Characterizing the Stock-Exchange from an Islamic Perspective, by: Seifuddin I. Tag el-Din, comment سوق الأسهم في اقتصاد إسلامي

This paper is a pioneering attempt at exploring the normative rules governing exchange in an Islamic stock market, which may form the basis for building an efficient, vibrant and yet ethical financial system. The paper examines the external (pricing and informational) efficiency and internal (operational) efficiency criteria governing conventional stock markets. It asserts that the dominance of speculative motives (vs. that of real investment) and the nature of interaction among professional and non-professional market players, deprive the capitalist stock market of internal stabilizers and undermine its efficiency. And since efficiency in the financial market cannot be ensured by leaving it free and ngoverned, the paper makes a modest attempt at indicating some regulatory measures through reinforcing Islamic rules. Arguably, many of the assertions made by the author are sweeping and perhaps lack the necessary theoretical and empirical support. However, we believe, there is no reason to reject the same, precisely because, mainstream finance is equally inconclusive about the positive role of speculators in efficient markets. The study certainty highlights the need to test the alternative paradigm of speculation-free stock markets by asserting that such a market would have the minimum liquidity that is essential to its survival and smooth-functioning. The purpose of the discussion that follows is to develop the framework further and clarify certain areas of confusion. --