• IBANK 6.5.6 IBANK 6.5.6 Charges for Index Contracts

    (1) For an index contract on an index that an Islamic banking business firm considers diversified, the firm must apply a general risk capital charge of 8%, and a specific risk capital charge of 2%, to the net long or short position in the contract.
    (2) For any other index contract, the firm must apply a general risk capital charge of 8%, and a specific risk capital charge of 4%, to the net long or short position in the contract.
    (3) If required to do so by the Regulatory Authority, the firm must demonstrate why the firm considers an index to be a diversified index.
    Derived from QFCRA RM/2015-2 (as from 1st January 2016).

    • IBANK 6.5.6 Guidance

      An Islamic banking business firm should test diversification against the following criteria used by the European Banking Authority:

      •   The index must have a minimum number of equities. There must be an absolute threshold below which the index cannot be considered sufficiently diversified to ignore the specific risk completely.
      •   None of the equities must significantly influence the volatility of the index. Equities must not represent more than a certain percentage of the total index value.
      •   The index must have equities diversified from a geographical perspective.
      •   The index must represent equities that are diversified from an economic perspective. Different 'industries' must be represented in the index.
      Derived from QFCRA RM/2015-2 (as from 1st January 2016).