Transcript Customized Indices and Exchange Traded Islamic Financial

OIC Member States’ Stock Exchanges
4th Forum Meeting
October 2-3 2010, Istanbul
Şenay PEHLİVANOĞLU
Istanbul Stock Exchange (ISE)
Assistant Director
◦ Coordinator: Istanbul Stock Exchange, Turkey
◦ Participants:












Amman Stock Exchange
Bursa Malaysia Berhad
Dhaka Securities Market
Doha Securities Market
Dubai Financial Market
Egyptian Exchange
Islamabad Stock Exchange
Kyrgyz Stock Exchange
Lahore Stock Exchange
Muscat Securities Market
Saudi Arabian Stock Exchange (Tadawul)
Tehran Stock Exchange
2

At the meeting, the following decisions were taken regarding
“Customized Indices, ETFs and Islamic Depositary Receipts”
Task Force:
◦ The name of the Task Force is converted to “Customized Indices
and Exchange Traded Islamic Financial Products”
◦ The Task Force is mandated to:
 Communicate with various index providers to determine
alternative types of investable indices
 Consult with IIFM and AAOIFI to determine ways to offer
practical, easily comprehensible and cost effective financial
instruments, particularly exchange traded commodity contracts
and Islamic repo and make recommendations
3
◦ As a part of Task Force activities, IIFM has been visited on
March 2, 2010.
◦ It was agreed that IIFM officials would present the Sukuk
Collateralized Commodity Murabaha (I’aadat Al Shira’a) and
Tahawwut Master Agreement at the Working Committee
meeting in Abu Dhabi.
◦ IIFM released its Reference Paper on I’aadat Al Shira’a concepts
and structuring possibilities on 28th July 2010. We encourage
all forum members to comment on this reference paper that
can provide a basis in terms of finding a widely acceptable and
market based solution to liquidity management as well as the
creation of a more active Sukuk secondary market.
4
◦ The ISE Group also have paid a visit to Mr. Khairul NIZAM,
Assistant Secretary General of AAOIFI.
◦ Mr. NIZAM affirmed that the Institution would like to
organize training activities on-demand about Shariah
standards related to Islamic financial instruments for OIC
Members.
◦ In order to organize such events we will be delighted to
receive suggestions from Forum participants.
5
Stage 4 - Decision
Deciding on index provider, constituent members
Setting the rules, discussing costs and revenues
Stage 3 - Consult 
Consulting with index provider companies
Stage 2 - Analyse 
Getting information about members’ capital markets,
Analysing FEAS and GT-30 customized indices as models
Stage 1 – Start 
Establishing “Customized Indices and Exchange Traded Islamic
Financial Products” Task Force
6
In accordance with the decisions taken at the 3rd Forum
Meeting in Istanbul, we consulted with the reputable Index
Providers:
7

Paradox:
◦ Numerous Islamic indices / Non-Islamic countries’ equities

Purpose:
◦ To include Shariah-compliant equities from OIC Member
States’ Stock Exchanges

Priorities:
◦ Facilitating the collaboration among the OIC Exchanges
◦ Promoting the OIC Member States’ Stock Exchanges Forum
◦ Creating different investment alternatives
8
◦ Two Types of Indices:
 A broad index representing the whole OIC region (benchmark
index), widest coverage to highlight the OIC Brand
 A narrower index
(investable index), will serve as the basis of a tradable product
◦ Launch:
 OIC Shariah Compliant Indices are expected to be launched in 2011.
◦ Projection:
 Besides regional and tradable indices, we are open to different
alternatives e.g. sectoral and corporate governance indices and
would consider working with different index providers for different
indices.
9
COUNTRY
STOCK EXCHANGE
1
ALBANIA
Tirana Stock Exchange, Albania
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
ALGERIA
AZERBAIJAN
AZERBAIJAN
BAHRAIN
BANGLADESH
BANGLADESH
COTE D'IVOIRE
EGYPT
INDONESIA
IRAN
IRAQ
JORDAN
KAZAKHSTAN
KUWAIT
KYRGYZ
LEBANON
MALAYSIA
MOROCCO
MOZAMBIQUE
NIGERIA
OMAN
PAKISTAN
PAKISTAN
PAKISTAN
PALESTINE
QATAR
SAUDI ARABIA
SUDAN
TUNISIA
TURKEY
UGANDA
UNITED ARAB EMIRATES
UNITED ARAB EMIRATES
UZBEKISTAN
Bourse d'Alger, Algérie
Baku Interbank Currency Exchange, Azerbaijan
Baku Stock Exchange, Azerbaijan
Bahrain Stock Exchange, Bahrain
Dhaka Stock Exchange, Bangladesh
Chittagong Stock Exchange, Bangladesh
Bourse Regionale Des Valuers Mobilieres, Côte d'Ivoire
Egyptian Exchange, Egypt
Indonesia Stock Exchange, Indonesia
Tehran Stock Exchange, Iran
Iraq Stock Exchange, Iraq
Amman Stock Exchange, Jordan
Kazakhstan Stock Exchange, Kazakhstan
Kuwait Stock Exchange, Kuwait
Kyrgyz Stock Exchange, Kyrgyz Republic
Beirut Stock Exchange, Beirut
Bursa Malaysia Berhad, Malaysia
Casablanca Stock Exchange, Morocco
Mozambique Stock Exchange
Nigerian Stock Exchange, Nigeria
Muscat Securities Market, Oman
Lahore Stock Exchange, Pakistan
Karachi Stock Exchange, Pakistan
Islamabad Stock Exchange, Pakistan
Palestine Securities Exchange, Palestine
Qatar Exchange, Qatar
Saudi Arabian Stock Exchange
Khartoum Stock Exchange, Sudan
Tunisia Stock Exchange, Tunisia
Istanbul Stock Exchange, Turkey
Uganda Stock Exchange, Uganda
Dubai Financial Market, United Arab Emirates
Abu Dhabi Securities Exchange
Toshkent Republican Stock Exchange, Uzbekistan
Task Force
Member
MSCI
S&P
FTSE
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
13
17 Countries,18 Exchanges
19 Countries, 20 Exchanges
19 Countries, 22 Exchanges
1
1
1
1
1
1
1
1
1
1
1
1
10
Criteria
The Comparison of Index Providers
All index providers;
Index Name
have recommended to use both of the index provider and OIC brand names as the index name.
Methodology
have recommended to use market cap weighted free float adjusted method as the methodology of
calculation.
Shariah Criteria
have declared that they receive service from well known Shariah Scholars.
Index Coverage
declared that approximately 15-20 OIC member stock exchanges would be covered in the
benchmark index.
Selection Process
are following similar processes for selection.
Recognition and
Experience
are internationally well recognized and have sufficient experience in the Shariah compliant index
calculation.
Cost Models
declared to undertake 100% of the calculation and dissemination costs.
11

All index providers we consulted are eligible and experienced
in their field and have minor differences in their index
calculation policies. Considering that, we sent follow-up
questions to FTSE, MSCI and S&P, and asked the number of ;
◦
◦
◦
◦

their conventional and Islamic indices,
covered companies,
ETFs/funds tracking their indices,
AUMs of these ETFs/funds etc.
We gathered all these information then emailed our Final
Report to the Task Force members.
12
FTSE
The number of
MSCI
Indices
Total (breakdown is
not available)
Over 150.000
Approx 120.000
1,384
countries covered
companies covered
real time indices
Over 80
Over 8.000 securities
Over 1.000
76 markets
8,738 (April 2010)
9.000
ETFs based on these
indices
AUM of these ETFs
(if possible the breakdown)
130 (50 in USA)
N/A
72 markets
1.620 currently
They create RT indices on a
as needed basis.
3
Over $ 100 bn
Approx $230 bn
Total $ 76.2 mn
Exchanges that these ETFs
are listed
Fund managers
benchmarking these
indices (estimated)
AUMs of funds tracking
their indices (estimated)
Conventional
S&P
Not provided by MSCI
Islamic
Conventional
Islamic
Approx 3.000 headline indices with
a total of over 600.000 indices
82 countries, 112 exchanges
16.505
1.151
Approx 102 headline indices and
a total of 400 indices
82 countries, 112 exchanges
10,078 currently
3
260
3 (a)
$18.8 mn
USA Islamic: $20.7 mn
World Islamic: $ 30.6 mn
Emerging Markets Islamic:
$24.9 mn
Total $ 227.2 bn
US listings: $195.8 bn
European list: $9.3 bn
Canadian list: $18.9 bn
Australia list: $2.6 bn
Japan : $ 0.6 bn
1
15
1
Over 400
(b)
25 ETF Managers
1 ETF Manager
$ 3 Trillion
N/A
over $ 4.83 Trillion (c)
$ 95-100 bn
Table is based on data supplied by each index provider. Numbers for FTSE are derived from their presentation dated March 2010.
(a) HSBC’s first Shariah ETF in Saudi Arabia will use S&P as calculation agent.
(b) They have approximately 2000 clients subscribing to the MSCI Indices. Their Middle Eastern clients also subscribe to their Islamic Indices (about 30 clients). MSCI Islamic Index clients also include asset managers
and custodians in the US, UK, Continental Europe, Asia Pacific and Malaysia. MSCI announced that they will discontinue the calculation of all MSCI Indices containing securities listed on Tadawul, the Saudi Stock
Exchange (S&P will). As a result, Saudi Stock Exchange Data will no longer be available to MSCI effective Sept 30, 2010 and MSCI will discontinue all indices containing Saudi securities as of the close of Sept
29, 2010
(c) Benchmarked assets is a summation of over US$ 2.31 trillion institutional assets sourced from Nelson Marketplace, over US$ 2.27 trillion retail assets sourced from Morningstar Inc., with US$ 154.82 billion tied to
exchange traded products, and the remaining as internally managed assets by pension plans sourced from S&P Indices Annual Survey of S&P Indexed Assets. For 2009, S&P Indices estimates over US$ 4.83 Trillion
benchmarked to the S&P 500 alone, with indexed assets making up approximately US$ 1.1 trillion of this total. Over US$ 1 trillion was directly indexed to S&P indices.
13


Considering their flexible approach from business point of
view and more importantly, their eagerness to cooperate with
the OIC Stock Exchanges, S&P has been invited to make a
detailed presentation to Forum participants.
S&P covers 19 OIC member countries and 20 exchanges, if
any of the remaining countries in the OIC are added to their
global coverage in the future, they will also be included in
their indices.
14