Wednesday, 27th December 2023, Manama, Kingdom of Bahrain - The Shari’ah Board of the International Islamic Financial Market (IIFM) held its meeting on 11th October 2023 in which a resolution was made to reaffirm the mechanism for ‘Close-Out Netting Amount’ in the Events of an Early Termination as set out in the ISDA/IIFM Tahawwut (Hedging) Master Agreement.
The resolution is issued after the comprehensive assessment of the Shari’ah meeting paper prepared by IIFM Secretariat. After extensive discussion and comprehensive deliberation by the esteemed Scholars, the IIFM Shari‘ah Board resolves that there is no need to make any amendment to the text of the ISDA/IIFM Tahawwut Master Agreement (TMA), therefore, it has confirmed and maintained the existing approval of the TMA Close-Out Netting Amount in the Events of an Early Termination by the IIFM Shari’ah Board decision which was resolved in March 2010.
On this occasion, IIFM’s Chairman Mr. Khalid Hamad Al-Hamad stated: “IIFM has a robust Shari’ah review process, engaging some of the most experienced and prominent Shari’ah scholars in the industry. I am pleased to note that the recent Shari’ah review of the ISDA/IIFM Tahawwut Master Agreement has found it to be suitable and not needing an update. It is worth mentioning that TMA was among the first IIFM standards issued nearly 14 years ago. IIFM’s extensive engagement with the industry provides it with the most up-to-date understanding of industry practices and together with its Shari’ah review process leads to successful standardization outcomes for everyone’s benefit”.
Mr. Ijlal Ahmed Alvi, Chief Executive Officer of IIFM said, “IIFM has in place a well-established reviewing policy on its published standards from time to time to keep pace with new developments in the Islamic finance industry, which is expanding significantly and rapidly throughout the world and the IIFM Secretariat keeps its Board of Directors updated and informed of this review process and its implementation procedures. Hence, as part of this review process and the approval of its Board of Directors, the IIFM Secretariat organized the Shari‘ah Board meeting to review the TMA agreement structure and in particular Close-Out Netting Amount in the Events of an Early Termination as set out in the TMA. We at IIFM believe that this review policy and process further strengthens the IIFM published global standards that cover all aspects of Islamic financial transactions as well as the widely accepted Shari’ah rulings that are of paramount importance”.
The TMA was published in association with the International Swaps and Derivatives Association (ISDA) in March 2010 and marked the introduction of the first globally standardized documentation for Over the Counter (OTC) Islamic hedging products. The TMA is a framework document which contains general terms and conditions agreed between the parties and under which parties may enter into ‘Transactions’ and/or ‘DFT Terms Agreements’ relating to ‘Designated Future Transactions’. It is designed to provide a legal framework and to facilitate the risk management function of Islamic financial institutions and other financial institutions active in Islamic finance as well as corporate entities. It is a document that provides wider Shari‘ah acceptability as well as innovation such as the close-out mechanism, unilateral Wa‘ad concept and other legal and Shari‘ah provisions for privately negotiated and widely accepted Islamic hedging products.
Presently, the TMA has become the Islamic hedging master agreement of choice and its use is increasing, especially, after publication of the standard product templates under the TMA, namely, the Islamic Profit Rate Swaps (IPRS), the Islamic Cross Currency Swap (ICRCS), the Islamic Foreign Exchange Forwards (IFX Forwards) and the Islamic Credit Support Deed for Cash Collateral. Furthermore, the TMA has been implemented in many jurisdictions such as Bahrain, Saudi Arabia, Malaysia etc., due to regulatory support and the preference of institutions due to its strong and well-established documentation architecture. In order to provide clarity and transparency, the TMA also includes an Explanatory Memorandum.
IIFM and ISDA have also jointly issued legal opinions on enforceability of the TMA for Malaysian Law, Singaporean Law, England & Wales Law and UAE Federal Law. IIFM and ISDA may also issue more legal opinions as and when close-out netting legislation is passed in other jurisdictions.
IIFM takes this opportunity to express its profound thanks to the National Bank of Kuwait - Bahrain (NBK - Bahrain) and its General Manager, Mr. Ali Fardan, for providing this grant to help implement this important project for the Islamic financial services industry worldwide.