Undisputed proof of ownership
THE DMCC TRADEFLOW CENTRAL REGISTRY
At the core of the platform stands the electronic central registry of ownership for commodities. This registry uses negotiable title documents called DMCC Tradeflow Warrants to provide interested parties with the undisputed proof of ownership and security interests attached to UAE-based inventories. This allows for constructive possession of commodities to be registered in one place through electronic title documents for the first time in the region.
Document of title: the DMCC Tradeflow Warrant
DMCC Tradeflow Warrants are electronic documents of title issued by warehouse operators. The warrants provide evidence that the specified commodities of the stated quantity and quality are being stored at a DMCC approved location. The warehouse operator warrants or guarantees to hold the stored commodity by way of safe custody implying that although they are legally liable for any value lost through theft or damage, they have no legal ownership of them. As such, in case of liquidation, the warehouse operator’s creditors will be unable to seek recourse to the commodities stored since the legal title remains with the holder of the warrant – as registered on the DMCC Tradeflow Central Registry. Ownership of DMCC Tradeflow warrants can be electronically transferred between members using the web-based, secure interface.
Stimulating commodities trade by increasing liquidity
DMCC TRADEFLOW COLLATERAL BASED COMMODITY TRADE FINANCE
The use of collateral management in trade finance is increasingly seen as a tool that gives financiers a way to reduce and mitigate risk and offers much needed capital relief. The changed financial environment combined with Basel II and III requirements have resulted in tightened liquidity across the commodities supply chain. These structures provide global financiers reassurance that their borrowers will not dispose of financed inventories without their knowledge and approval.
Registering security interest over stored commodities:
DMCC Tradeflow Pledges
DMCC’s Tradeflow Pledge structure allows commodity owners and their financiers to register enforceable pledges as collateral in return for working capital financing. A pledge is a form of possessory security over goods whereby beneficial ownership is transferred from one party to another. On DMCC Tradeflow, this allows commodity owners to essentially mortgage their goods in favour of financiers to guarantee a loan. The advantage of a pledge for financiers is that it creates a security interest over the assets, allowing them to be used to secure the performance of an obligation, i.e. a trade finance loan. As the financier has beneficial ownership of the goods, holding this security interest gives the financier certain preferential rights in the disposition of secured assets in cases of dispute.
Legal enforceability of pledges in Dubai:
DMCC Tradeflow Regulations
All members of DMCC Tradeflow are required to accept and adhere to the rules and regulations issued by DMCC. These rules clearly explain the roles and responsibilities of each member in their interaction with the system and each other. They also clarify the legal procedures that would be followed in case of default, which ensures a transparent dispute resolution in order to reduce risks and potential uncertainty for all parties. As an integral part of each pledge transaction, DMCC Tradeflow generates standardised electronic contracts that are recognised under UAE law and electronically signed by the members/ users of the system. These standardised contracts significantly reduce the legal costs associated with having individual contracts drawn up for each and every stage of a transaction.
Providing regional solutions to the Islamic financing industry
DMCC TRADEFLOW SHARIA COMPLIANT COMMODITY MURABAHA
The strong growth of the global Islamic finance industry over the past few years has created an equally strong need for appropriate Sharia compliant infrastructure. One area in which this is particularly crucial is asset-backed transactions, particularly the significant Islamic interbank liquidity market conducted through Murabaha mechanisms.
Such mechanisms require significant amounts of assets in order to underlie transactions, as well as platforms capable of providing title transfer of assets in a quick, efficient and most importantly, Sharia-compliant way. DMCC’s close relationships with major commodity suppliers and DMCC Tradeflow’s role as the central registry providing clear title of ownership of commodities, make a natural fit for meeting the Islamic finance industry’s requirements.
DMCC Tradeflow provides the right solution to the Islamic financing community through the offering of fully electronic Treasury Murabaha transactions supported by UAE-based assets, which meet the most stringent criteria of Sharia compliance.
Islamic banks, their clients and commodity suppliers will all be able to access the system to electronically conduct their relevant roles in connection with a full Treasury Murabaha transaction, such as selling and buying assets and legal acceptance of the relevant contracts. All participants in Treasury Murabaha transactions are governed by Islamic rules and regulations as drawn up by DMCC in accordance with the principles of Sharia and compatibility with UAE law.
Unprecedented Transparency: Availability of UAE based assets
The Treasury Murabaha mechanism hosted on DMCC Tradeflow is the only one of its kind supported by assets physically located in the UAE. Major asset owners contribute a wide range of assets including oil products, and base metals, which are available to support Treasury Murabaha transactions.
As assets are located within a region where the majority of Treasury Murabaha transactions take place, Sharia scholars are easily able to inspect the goods used in transactions. This, in addition to the use of DMCC’s Central Registry, combined with DMCC Tradeflow Warrants, will further enhance integrity and transparency of the assets used for Treasury Murabaha transactions on DMCC Tradeflow.
DMCC’s Warehouse Inspection and Ratings Programme ensures that all storage facilities holding assets to be used in Treasury Murabaha transactions are Halal-certified facilities.
Full Sharia Compliance: Fatwas
DMCC has worked closely with the world’s leading Sharia advisory and consultancy firm, Dar Al Sharia Legal & Financial Consultancy LLC, to ensure that the Treasury Murabaha mechanism hosted on DMCC Tradeflow complies with Sharia principles. The Sharia structure and process of DMCC Tradeflow with regard to the Islamic transactions has received a fatwa from Dr. Hussain Hamed Hassan, certifying that it is fully in accordance with Sharia principles.
Dr. Hussain Hamed Hassan, Managing Director of Dar Al Sharia Legal & Financial Consultancy LLC, is considered the pioneer of modern Islamic banking, having shaped the industry since 1975. He is a guiding force to AAOIFI and IFSB, the standard setting bodies in Islamic finance, in addition to heading several Sharia Boards in the region including Islamic Development Bank and Dubai Islamic Bank.