PROJECT PRESENTED BY

MANMEET THAPARVISHRUTHA MARAAR

AARTI GADADEEPAVALI VANKALU

RAMMANI GUPTA SIDDHESH PARAB

Gulf Corporation Council

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

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.

R E V E N U E S O U R C E SOIL & GAS RESERVE GOLD & MINING INDUSTRY

TRAVEL & TORISIM INDUSTRY

REAL ESTATE

Saudi Arabia47%

UAE24%

Kuwait14%

Qatar8%

Oman5%

Bahrain2%

Sales

Saudi ArabiaUAEKuwaitOtherOmanBahrain

Member Countries Contribution

DOES OIL ECONOMIES NEED

SYNTHETIC PRODUCTS

?

Capital Market Structure

Debt

Derivative

Equity/

Cash Marke

t

Present Scenario of Capital Market in GCC

GCC Capit

al Marke

t

Equity

Market

Derivatives

Market

Debt Market

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

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

PRESENT DERIVATIVE MARKET

UAE (Dubai initiated by NASDAQ)

Kuwait

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.

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.

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.

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.

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.

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)

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 .

Limitations of GCC Capital Market

• Incomplete Market

Structure

• Lack Of Depth & Breadth

• Skewed Liquidity & High

Speculation

• High Volatility

• Lack Of Institutional Investment

IslamicFinance

Usury or charging of interest (riba) is forbidden)

  Risk should be shared 

Uncertainty (gharar) in a contract is prohibited 

Competence 

Consent 

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.

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

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 .

Conclusion

Yes, Oil Economies need Synthetic Product

Within the scope of Shariyat Laws Islamic Scholars should find ways to invest in

Derivatives Market.

THANK YOU