Issuing Procedure for Islamic Treasury Bills (ITB) - Bai Al Inah Concept 1. 1.1 1.

2 General This part will outline the procedures for the conduct and participation of FAST Members in ITB Tender. Bai-Al Inah contract is defined as two transaction entered between two parties whereby one party (the Government) undertakes to sell an asset to successful participants on cash basis and subsequently will purchase back the same asset at higher price which is normally at par on a credit basis.

2. 2.1

Tender Procedure All activities undertaken by the Bank in relation to this procedure are conducted on behalf of the Government who is the issuer of ITB. The Bank, can initiate for tenders by posting the following information in FAST at least three business days before the tender closing date.

2.1.1 Stock code of the issue will be generated from the facility code created. 2.1.2 The stock details will consists of among others issue amount, tenure, issue and maturity dates. 2.1.3 Asset code DZ01442F 2.1.4 Sale and Purchase Agreement Represent the sale and purchase of the Governments asset (identified by the asset code DZ01442F) between the bank and Islamic Banking Institutions that wish to participate in the ITB tender. The agreements are accessible in the attached information section of the system and participants are required to read the agreements before tendering.

2.1.5

Bidders

Only Islamic banks (i.e. Bank Muamalat Malaysia Berhad and Bank Islam Malaysia Berhad) and Principal Dealers with Islamic Banking Scheme are allowed to tender for ITB. However, both conventional and Islamic banking institutions are allowed to trade ITB in the secondary market. 2.1.6 Size and Frequency of Issue The minimum bidding denomination is RM1million and any additional amount has to be in multiple of RM1million.

Process flow of Tendering 2.2 The information on the market price and the nominal amount of shares that form the market value of the asset available for tendering will be announced in BIDS system on the issue date. 2.3 The bidder needs to key in the exact purchase price/proceeds (in RM rounded to 2 decimal points) and the respective selling amount (nominal amount) that they want to tender. 2.4 Allotment to the successful bidders will be in multiples of RM1million. However, allotment at cut off for ITB tendered will be automatically distributed to the nearest RM10, 000. 2.5 All interested bidders in ITB must place their bids with the Principal Dealers or Bank Islam Malaysia Berhad and Bank Muamalat Malaysia Berhad.

Intervention 2.7 The Bank has the right to intervene, if necessary, during the process of tendering by; a) Downsizing or upsizing the total issue size b) Capping the maximum single allotment limit on each bidder. The maximum allotment limit is the maximum successful amount that will be allotted to a single bidder c) The Bank has the right to implement other types of intervention method, which are not stated in this guideline. d) The Bank also has the right to abort/cancel the tender.

Tender Results and Settlements 2.8 After allotment process in FAST, the tender results will be broadcasted through BIDS and information providers such as Reuters, Bridge and Bloomberg. Once tender process is confirmed, FAST will generate the General Results and Individual Results. 2.9 General results are accessible to all FAST and BIDS members. For Individual Results, only the direct members can retrieve their own results. Non-FAST members are to confirm their individual results manually with the direct members that they have submitted their bids through. 2.10 All successful direct bidders will be able to print the sale confirmation and purchase confirmation based on the successful rates and terms. Direct bidders shall fax the confirmation to successful indirect bidders. 2.11 The tender results will be interfaced with RENTAS for allotment of securities and funds transfer. The securities allotment and funds transfer will be done in accordance to RENTAS Rules.

3. 3.1

Others Trading of ITB ITB will be traded based on the principle of Bai aldayn. Bai al-dayn refers to the sale of a debt arising from a transaction in the form of a deferred payment sale. The secondary market trading of ITB will be in terms of yield. Therefore the banding system, which is associated with Malaysian Treasury Bills is also applicable to ITB.

3.2

Status In Real-Time Gross Settlement (RTGS) System, ITB will be accorded as a Government paper status.

3.3

Legality of ITB In order to manage the legal risk that may be implicated in the issuance, holding, and trading of ITB and to protect the Bank's interest, all participants are required to understand the Sale and Purchase agreement which is incorporated in FAST system, to establish the parties' rights and obligations relating to ITB.

The Issuance Process of ITB

4. Through the sale and purchase transaction, a debt has been created. This debt is securitized through the issuance of ITB

Go vernme nt

ITB

1.

Identify Assets 3. Government buy back the Certificate of Government assets at par value (100.00) to be paid on credit term

2.Sell assets on a tender basis

Certificate of Government Assets

Islamic Banking Institutions