The document discusses Islamic investment and the Islamic capital market in Malaysia. It defines marketable financial instruments and describes the primary and secondary markets. The primary market involves firms issuing new securities to raise capital, such as through initial public offerings (IPOs) or seasoned issues. The secondary market provides liquidity for existing securities through exchanges like Bursa Malaysia. The Islamic capital market in Malaysia includes Shariah-compliant stocks, sukuk bonds, and indices. Key regulators are the Securities Commission and Bursa Malaysia, while the Shariah Advisory Council ensures compliance.

1. ISLAMIC INVESTMENT
Mahyuddin Khalid
emkay@salam.uitm.edu.my
Investment Market and Transaction

2. Topic Outline
 Marketable Financial Instruments
 Financial Markets
 Types of Secondary Market
 How Firms Issue Securities
 Islamic Financial Market in Malaysia
 Islamic Capital Market
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3. Marketable Financial Instruments
Characteristics of Marketable
securities
• A marketable security is a near-cash
(liquid) asset and is recorded at
acquisition cost (purchase price plus
incidentals, commissions, and taxes) or
market value (whichever is lower) in
the account books under current assets.
• Can be traded between or among
investors after their original issue in
public markets and before they mature
or expire.
• Equity or debt instrument (share/stock,
bond, note) that is listed on an exchange
and can be readily bought or sold.
Non-marketable securities
include savings bonds and
restricted shares/stock.
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4. Marketable Financial Instruments
Markets can be categorized by the
time to maturity
Money Market Securities
(for short-term debt securities that
are pure discount notes)
• Bankers’ acceptances
• Commercial Paper
• Treasury Bills
Capital Market Securities
(for long-term debt or equity
securities with maturities greater
than 1 year)
• Sukuk/ Bonds
• Debentures
• Common Stock
• Preferred Stock
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5. Investment Instruments
Financial securities can be
categorized into 2 types:
Equity Instruments/ Share
Capital
• Common stock
• Preferred stock
Debt Instruments
• Commercial paper
• Bankers’ Acceptances
• Treasury bills
• Mortgage loans
• Sukuk/ Bonds
• Debentures
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6. How Firms Issue Securities
 When firms need to raise capital, they can choose to sell or
float securities by offering their share to public
 These new securities (stock, bonds etc.) offered to public is
called the Primary Market
 Two type of primary market issues :
1. Initial Public Offering – issuing shares for the first time
2. Seasoned New Issue – offered by listed company
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7. Initial Public Offering (IPO)
 Initial Public Offering (IPO) Process is when one companies intend
to sell stocks to the investing public.
 Must get approval from Securities Commission to become a public
listed company and have its shares listed in the Stock Exchange
 To get the approval the firm must have
 Good track record of earnings
 Good management
 Fulfil basic statutory requirements
 2 types of IPO
1. Public offering
 Firm offers its securities for sale to the general public
2. Private placement
 Firm sells new securities directly to selected groups of investors such as
insurance companies and pension fund
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8. The Process for Initial Public Offering (IPO)
 After getting approval the firm will appoint a merchant bank to
prepare for the IPO
 Price of stock/shares:
 The initial issue price is determined by merchant bank based on the
company’s financial health and track record, market conditions;
investor sentiments etc.
 Post-listing prices are determined by market conditions
 IPO market is considered as Primary market but once listed it is
traded in the Secondary market.
 This is because the IPO is normally offered to shareholders,
corporations, etc. before it goes public through the stock market
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9. 9
Seasoned New Issued
 Season New Issued is offered by companies that already listed
companies.
 E.g. TNB new shares of stock would constitute a seasoned new issue.
 There are four types of primary market for seasoned new issued:
 Public Offering
 Private Placement
 Right Offering: firm offers new share to the existing stockholders
who may purchase new shares in proportion to their current
ownership position
 Stock Splits: companies increase the number of shares outstanding
by executing stock split. By declaring a split, a form announces that
it will increase the number of shares outstanding by exchanging a
specified number of new shares for each outstanding shares of stock.

10. Price Determination
Firm specific
factors
Industry
specific
factors
Macro-
economic
factors
Investor
psychology
Sentiments
Performance
of other
regional stock
markets
International
events etc.
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11. Financial Markets
FinancialMarkets
Primary Market
Markets that involve the issue of
new securities by the borrower
in return for cash from investors
Capital formation occurs
Secondary Market
Markets that involve buyers and
sellers of existing securities.
Funds flow from buyer to seller.
Seller becomes the new owner
of the security.
No capital formation occurs
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12. Where Securities are Traded?
 Secondary Market will provide liquidity to the sellers.
 Secondary Market does not involve corporation that issued the
securities.
 Types of Secondary Market:
1. Exchanges or Auction Markets
 Involve a bidding process that takes place in specific location
 E.g. Bursa Malaysia
2. Dealer or Over-the-counter (OTC) Markets
 Do not have a physical location and consist of a network of dealers who
trade directly with one another.
 E.g. sukuk market
 There are several organized exchange market in Malaysia:
 Bursa Malaysia Securities Exchange
 Bursa Malaysia Derivatives Exchange
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13. Exchange Traded
• Crude Palm Oil Futures
• Crude Palm Kernel Oil
Futures
• Single (Shariah-compliant)
Stock Futures
OTC
• Islamic Profit Rate Swap
• Foreign Exchange Swap
• Cross Currency Swap
Islamic Financial Market In Malaysia
Shariah-compliant
Derivatives
Islamic Financial Market
Islamic Banking & Takaful
Islamic Banking Financial
Products
Takaful Investment
Products
Islamic Capital Market
• Shariah Compliant
Securities
• Islamic Indices
• Islamic Unit
Trust/Mutual Fund
• Islamic REITs
• Islamic ETF
• Islamic Venture Capital /
PE
• Deposits
• Wealth products (structured investments)
• Money market products
• Financing products
• Trade financing
• Takaful products (family and general)
• Takaful linked investment products
• Asset-based
sukuk
• Asset-backed
sukuk
• Investment Sukuk
Shariah Compliant Structured Products
Bursa Malaysia
Islamic Banks and Takaful
companies
Investment Banks Islamic Stockbroking
services
Islamic Fund Management / Unit Trust
Management Companies
Islamic Interbank Money Market
Bank Negara Malaysia Securities Commission Malaysia
PLATFORMS
INTERMEDIARIES
REGULATORS
PRODUCTS
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SukukEquity

14. Regulation of Malaysia Capital Market
 Securities Commission (Amendment) Act 2015 And Capital
Markets And Services (Amendment) Act 2015
 Capital Markets and Services Act 2007
 Securities Commission Malaysia Act 1993
 Securities Industry (Central Depositories) Act 1991
 Demutualisation (Kuala Lumpur Stock Exchange) Act 2003
 Securities Industry Act 1983
 Futures Industry Act 1993
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15. What is the Islamic Capital Market?
 Islamic Capital Market is:
 Any market in which Shariah compliant securities are traded.
 Islamic Capital markets include the Shariah compliant stock and Islamic
bonds or Sukuk markets.
 Companies and governments use the Islamic Capital markets to raise funds
for their operations;
 E.g. a company may issue an IPO while a government may issue an Shariah
compliant securities or bonds in order to conduct new or expand ongoing activities.
 Investors purchase Shariah compliant securities in the capital markets in
order to extract a return and earn profit on the securities.
 The Islamic Capital markets include:
 Primary markets, such as IPOs that are placed with investors through underwriters,
 Secondary markets, where all subsequent trading takes place, such as Bursa
Malaysia.
 Government agencies in different countries regulate local capital markets,
though some, especially exchanges, play some role in regulating themselves.
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15

16. The Securities Commission
 The SC is a self-funding statutory body with investigative and
enforcement powers
 The SC established on 1 March 1993 under the Securities
Commission Act 1993
 The SC reports to the Minister of Finance and its accounts are
nominated in Parliament annually
 The main functions of SC are:
 to promote the development of the capital market
 to stream line the regulations of the securities market
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17. Function of Securities Commission
 Supervising exchanges, clearing houses and central depositories
 Registering authority for prospectuses of corporations
 Approving authority for corporate bond issues
 Regulating all matters relating to securities and futures contracts
 Regulating the take-over and mergers of companies
 Regulating all matters relating to unit trust schemes
 Licensing and supervising all licensed persons
 Ensuring proper conduct of market institutions and licensed persons
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18. Bursa Malaysia
 Bursa Malaysia is an exchange holding company approved under
Section 15 of the Capital Markets and Services Act 2007.
 It operates a fully integrated exchange, offering the complete
range of exchange-related services including trading, clearing,
settlement and depository services.
Securities Market Derivatives Market Islamic Offerings Others
Two Markets:
1.Main Market: 823 companies
2.Ace Market: 117 Companies
Products:
• Shares
• Real estate investment
trusts (REITs)
• ETFs
• TSR/Warrants
• Loans
• Bonds
• Commodity futures
• Equity futures
• Equity options
• Financial futures
• Sukuk
• Shariah compliant equities
• i-Reits
• i-ETFs
• Bursa Suq Al-Sila‘ (BSAS)
• Bursa Malaysia-I
• Bond Market – Electronic
trading platform for:
• Government Bonds
• Corporate Bonds
• Offshore Market
• Non-Ringgit Securities
• Sukuk Listing
• Closed-end funds
• icapital.biz Berhad
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19. Bursa Malaysia-i
 Bursa Malaysia-i:
 The world’s first integrated end-to end Islamic securities exchange platform
and the Marketplace for trading of Shariah-compliant capital market
instruments.
 Bursa Malaysia-i offers a comprehensive range of exchange-related
facilities including:
 Listing, trading, clearing, settlement and depository services, leveraging on
the existing infrastructure with enhancements to incorporate Shariah-
compliant features.
 Bursa Malaysia-i provides investors seeking Shariah compliant securities
a new landscape that they may access the Exchange’s services, either
directly or online via Islamic brokers, where investors would be able to
experience comprehensive end-to-end Shariah investing
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20. Bursa Suq Al-Sila' (BSAS)
 BSAS is a commodity trading platform specifically dedicated to
facilitate Islamic liquidity management and financing by
Islamic financial institutions.
 BSAS is a collaboration of Bank Negara Malaysia, Securities
Commission, Bursa Malaysia and the industry players
 The fully electronic web based platform provides industry
players with an avenue to undertake multi commodity and
multi currency trades from all around the world.
 This pioneering effort cements Malaysia's strength in both
Islamic finance and Crude Palm Oil industry.
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21. Shariah Advisory Council (SAC)
 The SAC of SC was established in 1996 and as a main thrust of
ICM products to comply on Islamic principles
 The SAC is an important source of authority for Syariah
compliance and plays a critical role in ensuring and maintaining
market confidence in the ICM
 SAC of SC has applied a standard criterion in focusing on the
activities of the companies listed on Bursa Malaysia
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22. Shariah Advisory Council (SAC)
 The SAC has approved an updated list of securities, which have
been classified as Shariah-approved securities
 If subject to certain conditions, companies whose activities are
not contrary to the Shariah principles will be classified as
Shariah-approved securities
 For further information, please refer to website:
http:www.sc.com.my
 The functions of SAC are:
 To advise the Securities Commission on Shariah-related matters
 To provide Shariah guidance on ICM transaction and activities,
 To aimed at standardizing and harmonizing application
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23. Summary
In this
chapter
you have
learned
about:
Marketable Financial
Instruments
Financial Markets
Types of Secondary
Market
How Firms Issue
Securities
Islamic Financial
Market in Malaysia
Islamic Capital Market
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24. Thank you24