What happens when the stocks become Shariah non-compliant after execution of Leg 1?

In the event the Shariah status of the securities turns to be Shariah non-compliant, subject to the mutual agreement between the ISSBNT Participants, the following options are available:

Scenario 1

If the status of the ISSBNT Eligible Securities changes to Shariah non-compliant (“Reclassified Securities”) after the Approved User has fully sold the said securities to a third party prior to execution of Leg 2, the Approved User may wish to opt for the following remedies:

• Recall or acquire back the securities which have been fully sold to the third party and return or sell back to the Approved Supplier under Leg 2. For this option to apply, the exercise has to be completed within seven (7) Market Days from the effective date of the updated List of Shariah-compliant Securities by the SAC of the SC;
• Cash settlement via Commodity Murabahah transaction; or
• Replacement with other Shariah-compliant securities.

Scenario 2

If the status of the Reclassified Securities changes after the Approved User has sold a portion of the said securities to a third party, the Approved User may wish to opt for the following remedies:

• Recall or acquire back the portion of the said securities which have been sold to the third party and return or sell back to the Approved Supplier. For this option to apply, the exercise has to be completed within seven (7) Market Days from the effective date of the updated List of Shariah-compliant Securities by the SAC of the SC;
• The remaining units in its possession can be sold to Approved Supplier under Leg 2; and the difference can be arranged through cash settlement via Commodity Murabahah transaction; or
• Replacement with other Shariah-compliant securities.

What happens if the ISSBNT Participants could not manage to dispose the Reclassified Securities within seven (7) Market Days?

In the event the disposal of the Reclassified Securities is not completed within seven (7) Market Days from the effective date of the updated List of Shariah-compliant Securities by the SAC of the SC as per Scenario 1 or Scenario 2 of the Item 7.6 above, the ISSBNT Participants may opt for other remedial options as specified in the Item 7.6 (2) and (3) above.

What happens if the ISSBNT Participants choose not to recall the Reclassified Securities?

In the event the ISSBNT Participants choose not to recall back the Reclassified Securities, the ISSBNT Participants may continue their ISSBNT Agreement via Commodity Murabahah settlement that is marked to the current market value.

How long can the ISSBNT Participants hold on to the Shariah non-compliant securities?

Based on the guide provided by the SAC of the SC in the List of Shariah-compliant Securities (Refer to: https://www.sc.com.my/), holding of Shariah non-compliant securities should observe the timing for the disposal of Shariah non-compliant securities.

• Reclassified Securities
  These refer to securities which were earlier classified as Shariah-compliant but due to certain factors such as changes in the companies’ business operations and financial positions, are subsequently reclassified as Shariah non-compliant. In this regard, if, on the date this updated list takes effect (every last Friday of May and November), the respective market price of Shariah non-compliant securities exceeds or is equal to the investment cost, ISSBNT Participants who hold such securities must dispose them off.

Any dividends received up to the effective date of the Reclassified Securities and capital gains arising from the disposal of Shariah non-compliant securities on the effective date of the Reclassified Securities can be kept by the ISSBNT Participants. However, any dividends received and excess capital gain from the disposal of Shariah non-compliant securities after the effective date of the Reclassified Securities should be channeled to baitulmal and/ or charitable bodies. The ISSBNT Participants have a right to retain the investment cost only.

Note: Investment cost may include brokerage fee or other related transaction cost.

On the other hand, ISSBNT Participants are allowed to hold their investment in the Shariah non-compliant securities if the market price of the said securities is below the investment cost. It is also permissible for the ISSBNT Participants to keep the dividends received during the holding period until such time when the total amount of dividends received, and the market value of the Shariah non-compliant securities held equal the investment cost. At this stage, they are advised to dispose of their holding.

In addition, during the holding period, ISSBNT Participants are allowed to subscribe to:

(i) any issue of new securities by a company whose Shariah non-compliant securities are held by the ISSBNT Participants, for example rights issues, bonus issues, special issues and warrants (excluding securities whose nature is Shariah non-compliant e.g. loan stocks); and

(ii) Shariah-compliant securities of other companies offered by the company whose Shariah non-compliant securities are held by the ISSBNT Participants, on condition that they expedite the disposal of the Shariah non-compliant securities.

• Disposal of Shariah non-compliant securities
  The SAC of the SC advises ISSBNT Participants who invest based on Shariah principles to dispose of any Shariah non-compliant securities which they presently hold, within a month of the announcement of the List of Shariah-compliant Securities by the SAC of the SC. Any gain made in the form of capital gain or dividend received before or after the disposal of the securities has to be channeled to baitulmal and/ or charitable bodies. The ISSBNT Participants have a right to retain only the investment cost.
  
  Note: Investment cost may include brokerage fee or other related transaction cost