Technical Note No. 3/2017

CLARIFICATION ON REQUIREMENT ON CONTRACT NOTES FOR TRANSACTIONS UNDER THE ISLAMIC SECURITIES SELLING AND BUYING – NEGOTIATED TRANSACTIONS (ISSBNT)

(Issued: 5 December 2017)

1. This Technical Note seeks to provide clarification on the requirements relating to the issuance of contract notes in relation to the Islamic Securities Selling and Buying – Negotiated Transaction (ISSBNT) framework introduced by Bursa Malaysia.
2. Under the Capital Market and Services Regulations 2012, a contract note is required to be issued by Capital Market Services Licence (CMSL) holder in a securities transaction.
3. The purpose of the requirement to issue a contract note is to enable the client to be well appraised of the details of the transaction which has been executed on his behalf.
4. The ISSBNT is a Shariah compliant framework that mirrors the conventional Securities Borrowing and Lending – Negotiated Transaction (SBLNT) framework. One of the features under the ISSBNT is the “selling and buying” of securities.
5. The ISSBNT model is based on a combination of two outright sale transactions under the ISSBNT agreement where the first sale is made on a deferred payment basis and the subsequent sale (back to the original seller) is made at an agreed price on a cash payment basis via a setting off mechanism.
6. The seller and buyer would have information of the ISSBNT transaction as they both have to provide trade confirmations for the execution of the selling and buying transactions which is made through their respective CMSL holders. Further, the relevant details of the securities would be reported to Bursa’s ISSBNT system by the CMSL holder.
7. Given that the parties have the relevant information in an ISSBNT transaction, the CMSL holder would not be required to issue contract notes for ISSBNT transactions on condition that:
(i) the ISSBNT transaction is carried out in accordance with the rules of Bursa Malaysia;
(ii) the transaction is reported to Bursa’s ISSBNT system; and
(iii) the CMSL holder maintains a record of information relating to the ISSBNT trade.