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An Update on the development of the London's Stock Exchange sukuk markets

31 August 2010
Islamic Finance at the London Stock Exchange

The key factors contributing to London's position as a leading global hub for Islamic finance are well known. The depth and breadth of the London capital markets, in addition to the extensive pool of expertise offered by one of the largest concentrations of specialist legal and advisory expertise in the world have provided a solid foundation. These factors, combined with the sustained commitment of the UK Government to developing Islamic finance with a series of tax and regulatory changes, have all contributed to making London one of the key venues where Islamic financial institutions and investors can come to do business.

At the London Stock Exchange, we offer a diverse range of products and services across our markets - from the trading of equity shares on the Alternative Investment Market (AIM), which offers growing companies all the benefits of being quoted on a world-class public market within a regulatory environment that has been designed to meet their specific needs, to the listing of sukuk on the Main Market, an EU Regulated Market under MiFID, or the Professional Securities Market, an Exchange-regulated market offering the benefits of more flexible regulatory requirements. In addition, a vibrant and growing ETF market means that the London Stock Exchange is able to provide Islamic institutions and investors with a broad choice of Shariah-compliant financial instruments within a range of market structures.

Sukuk Issuance

Despite a general slowdown in sukuk issuance following the credit crisis and some uncertainty regarding the Shariah-compliance of some existing structures, the London Stock Exchange saw six issues during the 2010 financial year, with a total of £2.8 billion raised. Since the first London-listed sukuk was launched in July 2006 over US$17.7 billion has been raised through 28 issues on the London Stock Exchange's markets. Key milestones have been the GE Capital sukuk, issued in November 2009, which was the first listed sukuk issued by a major US corporate. And most recently, the Kuveyt Turk sukuk, listed in August this year, which was the first sukuk to be issued by a European bank.

Retail Securities

In February 2010, the London Stock Exchange introduced a new retail bond market for private investors. The new Order book for Retail Bonds (ORB) offers electronic trading in a number of UK government securities and retail-size corporate and supranational bonds and aims to respond to private investor demand by offering a cost-effective, transparent and efficient mechanism for concentrating on-screen liquidity and facilitating price discovery in a range of fixed income securities.


The key benefit of this new retail market is that it offers an open and transparent market structure for trading in retail-size. Because dedicated market makers are committed to quoting two-way prices in a range of retail bonds throughout the trading day and all other registered member participants are also able to enter orders into the book, the market model means that private investors will be able to see prices on-screen and trade in bonds in a similar way as they currently do for shares.


The new market also aims to provide corporate issuers with an efficient way for distributing bonds to retail investors and aims to encourage further new issues of bonds tradable in smaller size denominations.


Under the EU Prospectus Directive, the regulatory regime distinguishes between 'wholesale' bonds, which are tradable in units of £50,000 or greater, and 'retail' bonds tradable in smaller size, often in denominations of £1,000 for example. The vast majority of bonds issued in the UK are 'wholesale' bonds and are therefore not accessible to most private investors because of the large size of the denominations in which they must be traded. There is strong appetite from UK private investors for a wider universe of bonds tradeable in retail-size denominations to be made available. As a liquid, transparent secondary market for retail bonds develops it is expected that it will bring into focus the benefits of retail issuance programmes as an additional source of funding for companies wishing to raise capital from a wider pool of investors and the indications are that this could stimulate increased retail-size issuance of corporate bonds.


Currently only conventional debt securities are available on the new ORB platform, but this new market could offer exciting opportunities for issuers of Shariah-compliant securities wishing to access the retail market. Provided that a retail sukuk issue met all the listing and admission requirements of the EU Regulated Main Market and a market maker was committed to providing two-way prices it would be possible for such a sukuk be made available for electronic trading on the new ORB market.

Looking to the future


The London Stock Exchange's product offering, spanning the traditional equity and debt securities markets, as well as the exciting opportunities offered by a new and expanding segment for retail bonds, and also extending to a host of new and innovative exchange traded products, offers a truly global market where the world of Islamic finance can come to do business. We continue to work with issuers and investors to develop liquidity, transparency and accessibility to Islamic financial instruments on our markets and look forward to further growth and product innovation in this space.

By Gillian Walmsley

© Zawya Select 2010

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