SC releases Guidelines on the Offering of Islamic securities
The Securities Commission (SC) today release d the Guidelines on the Offering of Islamic Securities (IS Guidelines). With the IS Guidelines, the offering of Islamic Securities is no more subject to the Guidelines on the Offering of Private Debt Securities (PDS Guidelines) that apply to conventional bond products.
The IS Guidelines introduce an ‘umbrella’ framework for Islamic securities, enabling and facilitating the development of a more innovative and sophisticated Islamic capital market in Malaysia. The IS Guidelines would facilitate the introduction of a wider range of Islamic instruments, particularly those issued under the Syariah principles of Mudharabah or Musyarakah (profit-and-loss sharing) in order to meet different risk-return profile of investors.
These Guidelines complement strategic initiatives in the Capital Market Masterplan (CMP) to facilitate the development of a competitive and innovative Islamic capital market, attractive to both local and the global markets.
The guidelines are released pursuant to the prescription by the Minister of Finance that securities using Musyarakah or Mudharabah principles, as well as Sukuk issuances, are “securities” 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 to provide a legal framework flexible enough to regulate a wider range of Islamic instruments.
Investor protection has also been enhanced. The Prescription Order clarifies that all Islamic securities transactions, including those made under principles of Musyaraka h and Mudharabah , must comply with the statutory requirements on trust deeds and duties of trustees and borrowers. In addition, there is the mandatory requirement for an Information Memorandum to be issued to investors for transactions structured under principles of Musyarakah or Mudharabah , in order to ensure that the level of disclosure that is made is sufficient to enable investors to make informed investment decisions.
In line with this new framework, all tax incentives and exemptions applicable to Islamic debentures have also been extended to all types of Islamic securities.
With the release of the IS Guidelines, the PDS Guidelines no longer apply to the issuance of Islamic securities in Malaysia. However, the SC’s Policies and Guidelines on the Issue/Offer of Securities and Guidelines on the Offering of Asset-Backed Securities will continue to apply to Islamic securities, where relevant.
The IS Guidelines are available on the SC’s website here.