Workshop Presentation [Nov 6, 2016] Mufti Irshad Ahmed Ejaz organised by SCS-Shariah Consultancy Services for Trade and Finance A subdivision of Jamia tur Rasheed Karachi

1. ‫جائزہ‬ ‫شرعی‬ ‫کا‬ ‫ان‬ ‫ر‬‫او‬ ‫سرگرمیاں‬ ‫کی‬ ‫حصص‬ ‫ار‬‫ز‬‫با‬
‫اعجاز‬ ‫احمد‬ ‫شاد‬‫ر‬‫ا‬
‫سیریز‬‫سیمینار‬‫الرشید‬ ‫جامعۃ‬
‫نمبر‬ ‫سیمینار‬4
،‫اتوار‬23،‫اکتوبر‬2016‫ء‬
‫الرحیم‬ ‫الرحمن‬ ‫ہللا‬ ‫بسم‬

2. Stock Market Operations from
Islamic perspective
‫الرحیم‬ ‫الرحمن‬ ‫ہللا‬ ‫بسم‬
Irshad Ahmad Aijaz
Chairman, Shari'ah Supervisory Board
BankIslami Pakistan Limited

3. Introduction
• Basic questions on stock market:
– What is stock market?
– Is it a gambling place?
– Is it an acceptable marketplace from Islamic perspective?
• Let us see!
3

4. • Stock market is a market for sale of specific items by specific
people.
• By nature ‘Exchanges’ are usually 'close circuit markets'
which means that only specific people can deal in this market
in specific items.
• Those who are authorized for doing business in this markets
are called Members and brokers;
• All other people (non-members/brokers) are dependent on
these people for trading in this market.
4
What is ‘Stock Market’?

5. • Because of its nature, participants of this market can buy and
sell specific items which are registered on it for sale and
purchase.
• This registration is called 'listing'.
• These items are called 'financial assets'.
• Financial assets include 1) Equity, 2) Bond, 3) Derivatives.
• These assets are not available in physical form any more.
They are now kept in digital form only.
5
Items sold and purchased in this market

6. • These assets are kept by a trustee and custodian.
• In Pakistan this trustee and custodian is called CDC.
• CDC keeps all digital assets is a system and no debit and
credit is possible without CDC.
• Transfer in system of CDC is a sign of ownership of the
account holder.
6
Items sold and purchased in this market

7. • Stock market is a market for members only.
• Therefore, sale and purchase always done through
members/brokers only.
• No one can buy and sell except through a broker.
• The trade is only executed through computerized system.
• This system is called KATS.
• Under this mechanism trade is executed by brokers, settled
by a settlement company
7
Trading mechanism

8. • For governance and good control the company that operates
KATS and settles the transaction executed in the stock
market through computerized system, is called NCCPL.
• No transaction is possible without NCCPL involement.
• This company ensure ‘logical and guaranteed closure’ of any
transaction executed in stock exchange.
• ‘Logical closure’ means completion of the transaction by
delivery and payment.
8
Trading mechanism

9. • T+3:
– Transaction date plus three days to settle the transaction.
– Normal transaction.
• T+0 (Spot):
– Same day settlement.
– Few transactions.
• Future:
– Transaction executed now and settled in a future date.
[9]
Trading Cycles

10. • Normal trade:
– T+3, T+0 and future are normal trades.
– Executed and settled.
• Ready Future:
– Buying in ready and sells in future.
• Day trading:
– Buying in ready and sells in ready.
• Shorting:
– Selling before having the ownership/possession of stocks.
[10]
Trading Methods

11. • Three types of financing are available:
– Direct financing from banks – Margin Trading System.
– Financing through brokers – Margin Financing System.
– Off market financing – from banks or individuals.
• All types of financing are usually interest based.
[11]
Banking system involvement

12. 12
Shari'ah Guidelines for trade and business
Dealing in Haram goods and services
Riba (interest)Maiser & Qimar (gambling) [a type of Gharar]
Gharar (excessive uncertainty)
Haram Economic dealings and activities
Violation of Islamic law of contract
●Void contracts;
●Suspended (hung) contracts;
●Conditional contracts;
●Non transparent contracts;
●Business of liquer and other
mpermissible or dubious items;
●Contract of impermissible services;
●Modern day interest;
●Increase in dues (receivables) in
case of delays;
●Interest on loans and debts;
●Some types of FX transactions;
●Pure gambling like betting in casinos;
●Gambling in sports and games like
paid contests;
●Gambling in business like cash
settled derivatives (option, future,
forward & swaps);
●Non transparent deals;
●Interdependent contracts;
●Many types of non clarities which
ultimately makes the transaction a matter
of conflict;
●Incomplete information of subject matter
or price;

13. • This market is acceptable to Islam and nothing contradictory
is there in its basic concept.
• Applying what is discussed in previous slide is important.
• By application of these laws some practices of stock market
appears to be ‘unacceptable’ to Islam.
• So the whole market is not Haram but some part of it is not
according to Shari’ah.
13
Ruling on stock market

14. • No Haram business.
– No share of a company deals in Haram is allowed.
• No Riba based activity:
– No shares of Riba based companies.
– No Ribab based funding and financing.
– Special rules on companies which are primarily Halal but have
interest based financing and investment – share screening criteria.
– No bond and TFCs are permissible.
14
Guidelins on stock market activities

15. • No gambling like business:
– No gambling based company’s shares.
– No gambling like ways of trading.
– No shares of commercial insurance.
– No future trading.
– No derivatives (Futures, options and Swaps etc.)
15
Guidelins on stock market activities

16. • No unacceptable methods of trading:
– Sale before possession.
– Selling what is not in ownership.
– No sale that is executed now but settled in future.
• No financing from interest based resources:
– No interest based margin financing is allowed.
– No Badla is allowed.
– No personal borrowing on interest.
16
Guidelines on stock market activities

17. 17
Q & A