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Sharia Capital Market Principles
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Sharia
Capital Market Principles
Capital market is one of the important milestones in
the world economy at this time. Many industries and companies use institutional
capital market as a medium to absorb investment and the media to strengthen the
financial position. In factual, the capital market has
become the nervous of financial world in modern world economy. The modern
economy would not exist without the capital market with a better organized.
There was a transaction worth millions of dollars through this institution every
day. As a modern institution, the capital market is
not out of the weaknesses and errors. Speculation is one of them. In general,
the speculator controls the processes of business transaction that occur. They always take the market changes,
create a variety of analysis and calculations, and take action on the
speculation in the purchase or sale of shares. These activities make the market
remains active. However, these activities do not necessarily beneficial,
especially when the depression that arise outside the ordinary. Speculation summaries can be specified as follows, First, the speculation is not an investment indeed, despite
the similarity between them. A very difference fundamental between them lies in
the 'spirit', not the shape. The speculators buy securities for the benefit of
re-sell them in the future. While the investors buy securities with the
objective to participate directly in the business. Second, speculation has increased unearned income
for a group of people in the community, without giving them any contribution,
whether they are positive or productive. In fact, they are taking advantage on
the cost of the community, which however is also very difficult to be justified
on economic, social, and moral. Third, the speculation is the cause of a
financial crisis. The facts show that the activities of the speculator are what
caused the crisis on Wall Street in 1929, which resulted in extreme depression
of the world economy in 1930. Similarly are Pounds Sterling
devaluation in 1967 and the currency crisis the franc in 1969. This is just some
examples only. Even to this day, monetary authority and financial experts are
always busy to take steps to anticipate the action and the impact that may be
incurred by the speculator. Moreover, fourth, speculation is
the outcome of the mental attitude 'want to be rich quickly'. If someone has
been stuck in this mental attitude, he will strive to allow all kind of ways
regardless to signs of religious and ethics. Therefore, the teaching of Islam explicitly prohibits this speculation action, as
the diametric opposite to the values of God and human.
Basic principles
There are some basic principles to develop the
capital market system in accordance with the teachings of Islam. While for
implementation, it requires a long process of discourse. Principle, among others, is not
permitted to sale and purchase directly. Currently, if someone or a company
wants to sell or buy shares, he will use a broker. Then the broker will contact
the jobbers and intent to deal, in either the purchase or sale of shares. Then the jobber offers two price rates, the rate of purchase price that
is usually a lower rate and the price will be sold that are usually higher. Then the jobber is obliged to purchase these shares. Transaction model
provides two implications. The first, the jobber will purchase shares even if
they do not necessarily need it. They buy shares in the hope that will be able to sell it back to the parties that need.
This will open the door of speculation. The speculator knows that they can buy
shares from the market because the jobber is able to provide ready share. Similarly, when the share was less profitable, they can also quickly
remove it. The next implication, change in price is only determined by the
strength of the market, where there is no change in the meaning of intrinsic
value in shares. In the teachings of Islam, the capital
market rules should be made in such a way to make the action as a business
venture that is not interesting. Therefore, the procedure of purchase / sale of
shares directly are not allowed. Procedures, any company that has a quota
of certain shares to give authority to the agent at the exchange floor make a
deal on the shares. The task of this agency is to bring companies together with
potential investors, and not to buy or sell them directly. Shares are sold or purchased if available. If
multiple parties want a particular share, they must first register as Applicant,
and the share is then sold / purchased with the principle of
first-come-first-served (he who comes first served). The determination of price If we see the balance sheet of the joint
share company, then that asset is equal to the capital share plus the
liabilities. Asset is a representation of the capital, where the obligation is
assumed equal to zero. Therefore, the share certificate has a
specific value; the value will be equal to the value of their assets. Every
share price is above or below the value of their assets, does not indicate the
actual condition. However, the strength of the market is
able to make share prices that are above / below the value of their assets. In
the view of Islam, to prevent the occurrence of this distortion, share prices
should be in accordance with the intrinsic value. The calculation formula is: the share
price is equal to capital share + profit – loss + the accumulation profits-
the accumulation of losses, all of which are divided by the number of shares
(Muhammad Akram, Issues in Islamic Economics). This formula will give the actual value
of the share certificate, and will reflect condition that is more real. None is
allowed to buy or sell at various price levels based on the regulations unless
the price has been set. Question, whether a policy such as this,
the speculator will not be interested in the activities of speculation? There
are two reasons that explain this. Price will not change quickly. Price is
declared on the date of the balance sheet and is valid until the next balance
sheet. In addition, buying or selling shares is
not easy work, and a lot of uncertainty. The speculator will not be hasty in
buying shares before the date of the balance sheet. This activity will reduce
speculation. Another basic principle is research
account books carefully. Standard business practices and management accounting
should be applied to all companies that have a certain quota shares. Then there
is the need to audit and sudden investigation to examine the truth of a
company's balance sheet. In addition, each company must announce
the financial position of each three months, so that the public will surely know
the intrinsic value of shares, at least 4 times a year. Of course, a closing date of the company
will be different with other companies, so the announcement date of financial
position will be different. Thus, almost every week throughout the year, there
will be closure and the financial position, and this will make the market
remains active throughout the year. This basic principle also forbids
companies to sell shares they own. The Company further prohibited selling its
own shares in the market without any permission from the registrar / registrant
Join Stock Company. In addition, there is restriction to
have a credit for the purpose of speculation. The provision of loan funds for
the purpose of speculation in the capital markets is strictly prohibited in
Islam.
Forward transaction In addition, there is also not allowed
to short selling. This is a sell shares before someone has, in the hope that you
can buy it back with a lower price. Contango is also not allowed. There are
two reasons why the contango will not occur in the capital market of sharia.
First, the price will not change quickly because the price is determined by the
intrinsic value of the shares. Then the second, the funds for that from contango
usury will not be available because Islam forbids usury, or the like. Likewise, option transactions, both
single and double option, both are not allowed in Islam, as it is in the Mishkat
al-Bai. There is an overall supervision of capital markets activity. To ensure
the effectiveness of the implementation of sharia capital markets, as well as to
prevent the occurrence of misuse of Sharia values, the necessary existence of
institutions that have full authority, of not only financial experts, but also
legal experts / sharia. ------------- Related
Links: http://www.docstoc.com/docs/12162381/Islamic-Capital-Market-Rules-and-Regulation http://www.economywatch.com/market/capital-market/ http://www.islamic-world.net/islamic-state/malay_islamcapmarket.htm http://www.klse.com.my/website/bm/products_and_services/islamic_capital_market/ http://www.sc.com.my/index.asp?menuid=267
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