By Timur Abimanyu, SH.

MH

THE WASHINGTON POST

Principles of Islamic Capital Market

The capital market is one of the important milestones in the world economy today. Many industries and companies that use institutional
capital markets as a medium to absorb investment and the media to strengthen its financial position.

The capital market is one of the important milestones in the world economy today. Many
industries and companies that use institutional capital markets as a medium to absorb
investment and the media to strengthen its financial position.Factually, the capital market has
become the financial nerve-center (the world's financial nerve, Red) modern economic world.

In fact, the modern economy would not exist without the existence of capital markets are
properly organized. Every day trillions of dollars of transactions occur through these
institutions. As modern institutions, capital markets can not be separated from the weaknesses
and mistakes.One of them is an act of speculation. In general, the processes of business
transactions that occur are controlled by speculators. They always pay attention to market
changes, create a variety of analysis and calculations, and to take action on speculation in the
purchase or sale of shares.Activity is what makes the market remained active.However, this
activity is not always beneficial, especially when the cause of depression is remarkable.
The nature of speculative activity can be detailed as follows. First, the speculation is not really
an investment, although there are similarities between them. A very fundamental difference
between them lies in the 'spirit' that menjiwainya, not in shape.The speculators buy securities
to profit by selling it again in the future. While investors buy securities with the aim to
participate directly in the business. Second, speculation has increased unearned income for a
group of people in society, without them giving any contribution, both positive and
productive. In fact, they have taken advantage at the expense of society, which, however, very
difficult to be justified economically, socially, and morally.

Third, the speculation is the cause of financial crisis. Facts show that the activity of
speculators is what caused the crisis on Wall Street in 1929 which resulted in tremendous
depression for the world economy in the 1930's. Similarly, the 1967 devaluation of sterling, or
franc currency crisis in 1969. These are just some examples. Even to this day, the monetary
authorities and financial experts are always busy to take steps to anticipate the actions and
impacts that may be caused by speculators.

And, fourth, speculation is the outcome of the mental attitude 'want to get rich quick'. If
someone has been stuck in this mental attitude, then he will try to justify all sorts of ways
without regard to the signs of religion and ethics.Therefore, Islam strictly forbids action this
speculation, because it is diametrically opposed to the values and insaniyyah illahiyah. The
basic principle There are some basic principles to build a capital market system in accordance
with Islamic teachings. As for implementation, it required a long process of discourse.
These principles, among others, not diperkenankannya sales and purchase directly.Currently,
if a person or a company wants to sell or buy shares, he will use the services of a broker or
brokers. Then the broker will contact jobbers and expressed the intention to trade, both in the
purchase or sale of shares. Then the jobber offers 2 rate prices, which rate prices would be
bought which are usually lower and the rate of price that will sell are usually
higher. Furthermore, the jobber is obliged to buy the shares. Transaction model provides two
implications.
The first, the jobber will buy stocks even if they do not necessarily need it. They buy stocks in
hopes to resell it to those who need. This will open the door of speculation. The speculators
know that they can buy stocks that benefit from the market because the jobber is able to
provide a ready stock. Similarly, if the shares were less profitable, they can also take it off
quickly.
Further implication is the only price changes are determined by market forces, where there is
no significant change of the intrinsic value of stock. In Islamic teachings, rules of capital
markets should be made in such a way as to make the act of speculation as a business that is
not interesting.For that, the procedure of purchase / sale of shares directly is not allowed. The
procedure, any company that has a quota of certain shares to give authority to the agent on the
exchange floor, to make a deal on the shares. The task of this agency is to bring together
companies with potential investors, and not buy or sell them directly. The shares are sold or
purchased if they are available.If multiple parties want a particular stock, then they must first
be registered as an applicant, and such shares are then sold / purchased by the principle of
first-come-first-served (who came before him served, Red).
Currently the price determination, stock prices are determined by the forces of supply and
demand.While the rules of Islam, unlike pricing stock pricing as it does at present. If we look
at the balance sheet of the joint stock company, it appears that assets equal liabilities plus
equity. These assets is a representation of the capital, where the obligations assumed equal to
zero. Thus, stock certificates have a specific value, where value will be equal to the value of
their assets. Every stock price is above or below the value of its assets, does not show the real
condition. But market forces are able to make the stock price is above / below the value of its
assets. In the view of Islam, to prevent this distortion, the share price should be in accordance
with its intrinsic value.
The calculation formula is: the price of shares equal to the share capital gains - profits
accumulated losses - the accumulated losses, all divided by the number of shares (Muhammad
Akram, Issues in Islamic Economics). This formula will give the true value of the stock
certificates, and will better reflect actual conditions. No one is allowed to buy or sell at
various price levels except on the basis of price regulation has been determined.
The question, whether with a policy like this, speculators would not be interested in
speculation activities? There are two reasons that explain this.Prices will not change
quickly. Price declared since the date of balance sheet and is valid until the next balance sheet
date. Also, buy or sell shares is not easy work, and a lot of uncertainty.The speculators will
not be hasty in buying stocks before the date of balance sheet. This will reduce speculative
activity. Another basic principle is to study carefully the account books. The practice of
business management and accounting standards should be applied to all companies that
already have a quota of certain shares. Then, there should be an audit and investigation
process abruptly to investigate the truth of a company's balance sheet.In addition, each
company should be required to announce its financial position every three months, so that the
public will know how true intrinsic value of its shares at least 4 times a year. Of course a firm
closing date will differ from other companies, so the date of announcement of its financial
position would be different.
Thus, almost every week throughout the year, there will be closure and the announcement of
its financial position, and this will keep the market active throughout the year. This basic
principle also forbids companies to sell their own shares.The company subsequently
forbidden to sell its own shares in the market without any permission from the registrar /
registrant Join Stock Company.In addition, there is a ban lending for speculative
purposes. Lending of funds for speculative purposes in the capital markets is strictly
prohibited in Islam. Forward transaction A large part of the speculation business is a forward
transaction, a transaction where two parties agree to make delivery on a certain date in the
future.Usually between one to twelve months after the date of the transaction.
On the London Stock Exchange, a forward transaction has been banned in a much larger
scale. In addition, the existence of short selling is not allowed. It is to sell stocks before
someone has it, with the hope to buy it back with a lower price.Contango also not
allowed. There are two reasons why the contango will not occur in Islamic capital
markets. First, the price will not change quickly because the price is determined by the
intrinsic value of the shares. Then the second, to contango funds sourced from usury will not
be available because Islam forbids usury or the like. Likewise, option transactions, both single
and double option option they are not allowed in Islam, as affirmed in the book Mishkat al-
Bai. The existence of the overall supervision of capital markets activity. To ensure effective
implementation of Islamic capital markets, as well as to prevent any deviation from Islamic
values, it requires the existence of institutions that have full authority, whose members not
only financial experts, but also legal experts / Islamic sharia. By Irfan Syauqi Beik, MSc

Who became his legal prpblem, whether Islamic banking entered into the capital markets in
allowed in Islamic Law ?
How does Islamic law setting can be considered kosher?

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