulator should have comprehensive inspection, investigation and surveillance powers.
Ø The regulator should have comprehensive enforcement powers.
Ø The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.
Ø The regulator should have authority to share both public and non-public information with domestic and foreign counterparts.
Ø Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.
Ø The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.
Ø There should be full, timely and accurate disclosure of financial results and other information that is material to investors’ decisions.
Ø Holders of securities in a company should be treated in a fair and equitable manner.
Ø Accounting and auditing standards should be of a high and internationally acceptable quality.
Ø The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme.
Ø The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.
Ø Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.
Ø Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme.
Ø Regulation should provide for minimum entry standards for market intermediaries.
Ø There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.
Ø Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts
Ø There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.
Ø The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.
Ø There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.
Ø Regulation should promote transparency of trading.
Ø Regulation should be designed to detect and deter manipulation and other unfair trading practices.
Ø Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.
Ø Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.
Last ten years Index
The Malaysian capital market is unique because the Islamic Stock Market runs parallel with the conventional capital market. The two main reasons that have been identified to support the emergence of Malaysian ICM are the 1997 Asian Financial Crisis and the liquidity problem resulting from surplus funds from the Islamic finance industry. Following the Asian Financial Crisis, the Malaysian government focused on the development of the Islamic Capital Market especially on the products innovation, infrastructure facilities, policy incentives, human capital development and financial market regulations. This paper summarized the development of the Malaysian Islamic Capital Market including the development stages, regulatory bodies, products and policy initiatives. In addition, this paper also highlights the achievements accomplished by Malaysia in the Islamic Stock Market especially on the pioneered or world first project and products innovation. Under bellow we shown last ten years index of Malaysia Sock market. If you see this then, author believe, you will understand How to develop their stock market day by day.
Fig: Last ten years Index
Dhaka Stock Market
Background of Dhaka Stock Market
Dhaka Stock Exchange (Generally known as DSE) is the main stock exchange of Bangladesh. It is located in Motijheel at the heart of the Dhaka city. It was incorporated in 1954. Dhaka stock exchange is the first stock exchange of the country. As of 18 August 2010, the Dhaka Stock Exchange had over 750 listed companies with a combined market capitalization of $50.28 billion.
It first incorporated as East Pakistan Stock Exchange Association Ltd in 28 April 1954 and started formal trading in 1956. It was renamed as East Pakistan Stock Exchange Ltd in 23 June 1962. Again renamed as Dacca Stock Exchange Ltd in 13 May 1964. After the liberation war in 1971 the trading was discontinued for five years. In 1976 trading restarted in Bangladesh. In 16 September 1986 was started. The formula for calculating DSE all share price index was changed according to IFC in 1 November 1993. The automated trading was initiated in 10 August 1998. In 1 January 2001 was started. Central Depository System was initiated in 24 January 2004.
Crisis of Dhaka Stock Market
Stock prices at the country’s main bourse — the Dhaka Stock Exchange (DSE) — witnessed Sunday the steepest ever single-day fall — 551 points or 6.71 per cent. Out of 243 issues traded Sunday, only 05 gained, 236 declined and two remained unchanged. Banking and insurance issues were the major losers on the day when total turnover stood at Tk. 14.90 billion, up by 17 per cent compared to that of the last trading session.
The general index (DGEN) at the DSE has lost 2264 points or 25 per cent since December 05 last after hitting the highest ever level-8918. The market shed 547 points within 80 minutes from the start of the day’s trading on December 08. But stock prices started regaining mysteriously as a section of investors took to the streets and resorted to violent protests and ended the day with 105 points lower. On December 13, Sunday, the market went through major price correction-285 points. Stock prices at the
In a past we see another Crash in 1996 where Share market investors have lost between 20 and 30 per cent of their portfolios with the Dhaka Stock Exchange losing around Tk 22,000 crore in market capitalization, said market operators.
Small and new investors, who have just entered the market, are the most affected by the plunge as many of the large investors have already withdrawn a significant amount of their investment or booked profit anticipating the huge fall, they said.
“According to my rough estimate, investors lost around 20 per cent of their portfolios in the latest round of fall” Many of the panicky small investors have withdrawn their investment after incurring losses. In a present Dhaka stock Market is uncertain market. For that reason investor are so much confused about there decision. Under bellow we see Last 1 years Index of Dhaka Stock Market. If we see this Index then we understand what present condition is Dhaka Stock Market.
Dhaka Stock Market Index
Fig: Last One year Index
Reasons of fall in Dhaka Stock Market
Recently we see biggest crash in Dhaka Stock Market in its 55-year history. This crash directly effect in our economy. We try to find out some reasons for this crash. Under bellows we mention all reasons:
Ø Shortage of shares supply: Shortage of shares supply has caused the present market fall. Day by day the investors are come in our share market but share supply is not increase. For that reason share price overflow.
Ø Political interfere: It is another reason for market fall in DSE. Bangladesh political conditions are not stable. Most of Politian is business man. They directly of indirectly influence stock market to gain money.
Ø Weak form of DSE: Many researchers found Dhaka stock exchange market is a weak form efficiency using monthly versus daily data and different methods. DSE structure is so much weak. Some company used this weakness to manipulate share market. DSE authorities are not maintaining properly all listed company.
Ø Shortage of man power in DSE: Present man power of DSE is no efficient to rum their function. Shortage of manpower and absence of necessary logistic support are hampering the smooth functioning of DSE.
Ø Rapid increased of Investor: In resent time we seen the investor rapidly increased in our share market. Other hand supplies of share are not increased. As a result market crash occurred.
Ø Insufficient modern equipment: Without modern equipment any country cannot run properly there stock market. All equipment are not modern in our stock market, as a result some time DSE give us wrong information about their listed company.
Ø Continuous amendment of DSE rules & regulation: Bangladesh government continuously changes DSE rules and regulation. It’s totally effect in our market.
Findings, Recommendation & Conclusion
After analyze the data in this report the author find out some specific things. The major findings of this report are:
Ø Majority people in our country are Muslim.
Ø All Muslim are born to follow Islamic rules to earn and alive.
Ø The developing country Bangladesh trying to be a develop country like Malaysia.
Ø Islamic rules, regulation, concept, principle or guideline are enough to follow for the people.
Ø Malaysia Stock Market is well developing reach, less risky, crash free and continues market.
Ø Bangladesh Stock Market is further Islamic Stock Market nor well developing reached and risks free Market.
Ø There lot of reasons that may affect Bangladesh Stock Market to crash.
Ø Bangladesh Sock Market has sufficient opportunity to implement Malaysia Stock Market concept.
Recommendation & lessons for Bangladesh
Bangladesh suffered a big bang crash in stock market. In a resent time we saw biggest crash in share market history. In 1996 we see another crash in share market. Many investors’ lost their money and especially trust of the small investors has drastically reduced from the market. Crash of Bangladesh market is a big blow to small investors, most of who heavily rely on stock market. Although artificial rise of stock prices is never a good omen for the economy but a sudden fall of market is equally damaging and its directly effect in our economy. Researchers have shown that Bangladesh’s stock market is still not functioning efficiently and that manipulators are still working behind the scenes to effectively ‘steal’ cash from less informed investors.
The authorities in Bangladesh should have concern about this. Most of Bangladeshi investors are Muslim. As a Muslim they willingly want to follow Islamic rules and regulation. There are huge changes to Apply to Islamic Sock Market concept. If they practice Islamic stock market system in our country then if can possible to remove all types of manipulation and uncertain crash in our share market. As a example we can see Malaysia Stock market. In their stock market conditions are well. In past few years there are no crash occurred Malaysia stock market properly contribute their national economy. In this report we find out that if Bangladesh practices Islamic stock exchange system then we can remove all types of share market crisis which is now present in our share market.
Muslims cannot afford to ignore the capital market because the private sector, which holds a nation’s power are made up of entities that are naturally controlled by the shareholders, and ignoring the capital market implies ignoring the economic power of private sector and its attendant power of wealth creation, employment and training opportunities, control of economic knowledge and technology, and global economic relations.
As a result, attempts are made to develop Islamic capital markets to cater for the demands from local as well as foreign investors who seek to invest in securities based on Shari’ah principles. The Kuala Lumpur Stock Exchange Shari’ah Index (KLSE SI) and the Dow Jones Islamic Market Indexes are examples of such attempt..The Malaysia Stock Market has been one of the best performances the developing over the past 10 years. If we see last few years index of Malaysia stock market then we see there are no major crisis occurred in there Market. All listed company of Share market provides correct formation to the investor. The companies have no change to manipulate the market because the Malaysia Sock market fully fallows Islamic stock market rules and regulation. For that reason the investor utilize the company performance and take right decision where they invest their money.
To conclude, with the foreseeable future of globalization, Muslims should take advantage of the potential benefits arising from the involvement in capital markets; this is to prevent the Muslims from being left behind to the non-Muslims. However, it should be in the mind of the Muslim investors that whatever actions or activities they partake in the capital market, they must be in accordance with the guidelines and rules stated under the Shari’ah principles. Bangladesh is a Muslim country and most of investor are Muslim. Bangladesh can be practice Islamic Stock Market system. If we want remove our share market crisis then we must be practice Islamic Stock Market.
In this report we have analyzed the Islamic Stock Market concept under Malaysia Stock Market and also some guideline for Bangladesh. Further we can research on:
Ø How to implement Islamic Stock Market in Bangladesh.
Ø Performance of Malaysia Stock Market.
Ø Survey of investor current perception towards Islamic Stock Market.
Ø Survey of Scholar current perception towards Islamic Stock Market
Ø Guide to understand Islamic Investment
Shaykh Yusuf Talal Delorenzo
Ø Islam, knowledge, and other affairs
Web sites name: