Islamic Fund Management
53
stock exchange will be linked to the NAV of the fund, but prices are available on a real-time
basis, depending on the trading volume of the stock exchanges. As such, arbitrage trading
ensures that the price of the ETF is typically very close to its NAV at any time. As the ETF
requires the ability to add/reduce it’s issued share capital according to demand, and as these
shares represent the underlying assets, the ETF utilises authorised participants (typically large
financial institutions) to create and redeem shares together with their underlying assets.
shows the basic structure of an Islamic ETF.
Figure 3.8: Basic Structure of an Islamic ETF
ETF shares ETF shares
ETF Provider
Cash
ETF shares Cash
INVESTOR
(BUYER)
INVESTOR
(SELLER)
ETF shares
ETF shares ETF shares
SecondaryMarket
Primary Market
SHARIAH
STOCKS/FOREX
/COMMODITIES
Islamic benchmark
index:
AUTHORISED
PARTICIPANTS
SHARIAHADVISORY
COMMITTEE
Advisory on
Shariah
matters
STOCK EXCHANGE
Sources: Nafis Alam (2013), RAM