New Islamic securities guidelines

WITH the release yesterday of the Guidelines on the Offering of Islamic Securities (IS Guidelines) by the Securities Commission (SC), Islamic securities offers will no longer be subject to the Guidelines on the Offering of Private Debt Securities that apply to conventional bonds. 

Where relevant, however, the SC's Policies and Guidelines on the Issue/Offer of Securities and Guidelines on the Offering of Asset-Backed Securities would continue to apply to Islamic securities, the SC said in a statement.  

It said the IS Guidelines introduced an “umbrella” framework for Islamic securities, enabling and facilitating the development of a more innovative and sophisticated Islamic capital market in the country. 

The IS Guidelines would facilitate the introduction of a wider range of Islamic instruments, particularly those issued under the syariah principles of Mudharabah or Musyakarah (profit-and-loss sharing) to meet different risk-return profiles of investors. 

“These guidelines complement the strategic initiatives in the Capital Market Master Plan (CMP) to facilitate the development of a competitive and innovative Islamic capital market, attractive to both local and global markets,” it said. 

The guidelines were released pursuant to the prescription by the Finance Minister that securities based on Musyarakah or Mudharabah principles, as well as Sukuk issuances, are those as defined in the Securities Commission Act 1993 (SCA), through the Securities Commission (Prescription of Islamic Securities) Order 2004 (Prescription Order). 

The Prescription Order serves to provide legal certainty and clarity, as well as a legal framework flexible enough to regulate a wider range of Islamic instruments. 

Investor protection also has been enhanced. 

In addition, there is a mandatory requirement for an information memorandum to be issued to investors for transactions structured under the principles of Musyarakah or Mudharabah, in order to ensure that the level of disclosure is sufficient to enable investors to make informed investment decisions. 

In line with the new framework, all tax incentives and exemptions applicable to Islamic debentures have also been extended to all types of Islamic securities.  

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