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Saturday, 15 November 2008

Malaysia: SC reviewing framework to allow alternative strategy funds

(Securities Commission, Malaysia)
KUALA LUMPUR: The Securities Commission (SC) is reviewing its regulated short-selling, securities borrowing and lending framework to introduce flexibilities within the syariah context.
Chairman Datuk Zarinah Anwar said the review was to enable the establishment of alternative strategy funds, which depended highly on their ability to undertake hedging strategies.
“These regulatory developments would provide a sound basis for alternative funds to be used as a launch pad for an Islamic fund employing absolute return strategies,” she said at the second International Islamic Capital Market Forum yesterday.
She added that SC recognised the need to facilitate a shift from a traditional long-only view of investing into one fund that provided the flexibility to employ sophisticated strategies to manage risk with greater precision.
“The advantage of modern finance is that it makes markets more efficient and deepens liquidity and, consistent with this, it should be an objective of securities regulators to facilitate the hedging of risks in markets,” she said.
Zarinah said the Islamic asset markets had been affected by price volatility and higher risk aversion in recent times.
“The values of syariah-compliant equities worldwide have declined as a result of the current market turbulence in tandem with that of global equities.
“In fact, several banks in the Gulf states recently experienced liquidity problems triggered by the sudden appreciation of the US dollar and the decline in the price of crude oil and required the same type of interventions that took place in the global markets,” she added.
The global environment has also affected the pace of innovation in Islamic finance.
Zarinah said that growth in Islamic hedge funds, for instance, was reportedly slower.
However, she said, this was not surprising given that the conventional hedge fund industry was expected to shrink by a third to a half.
Meanwhile, more established areas of Islamic finance seem to be weathering the storm relatively better than their conventional finance counterparts.
“Global sukuk issuance is down this year, possibly by as much as 40%, but the estimated issuance of US$20bil to US$25bil is reasonable in the current market environment,” Zarinah said.

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