Islamic Banking User Manual-SUKUK

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Information in this document is subject to change without notice. No part of this document may be rep roduced or transmitted in an y form or by any means, electronic or mechanical, for any purpose, without the express written permission of TEMENOS Holdings NV. Copyright 2002-2003 TEMENOS Holdings NV. All rights reserved.

TEMENOS User Guide - Sukuk

C Co op pyyrriig gh htt The Programs (which include both the software and documentation) contain proprietary information of Temenos Holdings NV and they are provided under a license agreement containing restrictions on use and disclosure and are also protected by copyright and other intellectual and i ndustrial property laws. Reverse engineering, disassembly or de-compilation of the Programs, except to the extent required to obtain interoperability with other independently created software or as specified by law, is prohibited. The information contained in this document is subject to change without notice. If you find any problems in the documentation, please report them to us in writing. Temenos does not warrant that this document is error-free. Except as may be expressly permitted in your license agreement for these Programs, no part of these Programs may be reproduced or transmitted in any form or by any means, electronic or mechanical, for any purpose, without the express written permission of Temenos Holdings NV. T24 and jBASE are registered trademarks of Temenos Holdings NV. Other names may be trademarks of their respective owners.

TEMENOS Confidential

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D Do occu um meen ntt D Deettaaiillss Item

Detail

PRODUCT NAME

SUKUK

DOCUMENT TYPE

User Guide

CONTACT BACK TO

[email protected]

SPECIAL COMMENTS (1)

If Field Information is Crossed Out, it implies that the field is Not used under the current version of the Development.

( Document Specific ) SPECIAL COMMENTS (2)

(Development / Support) Specific SPECIAL COMMENTS (3)

(Client Specific)


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A Am meen nd dm meen nttss H Hiisstto orryy Serial No

Last Updated

Doc Version

Author

1.0

02.07.2006

Version 1

Liril Thomas

1.2

18.11.2007

Version 2

Jayadeva Vijay Kumar


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Comments New Updates with Browser Release


Table of Contents Overview of this guide........................................................................................................................ 6 Assumptions ................................................................................................................................... 6 Document Support ......................................................................................................................... 6 Scope of this guide ......................................................................................................................... 6 Introduction ........................................................................................................................................ 7 Document Purpose ......................................................................................................................... 8 TEMENOS T24

TM

Modules Supported.......................................................................................... 8

Multi Threading Supported ............................................................................................................. 8 Abbreviations used in this Guide.................................................................................................... 8 Sukuk Work Flow ............................................................................................................................... 9 Process Flow ................................................................................................................................... 11 Sukuk PROCESSING .................................................................................................................. 11 Sukuk Issue Details ......................................................................................................................... 12 Setting up of Customer Security ...................................................................................................... 16 Setting up Portfolio for Customer..................................................................................................... 17 Setting up Portfolio for Own Book ................................................................................................ 18 Subscription/Trading in Sukuk ..................................................................................................... 19 Transfer of sukuk Subscription..................................................................................................... 22 Murabaha Sukuk .......................................................................................................................... 23 Sukuk Profit Distribution ............................................................................................................... 24 Accounting Entries .................................................................................................................... 24 Sukuk Details Amendment ........................................................................................................... 25 ENQUIRIES ..................................................................................................................................... 27 Basic Set Up Tables ........................................................................................................................ 29 Accounting Entries ........................................................................................................................... 31


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Overview of this guide The purpose of this guide is to help the user to understand the various templates and the fields in the templates and the crucial setup of any PARAMETER Files in the SUKUK Islamic Product.

Assumptions It is assumed that the reader of this guide has knowledge of the following. TM



Fair knowledge in TEMENOS T24



Basic knowledge in SECURITIES module

If any of the above assumptions are not met, then get back to the Project Manager Onsite for HELP.

Document Support Any queries in any part of this document can be addressed to [email protected] . Refer to the Contact Back To address in the Document Detail pane on Page 3 of this Guide for support .

Scope of this guide User Reference information of this particular development is the only scope of this guide .

Installation, Customization Procedures, Release Information, Guidelines for testing, Operation and Migration procedures are NOT under the scope of this Document


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Introduction Sukuk are "securities", as in marketable securities. In practice most have so far been similar to bonds or Mortgage backed securities "MBS", mostly floating rate based (although there have been fixed-rate issues also). Just as securities could be of an equity profile or fixed-income or hybrid, Sukuk may also have similar profiles. In terms of product offering, the Bank could assume one or more of the following roles - (i) Bank acts as Book Runner to Sukuk Issued by another Issuer; (ii) Accept subscription from Customer for its own issue; (iii) Bank investing in Sukuk for its own book portfolio; (iv) Issuer of Sukuk for itself; and, (v) Secondary market operations for own book portfolio and / or its Customer.


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Document Purpose This document provides information to the user to understand the different parameter files and their setup. This document provides detailed information about every Field of all the Files used in the SUKUK Islamic Product

TEMENOS T24 TM Modules Supported The following Files in the Following Modules are Supported and Used by this Sukuk Islamic Product.



SECURITIES

Multi Threading Supported Multi threading supported. The following routine is multithreaded in Sukuk. 

IS.SUK.POPULATE.MVMT

Abbreviations used in this Guide S – Single Value Field M – Multi Value Field AMS – Associated Multi Value Starts Here AM – Member of Associated Multi Value AMC – Associated Multi Value Closes Here


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Sukuk Work Flow As each of the above-said Sukuk activities requires a distinct workflow, the requirement for each of the activity is captured under a separate heading.

1. Bank acts as Book Runner or Co-Manager to Issue 

An agreement has been signed between the Issuer and Bank as to the functions and responsibilities of each of the parties in Organising and Managing the Sukuk Issue



The issue will follow the procedure laid down in the offer document which is given to each of the participants in the issues process like the Book Runner, Co-Manager, Investor etc



During the period of Issue the Bank will collect the proceeds from the Investors and at the closure of Issue period will allot the Sukuk Certificates as per terms of Offer



Bank will transfer the Issue proceeds to the Issuer and if any, back to the Investor(s)



The issuer may choose to invest the proceeds of the Issue through the Bank, in Asset products offered by the Bank. Though this activity is not in the scope of Book Runner role, this will be an extended service provided by the Bank



In such a case, the Bank will tag the Issue amount to the Assets and track the performance of these Assets

2. Bank accepts subscription from Customer 

Bank's customer may take part in a Sukuk issued / managed by a third party and pays his subscription through the Bank. In this case, the customer's notifies the Debit and Credit Account details. Importantly, the Customer's investment will not be reflected in the books of the Bank, but is kept track of. Bank takes delivery of securities on behalf of customer (safekeeping/custody services). In case of custody service, bank collects dividends/coupons on behalf of the customer and deposit into his a/c. This service will be provided, if the issuer of Sukuk pays the proceeds through the Bank.

3. Bank invests for own book portfolio 

Bank may, as part of its investment strategy, subscribe to a Sukuk - (a) managed by the Bank; and, (b) issued / managed by a third party. In this case details of Sukuk investment(s) under own book portfolio is required to be recorded and kept tr ack of.



Bank's investment also has a bearing on its Capital adequacy and risk profile. These need to be catered to by way of reports.

4. Bank as Issuer of Sukuk 

Bank may, as part of its financing strategy, issue Sukuk. Bank may use Special Purpose Company/ Vehicle for issue of Sukuk.



The Sukuk may be Guaranteed (partially or fully) or non-Guaranteed.



The Bank collects the proceeds from the Issue during the Issue period. It then allots the Sukuk based on the terms of Offer.


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TEMENOS User Guide - Sukuk 

Necessary checks to be in place to ensure that the proceeds of the Sukuk issue are utilised for the stated purpose. For example, a Murabaha Sukuk may be issued, and proceeds must be utilized in a Murabaha according to the terms of the sukuk, and in case of ijara sukuk as another example, proceeds to be utilised for ijara, and the resultant cash flows (rents or guaranteed amount if any) to go to the sukuk holders through the system. The returns vis-à-vis the offered rate on the Sukuk issue proceeds is kept track of. Returns above a threshold rate may be shared with Manager through a performance incentive scheme (parameterise via system). Incentive in this case must be booked as an income to the bank. The link between sukuk and funds utilization must be an option (enable or disable)



The Sukuk liability will be extinguished on maturity or exercise of call option, as applicable.

5. Bank performing secondary market operations 

Bank may, as part of its investment strategy, invest in Sukuk in the secondary market for its own book portfolio.



Bank will perform secondary market investment in Sukuk for its Customers. In this instance, the Customer will provide the Debit and Credit Account details. The investment will not be reflected in the books of the Bank, but will show in the Customer's portfolio.



The Bank may charge a fee for the services offered.


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Process Flow Sukuk PROCESSING The following screenshot shows the menu for all processes concerning a sukuk contract: Use the menu Finance Sukuk for the Sukuk Processing


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Sukuk Issue Details The first stage in Sukuk Processing is to define the Sukuk Issue in the system. Use Sukuk

Operations from the menu under Finance Sukuk. Pressing ' automatically generate a Security.Master ID(SM) for the contract.

New Deal Button' will

The details of the Sukuk will be captured in a series of three screens. A screenshot of entry screen (Sukuk Info) where basic details of the Sukuk will be captured is as shown below:


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Issuer Name: Name of the Issuer of Sukuk Sukuk Desc: Sukuk Description Short Name: Short Name for Issuer for Reports/Enrichment Sukuk ID: Memory aid to recall the Sukuk Id Issuer Country: The country in which the Issuer is located Sukuk Country: Country in which the Sukuk is issued Sukuk Currency: Currency of the Issue Industry : Industry the Sukuk belongs to Issue Date: Date on which the Sukuk is issued Maturity Date: Date on which the Sukuk matures Listed: Whether quoted on the Stock Exchange Convertible Bond: Whether Sukuk is convertible Guaranteed: Whether Sukuk is guaranteed


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

A screenshot of second screen where price details (Price-Profit Info) of the Sukuk will be captured is as shown below:

Price Currency: Currency in which Sukuk is traded Price Type: Calculation type to be used when Sukuk is traded Listed Stock Exch : Stock Exchange in which the Sukuk is traded Profit Tax Code: Tax Code, if Sukuk is a taxable instrument Profit Start Date: Value Date for Coupon Profit Pay Date: Due Date for Coupon Proft Rate: Rate that the Coupon carries


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

A screenshot of third screen where other details (Other Info) of the Sukuk will be captured is as shown below:

Sukuk Type: This field will provide an option to choose the applicable Sukuk type. Based on the Sukuk type, validation will take place during input in the respective application when the proceeds of this Sukuk are invested in Ijara, Murabaha, etc. as the case may be. Sukuk Open Date: Date from which Sukuk is open for subscription Sukuk Close Date : Date when Sukuk issue is closed for subscription Sukuk Final Account: Proceeds of Sukuk, issued other than by Bank, will be transferred to this Account on Closure of Issue Book Runner: Name of the book runners Sukuk Guarantor: Name of the Guarantor(s) of Sukuk Sukuk Promoters : Name of the major promoters Sukuk Renewal Date: Date on which the Sukuk is renewed or re-issued Sukuk Issue Amount: Amount to be raised under the Sukuk


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Setting up of Customer Security


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Setting up Portfolio for Customer In order for the customer to subscribe to Sukuk issue and later, to trade in Sukuk, portfolio is required to be set up in the System for that Customer. Use the option ‘ Setting up Portfolio for Customer’ under Sukuk Operations. The first screen (Portfolio Details) will be used for setting up the Portfolio. Screenshot is as given under:

Portfolio Name: Name for the portfolio Sukuk Account: Account No. to be used in Sukuk transactions


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Setting up Portfolio for Own Book In addition to the above step, it is required to be set up ‘Own Book’ Portfolio in the System. Use the option ‘Setting up Portfolio for Own Book’ under Sukuk Operations. A sample screen shot is given below:


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Subscription/Trading in Sukuk Having set up the Sukuk instrument details and the portfolio for the Customer, the system is tuned for accepting subscriptions. The subscription details are captured in three screens. Screenshot of the first screen which captures the details of trade is as given under:

SUKUK ID: Id of the Sukuk Depository: Id of the depository Trade Date: Date on which the Subscription is to be made Value Date: Value Date of Subscription


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

Screen shot of the second screen where details of the Customer side of the Subscription is input is as given under

Customer: Customer or Bank buying or selling the Sukuk Trans Type: Input the relevant code for buy or sell Portfolio: Trade will be affected to this portfolio Quantity: Will be default by system as '1' Unit Price: Value of Subscription


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

Screen shot of the third screen where details of the Issuer or Counterparty side of the subscription is input is as given under:

Broker: Issuer of the Sukuk Broker Account: Account to be credited with subscription amount


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Transfer of sukuk Subscription During the course of the subscription period, the sukuk issued other than the bank, will be credited to the banks internal account and when the issue is finally closed the proceeds of sukuk will be transferred to the issuer's final account. For that purpose Transfer of Sukuk Subscription option needs to be chosen to transfer the amount to the issuer's account. A sample screenshot is given below:


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Murabaha Sukuk If a Sukuk has been raised to fund Murabaha, then choose the option Murabha Sukuk and link the corresponding sukuk id to Murabaha Contract. A sample screen shot is given below: A Murabaha Sukuk may be issued, and proceeds must be utilized in a Murabaha according to the terms of the sukuk, and in case of ijara sukuk as another example, proceeds to be utilised for ijara, and the resultant cash flows (rents or guaranteed amount if any) to go to the sukuk holders through the system. The returns vis-à-vis the offered rate on the Sukuk issue proceeds is kept track of. Returns above a threshold rate may be shared with Manager through a performance incentive scheme (parameterised via system). Incentive in this case must be booked as an income to the bank.


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Sukuk Profit Distribution Profits Accrued on the Murabaha Finance contracts that are linked to the Sukuk Issued will be distributed using the following formula to the customers holding position in the Sukuk.

Total Sukuk Nominal = Sukuk Issue Amount / Sukuk Unit Price Sukuk Profit Distribution Rate = Total Profit Accrued / Total Sukuk Nominal Customer Profit = Number of Sukuk Held by Customer * Sukuk Profit Distribution Rate / 100

Accounting Entries Following entries are raised on Sukuk Profit Distribution:

DR Sukuk Issuer Account CR Customer Account


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Sukuk Maintenance Following online functions are also available for dealing in Sukuk after input and authorisation of the subscription. 

Sukuk Details Amendment



Customer Portfolio Amendment



Own Book Portfolio Amendment



Input/Modify Customer Coupon/Dividend Details



Input/Modify Customer Redemption Details



Input/Modify Customer Entitlement Records

Sukuk Details Amendment This function will allow to user to amend the profit rate and payment date. Other static data relating to the Sukuk may also be amended. A screen shot is given below:


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Following table describes the functions and usage available under Sukuk Maintenance

Function

Description

Sukuk - Modification to terms (Security Master)



This function will allow to user to amend the profit rate and payment date



Other static data relating to the Sukuk may also be amended.



Input of Call option

Customer Sukuk Portfolio (Sec Acc Master)



Modify details of the Portfolio

Own Book Sukuk Portfolio (Sec Acc Master)



Modify details of the Portfolio

Corporate Actions (Diary Type)



Modify settings of the various Corporate actions like Profit payment, Redemption, Call

Entitlements



When a Corporate Action is initiated using Diary application, entitlements for every Sukuk holder is created in unauthorised status ('IHLD' status). Modification to the entitlement may be made on customer basis

Coupons, Redemptions- Customer



When a Corporate Action is initiated using Div Coup Det or Redemption Det application, coupon is created for every Sukuk holder is created in unauthorised status ('IHLD' status). Modification to the coupon may be made on customer basis


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ENQUIRIES 

Sukuk Holdings of Customer

Sukuk holdings of a Customer is produced by this enquiry The Customer ID has to be input as a selection criterion, as shown in the following screen shot The enquiry output is given below:


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

Sukuk Position by Issuer

The number of Sukuk per Issuer, where the Bank acts as pre-issue and / or post issue manager, is obtained through this enquiry The Security Number has to be input as a selection criterion, as shown in the following screen shot The enquiry output is given below:


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Basic Set Up Tables The tables mentioned below are set-up that is used in Sukuk implementation. Choose the option ‘Sukuk Basic Table Setup’ from the menu under Sukuk to view these tables.

Table Name

Description

SC.PARAMETER

System Parameter Table for Securities module. Facility to set-up this table per 'company' is provided

SC.STD.SEC.TRADE

System Parameter Table that governs the Trading. Facility to set-up this table per 'company' is provided

TRANSACTION

Transaction Codes specifically required for Sukuk is defined in this System table where codes for other transactions also co-exist. Transaction Code enables the system to pass Credit and Debit entries.

CATEGORY

Categories specifically required for Sukuk is defined in this System table where Categories for other products also co-exist. Category enables the system to reflect the balances and group necessary items in the GL or PL.

DIARY.TYPE

The Corporate Actions relating to Sukuk are defined here with their characteristics.

SC.TRANS.NAME

User defined name Sukuk related trading

SC.TRANS.TYPE

Unique reference code for identifying Sukuk related trading transactions

ASSET.TYPE

User defined name Sukuk related trading

SUB.ASSET.TYPE

Unique reference code for identifying Sukuk related trading transactions

SC.INDUSTRY

Industry to which the Sukuk belongs

SC.RATING

Definition of Credit Rating types

PRICE.TYPE

This table indicates to the system how a "Price Type" calculation is to be performed within any given transaction in the securities module.


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for

for

identifying

identifying


STOCK.EXCHANGE

The Stock Exchange where the Sukuk is listed. In case of unlisted Sukuk, they should be configured on a dummy Stock Exchange

SC.RATING

Definition of Credit Rating types

PRICE.SOURCE

The table is for defining how the price feed will be to T24. For Sukuk, the price source is Manual

SC.STD.COUPON

This table contains system level default settings for processing Profit payments

DIV.COUP.TYPE

This table contains parameter setting for Profit payment

REDEMPTION.TYPE

This table contains settings for Sukuk redemption or call option

CUSTOMER.SECURITY

Any Customer should be defined in this table only then the System will enable Sukuk related transaction processing for the Customer in T24


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Islamic Banking User Manual-SUKUK

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