TRADING OF SUKUK ON SECONDARY MARKETS

Supplementary RF Finance Definitions and Principles Pertaining to Sukuk Trading

Following are some of the concepts and terms used in the sukuk trading activities. It should be stated here that the trading of sukuk has represented a major challenge to Shari'aa scholars and RF bankers because it is a known Shari'aa rule that debt cannot be traded unless a number of strict requirements have been met. Following are some definitions offered by the Malaysian Securities Commission in its regulations of sukuk issuance:

Debt trading (bai' dayn). A transaction that involves the sale and purchase of securities or debt certificates that conforms to the law (Shari'aa). Securities or debt certificates will be issued by debtor to creditor as an evidence of indebtedness.

Open market bidding trading (bai ul muzayada). An action by a person to sell his asset in the open market through a bidding process among potential buyers. The asset for sale will be awarded to the person who has offered the highest bid/price. This is also known as the sale and purchase transaction based on tender.

Guarantee transfer (kafalah/dhaman) . A contract of guarantee whereby a guarantor underwrites any claim and obligation that should be fulfilled by an owner of the asset. This concept is also applicable to a guarantee provided on a debt transaction in the event a debtor fails to fulfill his debt obligation.

Ownership rights (haq tamaluk). An asset in the form of ownership rights as classified by Shari'aa, which are tradable.

Gift (hibah). A gift awarded by an owner to a person voluntarily.

Remittance (hawalah). A contract that allows a debtor to transfer his debt obligation to a third party.

Rebate (ibraa). An act by a person to withdraw his rights to collect payments from a person who has the obligation to repay the amount borrowed from him.

Preagreed contract (ittifaq dhimni). A sale and repurchase of the underlying assets of which the prices are agreed by the parties prior to the completion of the contract. This is an external agreement that must be reached before the contract can be concluded to allow for the bidding process (bai ul muzayadah) to take place.

Collateral (rahn/lien). A valuable asset is made by this act as pledge for debt. The collateral can be used to settle the debt when the debtor is in default.

Fee (ujrah). A charge made to pay for the effort made and the utilization of financial services (manfa'aa). It can be in the form of a salary, allowance, commission, and/or any permissible for of assets.

 
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