derivative market in gulf countries
TRANSCRIPT
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PROJECT PRESENTED BY
MANMEET THAPARVISHRUTHA MARAAR
AARTI GADADEEPAVALI VANKALU
RAMMANI GUPTA SIDDHESH PARAB
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Gulf Corporation Council
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Gulf Cooperation Council GCC was established in
an agreement concluded on
25 May 1981 in Riyadh, Saudi Arabia between:
Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE
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Objectives
To protect themselves from the threat posed by the Iran-Iraq War
It was established with the political systems based on Islamic beliefs, joint destiny and common objectives.
The geographic proximity of the these countries
and their general adoption of free trade economic policies are factors that encouraged them to establish the GCC.
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R E V E N U E S O U R C E SOIL & GAS RESERVE GOLD & MINING INDUSTRY
TRAVEL & TORISIM INDUSTRY
REAL ESTATE
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Saudi Arabia47%
UAE24%
Kuwait14%
Qatar8%
Oman5%
Bahrain2%
Sales
Saudi ArabiaUAEKuwaitOtherOmanBahrain
Member Countries Contribution
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DOES OIL ECONOMIES NEED
SYNTHETIC PRODUCTS
?
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Capital Market Structure
Debt
Derivative
Equity/
Cash Marke
t
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Present Scenario of Capital Market in GCC
GCC Capit
al Marke
t
Equity
Market
Derivatives
Market
Debt Market
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E Q U I T Y M A R K E TMarket Cap AV Market
Cap
(USD b) No Of Companies (USD b)
Saudi Arabia 326 81 4.03
UAE 168 93 1.81
Kuwait 147 165 0.89
Bahrain 64 42 1.52
Oman 13 131 0.10
Qatar 60 36 1.68
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E Q U I T Y S T O C K E X C H A N G E S
Saudi Stock Exchange
Dubai financial Market – DFM
Abu Dhabi Securities Exchange - ADX
Kuwait Stock Exchange - KSE
Bahrain Stock Exchange - BSE
Muscat Securities Market - MSM
Qatar Exchange - QE
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PRESENT DERIVATIVE MARKET
UAE (Dubai initiated by NASDAQ)
Kuwait
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Current scenario of Derivatives Market
"Markaz" initiated a proposal to provide the Options service in Kuwait Stock Exchange in year 2002.
Trades in options through a Fund viz., "Forsa Fund" to work as a market maker for options trading in the first stage.
In March 2005, KSE allowed Call options to be traded by Forsa Fund.
Put Options does not exist in GCC as of now.
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Forsa Option : • Should be a Member in KSE.
• Contract –Market Maker(Forsa Fund ) & Buyer (Trader).
• To achieve stable return.
• Provides with a ask and bid price.
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He can sell the contract back to the buyer (Forsa fund).
Trading has to be done with the same broker who executed the original deal.
Take no action let the option expire.
Mechanism of an Option-3 way settlement.
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Brokerage and Commission Charges
They are charged to both the buyer and the market maker.
Total brokerage charged is 5.5% of the contract value.
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Forwards/Future ContractIn Dubai Market
BuyerX
Market Maker
KSE
Premium + 40% of the underlying stock value
Gives the share to KSE
If there is loss & the buyer refuses to paythe 60% then the shares go back to the market maker.
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FuturesSimilar to Forward Contracts
The basic difference is Forwards are traded after market hours (i.e. 12:45 to 1:15) while Futures are traded during market hours(i.e. 9:30 to 12:15)
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Forward Contract In Indian Market
Buyer Mr. X
SellerMr. Y
Long Position Short Position
Exchange an AssetIn Future @ Today’s Pre-agreed price at a particular period.
If there is a loss of seller, he can cancel the agreement & Vice Versa. Hence, there is no obligation in this particular contract .
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Limitations of GCC Capital Market
• Incomplete Market
Structure
• Lack Of Depth & Breadth
• Skewed Liquidity & High
Speculation
• High Volatility
• Lack Of Institutional Investment
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IslamicFinance
Usury or charging of interest (riba) is forbidden)
Risk should be shared
Uncertainty (gharar) in a contract is prohibited
Competence
Consent
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Features of Islamic Banking.Muslims are prohibited by their religion to deal in
interest (riba) in any way.
Any money demanded or received by the lender in addition to his original capital is riba
Giving and receiving as well as witnessing are all prohibited.
There is no interest on deposits, but capital is guaranteed.
Lending and investing are treated differently; loans are interest-free but carry a service charge, while investing is on a profit-and-loss-sharing (mudaraba) basis.
Value erosion of capital due to inflation is compensated.
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The functions and operating modes of Islamic banks are based on the principles of Islamic Shariah
In contrast, it promotes risk sharing between provider of capital (investor) and the user of funds (entrepreneur).
The Islamic banks have no provision to charge any extra money from the defaulters. Only small amount of compensation and these proceeds is given to charity.
The functions and operating modes of conventional banks are based on fully manmade principles.
The investor is assured of a predetermined rate of interest.
It can charge additional money (penalty and compounded interest) in case of defaulters
Conventional Banks
Islamic Banks
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Suggestions/Lessons From Indian Derivative Market
Introduction of Short selling option.
More number of Participants from Institutional
Investor.
Draft Regulatory Frame work.
Length and Depth of capital market.
Reduce the brokerage, clearing & settlement fees .
Expanding the number of market maker .
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Conclusion
Yes, Oil Economies need Synthetic Product
Within the scope of Shariyat Laws Islamic Scholars should find ways to invest in
Derivatives Market.
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THANK YOU