Decisions and Updates from OIC Member States Stock Exchanges Forum Meeting

OIC Member States Stock Exchanges 4th Forum Meeting October 2-3 2010, Istanbul enay PEHL VANO LU Istanbul Stock Exchange (ISE) Assistant Director

Coordinator: Istanbul Stock Exchange, Turkey Participants: Amman Stock Exchange Bursa Malaysia Berhad Dhaka Securities Market Doha Securities Market Dubai Financial Market Egyptian Exchange Islamabad Stock Exchange Kyrgyz Stock Exchange Lahore Stock Exchange Muscat Securities Market Saudi Arabian Stock Exchange (Tadawul) Tehran Stock Exchange 2

At the meeting, the following decisions were taken regarding Customized Indices, ETFs and Islamic Depositary Receipts Task Force: The name of the Task Force is converted to Customized Indices and Exchange Traded Islamic Financial Products The Task Force is mandated to: Communicate with various index providers to determine alternative types of investable indices Consult with IIFM and AAOIFI to determine ways to offer practical, easily comprehensible and cost effective financial instruments, particularly exchange traded commodity contracts and Islamic repo and make recommendations 3

As a part of Task Force activities, IIFM has been visited on March 2, 2010. It was agreed that IIFM officials would present the Sukuk Collateralized Commodity Murabaha (I aadat Al Shira a) and Tahawwut Master Agreement at the Working Committee meeting in Abu Dhabi. IIFM released its Reference Paper on I aadat Al Shira a concepts and structuring possibilities on 28th July 2010. We encourage all forum members to comment on this reference paper that can provide a basis in terms of finding a widely acceptable and market based solution to liquidity management as well as the creation of a more active Sukuk secondary market. 4

The ISE Group also have paid a visit to Mr. Khairul NIZAM, Assistant Secretary General of AAOIFI. Mr. NIZAM affirmed that the Institution would like to organize training activities on-demand about Shariah standards related to Islamic financial instruments for OIC Members. In order to organize such events we will be delighted to receive suggestions from Forum participants. 5

Stage 4 Stage 4 - - Decision Decision Deciding on index provider, constituent members Setting the rules, discussing costs and revenues Stage 3 - - Consult Consulting with index provider companies Stage 3 Consult Stage 2 Stage 2 - - Analyse Analyse Getting information about members capital markets, Analysing FEAS and GT-30 customized indices as models Stage 1 Stage 1 Start Start Establishing Customized Indices and Exchange Traded Islamic Financial Products Task Force 6

In accordance with the decisions taken at the 3rd Forum Meeting in Istanbul, we consulted with the reputable Index Providers: 7

Paradox: Numerous Islamic indices / Non-Islamic countries equities Purpose: To include Shariah-compliant equities from OIC Member States Stock Exchanges Priorities: Facilitating the collaboration among the OIC Exchanges Promoting the OIC Member States Stock Exchanges Forum Creating different investment alternatives 8

Two Types of Indices: A broad index representing the index), widest coverage to highlight the OIC Brand A narrower index (investable index), will serve as the basis of a tradable product Launch: OIC Shariah Compliant Indices are expected to be launched in 2011. whole OIC region (benchmark A broad index representing the whole OIC region A narrower index Projection: Besides regional and tradable indices, we are open to different alternatives e.g. sectoral and corporate governance indices and would consider working with different index providers for different indices. 9

COUNTRY STOCK EXCHANGE Task Force Member 1 1 1 1 1 1 1 1 1 1 1 1 1 13 MSCI S&P FTSE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 ALBANIA ALGERIA AZERBAIJAN AZERBAIJAN BAHRAIN BANGLADESH BANGLADESH COTE D'IVOIRE EGYPT INDONESIA IRAN IRAQ JORDAN KAZAKHSTAN KUWAIT KYRGYZ LEBANON MALAYSIA MOROCCO MOZAMBIQUE NIGERIA OMAN PAKISTAN PAKISTAN PAKISTAN PALESTINE QATAR SAUDI ARABIA SUDAN TUNISIA TURKEY UGANDA UNITED ARAB EMIRATES UNITED ARAB EMIRATES UZBEKISTAN Tirana Stock Exchange, Albania Bourse d'Alger, Alg rie Baku Interbank Currency Exchange, Azerbaijan Baku Stock Exchange, Azerbaijan Bahrain Stock Exchange, Bahrain Dhaka Stock Exchange, Bangladesh Chittagong Stock Exchange, Bangladesh Bourse Regionale Des Valuers Mobilieres, C te d'Ivoire Egyptian Exchange, Egypt Indonesia Stock Exchange, Indonesia Tehran Stock Exchange, Iran Iraq Stock Exchange, Iraq Amman Stock Exchange, Jordan Kazakhstan Stock Exchange, Kazakhstan Kuwait Stock Exchange, Kuwait Kyrgyz Stock Exchange, Kyrgyz Republic Beirut Stock Exchange, Beirut Bursa Malaysia Berhad, Malaysia Casablanca Stock Exchange, Morocco Mozambique Stock Exchange Nigerian Stock Exchange, Nigeria Muscat Securities Market, Oman Lahore Stock Exchange, Pakistan Karachi Stock Exchange, Pakistan Islamabad Stock Exchange, Pakistan Palestine Securities Exchange, Palestine Qatar Exchange, Qatar Saudi Arabian Stock Exchange Khartoum Stock Exchange, Sudan Tunisia Stock Exchange, Tunisia Istanbul Stock Exchange, Turkey Uganda Stock Exchange, Uganda Dubai Financial Market, United Arab Emirates Abu Dhabi Securities Exchange Toshkent Republican Stock Exchange, Uzbekistan 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 Countries,18 Exchanges 19 Countries, 20 Exchanges 19 Countries, 22 Exchanges 10

Criteria The Comparison of Index Providers All index providers; Index Name Methodology Shariah Criteria Index Coverage Selection Process Recognition and Experience Cost Models have recommended to use both of the index provider and OIC brand names as the index name. have recommended to use market cap weighted free float adjusted method as the methodology of calculation. have declared that they receive service from well known Shariah Scholars. declared that approximately 15-20 OIC member stock exchanges would be covered in the benchmark index. are following similar processes for selection. are internationally well recognized and have sufficient experience in the Shariah compliant index calculation. declared to undertake 100% of the calculation and dissemination costs. 11

All index providers we consulted are eligible and experienced in their field and have minor differences in their index calculation policies. Considering that, we sent follow-up questions to FTSE, MSCI and S&P, and asked the number of ; their conventional and Islamic indices, covered companies, ETFs/funds tracking their indices, AUMs of these ETFs/funds etc. We gathered all these information then emailed our Final Report to the Task Force members. 12

The number of FTSE MSCI S&P Total (breakdown is not available) Over 150.000 Conventional Islamic Conventional Islamic Approx 120.000 1,384 Approx 3.000 headline indices with a total of over 600.000 indices 82 countries, 112 exchanges 16.505 1.151 Approx 102 headline indices and a total of 400 indices 82 countries, 112 exchanges 10,078 currently 3 Indices Over 80 Over 8.000 securities Over 1.000 76 markets 8,738 (April 2010) 9.000 72 markets 1.620 currently They create RT indices on a as needed basis. 3 countries covered companies covered real time indices 130 (50 in USA) N/A 260 3 (a) ETFs based on these indices AUM of these ETFs (if possible the breakdown) Over $ 100 bn Approx $230 bn Total $ 76.2 mn USA Islamic: $20.7 mn World Islamic: $ 30.6 mn Emerging Markets Islamic: $24.9 mn 1 Total $ 227.2 bn US listings: $195.8 bn European list: $9.3 bn Canadian list: $18.9 bn Australia list: $2.6 bn Japan : $ 0.6 bn 15 $18.8 mn Exchanges that these ETFs are listed Fund managers benchmarking these indices (estimated) AUMs of funds tracking their indices (estimated) Table is based on data supplied by each index provider. Numbers for FTSE are derived from their presentation dated March 2010. (a)HSBC s first Shariah ETF in Saudi Arabia will use S&P as calculation agent. (b)They have approximately 2000 clients subscribing to the MSCI Indices. Their Middle Eastern clients also subscribe to their Islamic Indices (about 30 clients). MSCI Islamic Index clients also include asset managers and custodians in the US, UK, Continental Europe, Asia Pacific and Malaysia. MSCI announced that they will discontinue the calculation of all MSCI Indices containing securities listed on Tadawul, the Saudi Stock Exchange (S&P will). As a result, Saudi Stock Exchange Data will no longer be available to MSCI effective Sept 30, 2010 and MSCI will discontinue all indices containing Saudi securities as of the close of Sept 29, 2010 (c)Benchmarked assets is a summation of over US$ 2.31 trillion institutional assets sourced from Nelson Marketplace, over US$ 2.27 trillion retail assets sourced from Morningstar Inc., with US$ 154.82 billion tied to exchange traded products, and the remaining as internally managed assets by pension plans sourced from S&P Indices Annual Survey of S&P Indexed Assets.For 2009, S&P Indices estimates over US$ 4.83 Trillion benchmarked to the S&P 500 alone, with indexed assets making up approximately US$ 1.1 trillion of this total. Over US$ 1 trillion was directly indexed to S&P indices. Not provided by MSCI 1 Over 400 (b) 25 ETF Managers 1 ETF Manager $ 3 Trillion N/A over $ 4.83 Trillion (c) $ 95-100 bn 13

Considering their flexible approach from business point of view and more importantly, their eagerness to cooperate with the OIC Stock Exchanges, S&P has been invited to make a detailed presentation to Forum participants. S&P covers 19 OIC member countries and 20 exchanges, if any of the remaining countries in the OIC are added to their global coverage in the future, they will also be included in their indices. 14