Islamic capital markets: developments and issues

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• As modern Islamic finance continues to develop, thedevelopment and growth of capital markets, including secondarymarkets, for securities and investments that are compliant withthe principles and precepts of Islamic Shari'ah, is being witnessed.
• Thisarticle first considers the nature of Islamic finance, thenlooks at the primary factors influencing the development andgrowth of Islamic capital markets, before looking at the factorsaffecting risk assessment by transactional participants, particularlythose pertaining to certainty, predictability and transparencyof risk factors.
• Capital markets transactions involve bothShari'ah and secular jurisdictions, and legal opinions and choiceof governing law for transactional documentation in each typeof jurisdiction are critical factors in effecting these transactionsand the growth of these markets.
• The article concludes withan overview of the state of the capital markets products.

 

How to compare regulatory regimes

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It is the policy of this Journal to only publish material thathas not been published previously. However, an exception hasbeen made with this article as the work from which it has beendrawn has only recently published. This article is taken fromPhilip Wood's Regulation of International Finance, one of aseries of nine works by Philip Wood on the law of practice ofInternational Finance, published by Sweet & Maxwell in 2007.Philip Wood is a member of the Editorial Board of Capital MarketsLaw Journal. Many readers of Capital Markets Law Journal aroundthe world will not have had the chance to read this very topicalarticle which is of exceptional quality and Capital MarketsLaw Journal is very pleased to make it available to the widercapital markets community.                 TheEditors

Key points

• This article examines the criteria which might usefullybe . . . [Full Text of this Article]

 

Which law applies? A reply to Professor Torremans

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‘A book may be good for nothing; or there may be onlyone thing in it worth knowing; are we to read it all through?’(Samuel Johnson) This section is dedicated to the review ofideas, articles, books, films and other media. It will includereplies (and rejoinders) to articles, the evaluation of newideas or proposals, and reviews of books and articles both directlyand indirectly related to intellectual property law.

In a recent article,¹ Professor Torremans argues that the countryof origin (sometimes called the lex originis) should be thelaw applied to authorship and ownership of copyright.² There is no doubt that several countries do apply the countryof origin to initial ownership and authorship of copyright works.Citing both the Austrian and Belgian Codes on Private InternationalLaw as examples,³ Professor Torremans also mentions the decisionof the US Second Circuit of Appeals in . . . [Full Text of this Article]

Deregistration issues in the US for foreign private issuers

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• While the passage of Sarbanes–Oxley in the USwas just one of the many causes for the lack of competitivenessof the US capital markets recently, it served to focus the attentionof foreign private issuers in the US on the difficulty and sometimesimpossibility of exiting the US capital markets.
• Unlike manyother jurisdictions, the process of deregistering in the USis distinct from process of delisting. The current rules forderegistration of foreign private issuers focus on the numberof US shareholders, regardless of how or where those shareholderspurchased their shares. In addition, foreign private issuers,were subject to complicated rules for counting US shareholders,and deregistration often would only suspend (not terminate)their reporting obligations.
• As a result of pressure from foreignprivate issuers, the SEC proposed new rules at the end of 2005to liberalize the existing deregistration regime for foreignprivate issuers. . . . [Full Text of this Article]

 

The attack on national regulation: why we need a global framework for domestic regulation

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• In regulating cross-border capital markets transactions,regulators are employing either an exemptive approach, or aunilateral or mutual recognition approach. The exemptive approachallows market participants wherever located to transact businessin the host countries without complying with local requirements.The recognition approach is limited to a particular market,but is more expansive in terms of access to host country investors.In regulating cross-border transactions, the SEC has traditionallyrelied on the exemptive approach, and has restricted participationto only the largest, most sophisticated US investors. Recently,it has moved to a mutual recognition approach with its agreementwith Australia, which allows a broader range of US investorsto conduct cross-border transactions with Australian exchangesand broker–dealers relying almost entirely on the adequacyof the Australian regulatory system. However, both its exemptiveapproach and mutual recognition approach deal only with secondarymarket transactions, not participation in offerings.
• While. . . [Full Text of this Article]

 

'Canada Steps Up'--Task Force to Modernize Securities Legislation in Canada: recommendations and discussion

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• The Task Force to Modernize Securities Legislationin Canada released its report entitled ‘Canada Steps Up’in October 2006. Its 65 recommendations focused on bringingCanadian securities law into the 21st century, enhancing Canada'scompetitiveness in the global marketplace and eliminating itshigher cost of capital relative to the US.
• This article reviewsand analyses the Task Force's recommendations in five criticalareas: cost–benefit analysis (CBA), improving access tocapital markets, the use from electronic disclosure systemsand financial literacy, the regulation of hedge funds and finally,enforcement.
• This article also reviews two issues that receivedsignificant Task Force discussion, but were left as ideas forconsideration, namely an insurance scheme for misinformationin the capital markets and subsidizing securities analysis toimprove analyst coverage of small firms.
• Finally, conclusionsare drawn from the Task Force's deliberations and recommendationsand next steps are suggested.

 

Lessons from Cukurova

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• The recent decision of the High Court of the BritishVirgin Islands in Alfa v Cukurova has caused a stir among lawyersserving the international financial markets based in London.
• Thedecision concerns the meaning of ‘appropriation’.Appropriation is a new remedy for collateral takers introducedby the Financial Collateral Arrangements (No. 2) Regulations2003, which implement the Financial Collateral Directive.
• Thedecision holds that effective appropriation requires the collateraltaker to take over from the collateral giver the ability todeal with the collateral as its own.
• In Cukurova, where anequitable mortgage was taken over directly held shares, thisrequired that the collateral taker become the registered ownerof the shares.
• The decision was appealed to the BVI Court ofAppeal in late January 2008 and may go further. In the meantime,this article provides an overview of the decision and considersits wider significance.

 

Loan only credit default swaps the story so far

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• The market for Loan Only Credit Default Swaps (LCDS)is expected to develop rapidly, but the market documentationfor this product is proving to be a difficult issue as a resultof differing views by users of the product and divergent approachesbetween the US and European markets.
• The International Swapsand Derivatives Association, Inc. (ISDA) has, on 4 May 2007,released a long-awaited revised draft of the European LCDS.The finalization of this draft is not far off, but certain importantissues are yet to be finalized.
• Rather than speculate on theoutcome of such discussions, this article looks at the developmentof the European LCDS market, the motivation and needs of itsparticipants and takes stock of the European documentation beforeit underwent the recent almost year-long consultation process.It therefore compares the European LCDS of May 2006 againstthe US LCDS of June 2006 (ignoring . . . [Full Text of this Article]

 

Innovation after the revolution: foreign sovereign bond contracts since 2003

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• In 2003, under official pressure, amendment provisionsin standard form New York law sovereign bond contracts shiftedto resemble English law boilerplate.
• Market participants andofficials expected contracts in New York and London to convergearound a common formulation.
• Contrary to expectations, theshift away from old boilerplate did not lead to convergencearound new boilerplate.
• Issuers in London, and to a lesserdegree in New York, are experimenting with diverse terms andinstitutional arrangements.
• Amendment provisions in recentissues have used hybrid formulations, permitting holders tovote in person or by written consent, with different approvalthresholds.
• More issuers are using trust structures.
• Creditorcommittees are making a qualified comeback, though the adoptionand formulation of committee provisons does not appear to trackissuers' credit quality.
• Not all issuers agree to pay committeeexpenses.
• Some issuers have agreed to require unanimous creditorconsent to amend litigation-related terms, . . . [Full Text of this Article]

 

Foreign trading screens in the United States

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• Remote trading screens allow investors to trade onexchanges located in other jurisdictions. The Securities andExchange Commission (‘SEC’) has generally prohibitedthe placement of foreign trading screens in the United Statesunless the associated exchange complies with US regulatory requirements.While the SEC defends its position as an essential investorprotection, European officials complain that SEC requirementsconstitute an unfair barrier to trade.
• This article arguesthat technological advances have largely mooted this contro-versy.Current requirements do not protect US investors as much asthe SEC claims nor do they inhibit competition as much as theSEC's critics assert.
• To the extent that alternative tradingmechanisms already give US investors de facto access to unregulatedforeign exchanges, the SEC may well choose to revisit its positionon foreign trading screens, particularly as US and Europeanfinancial markets become more integrated and disclosure requirementson both sides of . . . [Full Text of this Article]

 

New relaxed regulatory regime for private international charities: the Manx Private Charitable Foundation

The Manx Private Charitable Foundation has become a highly attractivevehicle for private charitable arrangements following on a changein the regulatory legislation in the Isle of Man in 2008, especiallywhere there is no UK inheritance tax or US estate and gift taxissues for donors. In the Isle of Man which has its own unique legal system, since1986 non-local charities have been almost impossible to establish,consequent upon the passing of the Charities Registration Act1986. However, with the adoption of the Charities (Exemption)Regulation 2008 that has now changed. Manx law has followed English law in the past. However, thenew English legislation of 2006 has not been followed. The old‘Pemsel Case’     

The evolution of regulatory enforcement action in the UK capital markets: a case of 'less is more'?

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• Formal enforcement action is a relatively rare occurrencewithin the UK capital markets regulatory framework. This characteristicdistinguishes the UK from the US, where there is a more intensefocus on enforcement, both public and private.
• Several featuresof the UK regulatory system contribute towards a low incidenceof enforcement. Some of these features are embedded in the statutoryframework, but the FSA has played a key role in the developmentof enforcement policy, while the continuing presence of self-regulationin the form of the Combined Code has also played a part.
• Thefocus on risk-based regulation in the UK has been a major influencefor enforcement policy. The move to more principles-based regulationhas also been a factor but one that is more difficult to interpret.If it is correct to assume that principles-based regulationdoes not affect the intensity of regulation, then the effecton the . . . [Full Text of this Article]