Contra trading in Bursa Malaysia Securities Berhad: a Shari'ah and legal appraisal

Pages: 106
Year: 2017


This publication is part of the journal (2017-2)


Abstract
Purpose – The purpose of this paper is to analyze the practice of contra trading  in Bursa Malaysia
Securities Berhad. Through a critical examination of the practice, it aims to discuss the issues
from the angles of Sharīʿah and Malaysian common law.
Design/methodology/approach – The paper uses a qualitative research methodology. The information on
the practice of contra trading is obtained through the Bursa Malaysia Securities Berhad's website
and literature as well as series of meetings and discussions held with Bursa Malaysia Securities
Berhad. In comprehending and dissecting the Sharīʿah and legal issues, classical along with
contemporary Sharīʿah literature including local and international Sharīʿah advisory bodies'
resolutions and standards  have been referred to. The Sharīʿah analysis of these issues is further
supported by reference to the statute and by-laws of Bursa Malaysia Securities Berhad as well as
other related legal literature.
Findings – This paper finds that contra trading involves a real sale and purchase of shares; the
shares are not taken into the possession of the contra trader, neither physically nor
constructively; the liability of shares is not transferred to the contra trader; though the
practice of profiting in contra trading may contradict the prohibition on profiting without bearing
liability, the permissibility of contra trading could still be argued from the contextual approach
of public interest (maslahah) and needs (h-ajah); and contra trading is not gambling.

 

 

 

 

 

 


Research limitations/implications – ·

 

 

 

 

 

 


·   paper is limited in its analysis to only Sharīʿah and legal

 

 

 

 

 

 


This
perspectives. It does not cover a thorough empirical and quantitative investigation that would
measure the extent of the public needs for contra trading and the real benefits that contra trading
brings about to the society in the long run. Such studies will further demonstrate whether contra
trading deserves a relaxation from the strict Sharīʿah ruling thus affirming the issue of
permissibility of contra trading. Moving forward, this paper recommends ways to address  the
predicaments faced in the contra trading  practices as well
important research areas that could be taken up in future.
Originality/value – This paper provides an in-depth investigation of the practice of contra trading
at the
Bursa Malaysia Securities Berhad from the angles of Sharīʿah and common law.
Keywords Legal, broker, exchange, contra trading, shares
Paper type Research paper


Introduction
Contra trading refers to an activity that allows a buyer to contra or offset its obligation to
purchase shares with its broker before the settlement/maturity of the contract. The benefit of
contra is that it enables the buyer to exit the contract earlier. The end result of contra is the
netting off between the amount the broker has to pay to the original seller for the price of the
shares and the amount the broker receives from the new buyer for the price of the shares.
Although contra trading is claimed to facilitate the efficiency and liquidity of the market,
the manner in which it is being carried out attracts Sharīʿah scrutiny. The need to
investigate the compliancy of contra trading practices is timely as at present the Sharīʿah
Advisory Council of Bursa Malaysia has yet to issue any resolution on its permissibility.


 



 

 

 


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