LONDON, 9 January 2006 — Another sign of the growing attraction of Islamic finance globally, especially in major international and regional markets, is the landmark agreement signed a few days ago in Singapore between the London-based FTSE Group (FTSE), part of the Financial Times Group; the Singapore Exchange (SGX), which is Asia-Pacific’s first demutualized and integrated securities and derivatives exchange; and Yasaar Research, a subsidiary of Yasaar LLC in Dubai.

Under the agreement, which is a major move to broaden the provision of Islamic equity and other indexes, the SGX, FTSE and Yasaar Research are teaming up to develop a series of Shariah-compliant indices, under the umbrella FTSE-SGX Shariah Index Series. The indices will be structured on internationally-recognized standards, and which are free-float adjusted and based on the Industry Classification Benchmark (ICB).

The new FTSE-SGX Shariah Index Series will be comprised of stocks screened for Shariah-compliance using Yasaar Research’s proprietary screening methodology. The first index of the Series, the FTSE-SGX Asia Shariah 100 Index, according to Majid Dawood, Chief Executive Officer of Yasaar LLC and president of Yasaar Research Inc., is due to be launched in February 2006. “This is an exceptional opportunity for Yasaar to partner with leading institutions in their respective fields to develop innovative world-class financial products for the global Shariah-compliant investor,” Dawood stressed to Arab News.

The tripartite venture is a major coup for Singapore Inc. which is trying to establish itself as the Asian gateway for Islamic equities, capital market products, various types of funds including exchange traded funds, wealth management, infrastructure finance and healthcare financing.

Not surprisingly, Heng Swee Keat, managing director of the Monetary Authority of Singapore (MAS), is upbeat about the prospects that this venture would bring to the island state’s financial center. “The availability of such a set of Shariah-compliant indices that can be used by SGX, would contribute to the development of new Islamic financial products in Singapore. This would add to the range of products available to global investors, including from the Middle East, who may be keen on Shariah-compliant investments in Asian markets,” he stresses.

Once the FTSE-SGX Shariah Index Series is fully up-and-running, it will become the largest family of Islamic indices covering the region. The FTSE is no stranger to Islamic indices. It already has five such indices of which the flagship is the FTSE Islamic Global Index. The only Asian regional index in this family is the FTSE Pacific Basin Islamic Index. The others include Shariah-compliant indexes for stocks in South Africa, Europe, and the Americas.

According to Donald Keith, deputy chief executive of FTSE International, “FTSE is pleased to extend its portfolio of products to include this exciting project with SGX and Yasaar Research. This demonstrates again FTSE’s credentials as the leading international partner for index solutions.”

The emergence of the FTSE-SGX Shariah Index Series is a welcome development as far as competition is concerned especially in the Islamic equity index sector. Hitherto the Islamic index market has been dominated by Dow Jones Indexes which launched its Dow Jones Islamic Market Indexes (DJIM) almost at the same time as the FTSE Islamic about four years ago.

However, the difference in style and ambition could not have been more stark. While the FTSE concentrated on its family of five Islamic equity indexes, DJIM took the market by storm and has a family of over 70 indexes. However, these largely shadow the family of Dow Jones conventional indexes, from which they are derived and Islamized according to the various screens.

But most of them are not used by fund promoters simply because the Islamic asset management sector is not sophisticated or broad enough in terms of the asset classes and equity market segmentation.

Dow Jones have also found that developing country and regional indexes especially for the Middle East is not that easy because of a poor corporate reporting, financial disclosure and transparency culture. The FTSE-SGX series would face the same problems in the Middle East, and it would not be surprising if the promoters concentrate initially on its regional market where it has a major advantage in terms of local market knowledge and synergies. DJIM has also not had much success in getting fund promoters to launch index-linked funds. At best, some Islamic funds buy in to the DJIM stock universe with its tailored Shariah screenings in terms financial ratios and prohibited economic activities. In recent months, DJIM has launched a Turkey Index a Malaysia Index with the RHB Group. It has also signed an agreement with Family Finance Institution, a local Turkish Islamic bank, to launch a DJIM-linked index fund.