London, 13th September 2017 – The International Islamic Financial Market (IIFM) organised a Workshop on its Islamic Hedging and Liquidity Management Standards, which was hosted by Clifford Chance at their London office. The Workshop was held in conjunction with The IFN Europe Forum 2017.
The Workshop was attended by more than 60 delegates from around 40 institutions, which included regulators, banks, law firms, academics and other market practitioners from UK and abroad. The participants were given detailed technical briefings on IIFM’s standards on Islamic hedging and liquidity management by leading experts in the field.
In his Welcome Address, Malcolm Sweeting, Senior Partner at Clifford Chance, said “The ability to hedge market risks and to access and mange liquidity are both essential for the continued growth and internationalisation of Islamic Finance. IIFM’s work in developing documentary standards for these activities has been crucial, and we at Clifford Chance have been proud to be able to support IIFM and contribute to their work”.
The first session of the Workshop was on “Islamic Hedging Standards” where Ijlal Ahmed Alvi, Chief Executive of IIFM, gave a brief history of the development of the Islamic hedging segment, IIFM’s pioneering role and its 10 plus years of fruitful cooperation with its joint partner ISDA which has led to the publication of a complete set of Islamic hedging standards, including a Master Agreement, Product Confirmations and Credit Support Deed.
Habib Motani, Partner at Clifford Chance gave a detailed presentation on the legal aspects of the Tahawwut Master Agreement including a detailed briefing on key clauses such as early termination, transactions and designated future transactions, events of default and termination events, the use of Musawama etc. He also briefed the audience on the key features of the Credit Support Deed for cash collateral developed to address the recent variation margin regulatory requirements.
Ijlal explained the working of Hedging Product Confirmations namely those relating to Islamic Profit Rate Swaps, Islamic Cross Currency Swaps and Islamic FX Forwards, which are required to mitigate currency or rate of return mismatch risk. He also explained why Murabahah and binding unilateral Wa’ad are used in Islamic Profit Rate Swap (IPRS) and Islamic Cross Currency Swap (ICRCS) documentation, while Islamic FX Forward product structures involve only a binding single Wa’ad or two binding unilateral Wa’ad, as the cash-flow risk associated with FX Forwards is much less than with IPRS or ICRCS products.
Dr. Peter Werner, Senior Counsel at International Swaps & Derivatives Association (ISDA) then provided an overview of the governing law and netting provisions and the importance of the recognition of the netting of financial contracts particularly in cross-border transactions. He stressed the importance of standardized documentation and product templates for the Islamic hedging segment.
The second session, led by Ismail Dadabhoy, Advisor at IIFM, briefed the audience on IIFM’s Collateralized Murabahah Standard, which is the best alternative to conventional Repo. He briefed the audience on this liquidity management tool which has now become necessary due to new regulations impacting bank capital as well as from a credit risk perspective. He also provided reasoning on why commodity Murabahah is used in the IIFM standard taking into account Shari’ah requirements for Rahn (collateral) as per AAOIFI Shari’ah standard. Habib then explained the mechanics of the IIFM Master Collateralized Murabahah Master Agreement (MCMA) from the legal perspective, such as the creation of a security interest, the type of collateral usable, substitution with consent etc. Sara Cescutti, Deputy Head of Sales and Relationship Management at Euroclear SA/NV provided details of the Euroclear’s Tri-party collateral management service while Lawrence Oliver, Deputy CEO of DDCAP Limited spoke on the need for Murabahah in certain Islamic transactions and role of commodity providers.
The last session was on “Islamic inter-bank market and the benefit of IIFM Unrestricted Wakalah standard”. Dr. Ahmad Rufai, Head of Shari’ah Compliance at IIFM, provided the Shari’ah basis for developing IIFM standards with special focus on certain terms of the IIFM Unrestricted Wakalah standard and its Guidance Memorandum. Ijlal then provided technical details on anticipated profit, early termination, segregated or comingled Wakalah pool and accounting assessment.
Ijlal Alvi in his concluding remarks thanked Clifford Chance for its support in providing the venue and use of its facilities which had enabled IIFM to organize this briefing for the benefit of market players who have interest in Islamic finance. He also acknowledged the assistance of REDmoney Group in managing the event.
The Video Recording of the Workshop can be viewed below: