122 Islamic Finance in Practice
London that set up the first secondary market for trading sukuk in 2006.
GFI Group−a brokerage company−established an inter-dealer market for
sukuktrading in the same year, and the London Stock Exchange listed its
firstsukukissuance−the $200 million offering by National Central Cooling
Company (Tabreed). The sale in November of the $3.52 billionsukukbond
issue by Nakheel Group−a Dubai property developer−spurred trading in
London, and volumes rose to about$2 billion by the beginning of 2007.
To further develop this nascent market, London-based International
Capital Markets Association and the International IslamicFinancialMarket
have joined forces to enable the expansion of international Islamic financial
markets by means of establishing standard contractsand documentation,
as well as market practices forsukuk.
In the Gulf region, LMC together with a handful of regional banks, is
offering two-way pricing for numeroussukukon its website. Generally, the
number of market-makers offering bids andoffershasbeenlow; nevertheless
LMC executed $78 million of secondary trades in the first seven months of
2006 −well up on the $60.9 million oftrades for the whole of 2005.Hubs of Islamic finance
The rapid growth of Islamic finance has encouraged many existing and new
financial centres to establish themselves as an Islamic finance centre or hub.
London has been active in this respect for many years, as the law firms there
and banks have been active in conducting Islamic finance products or
transactions, and it the first “western” nation to amend its laws to enable
financial institutions to offer Islamic finance products. The UK authorities
are now also in the process of enabling changes so thatsukukscan be issued.
Others among the conventional centres vying for this “crown” are Hong
Kong and Singapore. In the Middle East, Dubai has taken the lead from
Bahrain in some ways, but the result is still to be determined. Saudi Arabia
and Qatar are also in the equation for the role of “Islamic finance hub.” Just
as in the conventional market, there will be room for more than one centre.
Dubai and London are predicted to be the leading centres, with Bahrain and
Kuala Lumpur as other hubs.
The UK authorities, via the Chancellor of the Exchequer’s 2008 Budget,
announced the following to enable the operations of an activesukukissuance
market, by amending lawsto create a level playing field:- Legislate (following consultation) in the Finance Bill, 2009 to provide
relief from stamp duty land tax forsukuk(referred to as alternative
finance investment bonds); - Amend the law to classifysukukas a tax-exempt loan capital for stamp
duty and stamp duty reserve tax; - Adjust legislation to allow existing corporation tax and income tax rules
on Islamic finance arrangements (referred to as alternative finance