tag:blogger.com,1999:blog-2400653127452801414.post8720094056956614999..comments2023-09-04T14:15:14.370+01:00Comments on Islamic Finance Resources: Shariah Compliant Short-Selling: Mechanism 3Dr Nikan Firoozyehttp://www.blogger.com/profile/08118358942500281707noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-2400653127452801414.post-43712564484161614202009-04-14T13:09:00.000+01:002009-04-14T13:09:00.000+01:00ASIDE for instance for an extreme case of forcing ...ASIDE for instance for an extreme case of forcing fungibility: <br /><br />FN and FH MBS paper is not all similar. Each bond will be backed by different mortgages, some with different geographical distributions. But, the standard MBS TBA or 'to-be-announced' market makes fungibility a mandate by making each tradeable TBA quite broad, e.g., 6.5% FN 30Y TBA, which can include any FN MBS bond which has a 30Y original maturity and 6.5% coupon. If there is some specific value to a given bond in that general category, the seller of the TBA may not want to deliver it, but deliver a "cheaper" bond instead. The fact that the rules for fungibility are all spelled out in meticulous detail means that there are rarely if ever disputes in this market. By introducing such a contract, there is liquidity in the market. Note that because each individual mortgage bond acts differently, there is no "market" for individual bonds. But the TBA market is one of the most liquid in the world.<br /><br />MBS are all mal qimiy, but the TBA market specifies them as 'ayn ghair mu'ayyan.<br /><br />Of course TBAs and FN/FH MBS are not even close to being shariah-compliant. Nonetheless we can see the benefits of this ruling: fungibility increases liquidity tremendously.<br /><br />If we are struggling to have liquidity in markets for sukuk, perhaps having a Salaam on (generic sovereign sukuk with certain specificities, e.g., shorter than 5Y maturity, sukuk al ijara, sovereign rating >AA, etc). A traded salaam on this sukuk will possibly be much more liquid than the underlying sukuk themselves.Dr Nikan Firoozyehttps://www.blogger.com/profile/08118358942500281707noreply@blogger.com