Revision in the Jurisprudence of Markets and Financial Engineering

Financial markets, together with commercial banks, have long represented the most important financial intermediaries in different societies. For Muslim communities, faith requires adherence to Shariah regulations in their financial markets and transactions. This paper examines the extent of such adherence and identifies institutional shortcomings and the absence of social oversight, which have led to a neglect of outcomes and consequences when assessing the activity of financial markets. Furthermore, the study highlights a marked tendency toward formalism and legal stratagems within so-called “Islamic” financial engineering, which often relies on conditions and promises to achieve results unattainable through genuine contracts. The paper concludes with a set of recommendations derived from its main findings, informed by an assessment of contemporary markets in light of the recent U.S. financial crisis (2007–2008).

Keywords: Financial Markets, Islamic Financial Engineering, Transactional Regulations, Beneficial Ownership, Speculation

JEL Classification: B59, G01, G19

KAUJIE Classification: C3, C59, K1