Fatwa ID: 22327
Title: shares in the stock market
Category: Financial Transactions
Scholar: Dr.Salah Al-Sawy
Date: 11/28/2005


In the name of Allah the Merciful the Beneficent

Peace, blessings and mercy of Allah be upon you.

We are a group of relatives, and we established a joint-stock company in Egypt. Now, the Investment Authority demands us to circulate these shares in the stock market. Our question is: Do the holders of these shares commit a sin if someone of them sells his shares in the stock market? For information, the business of this company is involved in manufacturing medical equipment and catheters. Jazakumu Allahu Khairan.


In the name of Allah the Merciful the Beneficent

Peace, blessings and mercy of Allah be upon you.

Praise be to Allah, prayers and peace be upon His kind Messenger, family members, companions and the true followers until the Day of Judgment.

The stock market is an organized market in which dealings and transaction are concluded, and it comprises brokers who work as mediators between the sellers and the buyers. Its aim is to provide a constant and continuous market in which supply and demand, buyers and sellers meet, and this leads to realizing some benefits as well as many corruptions. The stock market has positive and negative effects, such as:

The positive effects of the stock market:

First: It provides a permanent market which facilitates the meeting of sellers and buyers, and concluding immediate and deterred transactions on stocks, bonds and goods.

Second: It facilitates the process of funding governmental, commercial and industrial institutions by putting forward shares, and loan bonds for selling.

Third: It facilitates the selling of the shares, and loan bonds to others and benefiting from their prices, because their issuing companies do not clear or settle their values to its holders.

Fourth: It facilitates to know the balance or the scale of stocks, loan bonds and goods, and their movements in the field of dealings by the monitor of supply and demand.  

The negative effects of the stock market:

First: Most of the deterred transactions that run in this market are not actual selling or buying, because they do not involve cashing or receiving the prices between the two parties of the transaction, and the Shari`ah rules necessitates that cashing or receiving the prices is a condition for both or one of the two considerations.

Second: The seller often sells what he does not actually own of stocks, shares or loan bonds or goods, hoping that he would buy them from the market and hand them over on time, without receiving the price at contracting, as it is conditioned in the (Salam) transactions.

Third: The buyer often sells what the other party has bought before he receives it, and the other party also sells it to another party before he receives it, etc, and the selling and the buying is repeated on the same thing before actually receiving it, until the transaction or the deal ends up at the last and final buyer who may want to receive the thing from the first seller, who in turn, may have sold what he does not own, or to take from him the difference or the balance of the price at the time of actual receiving, which is the day of settlement or clearance; whereas the role of the buyers and the sellers, except the first and the final ones, is restricted to receiving the difference or the balance of the price in case of profiting, or to paying it in case of loosing in the fixed time, exactly as is the case with the gamblers.

Fourth: What the financiers do of monopoly of shares, stocks, bonds and goods in the market to control and dominate the sellers who bought what they do not actually own hoping to buy before the time of actual receiving or executing the contract with a lower price, and deliver them on time, and this would put them in troubles and problems.

Fifth: The danger or risk of such stock markets comes from taking it as a means of affecting the markets in general, because the prices in them does not completely depend upon actual supply and demand policy by the people who need to sell or to buy, but they are affected by many factors, some of which are fabricated by the domineering persons of the market, or by the people who monopolize the goods or the exchange stock markets, like spreading false rumors, etc. And here lies the danger or risk which is prohibited by the Shari`ah rulings, because this leads to abnormal fluctuations or flurry that would affect badly and negatively on the economic situations.

Therefore, the stock market has raised a big controversy among economists, and the reason for this is that it caused in some times and in particular periods of the economic history of the world a loss of huge fortunes in short periods of time, while it caused to some people to be very rich without exerting efforts, so much so that in big crises which swept the world, many have demanded to abolish it, because of it, many fortunes are lost and economic situations collapsed, and in a very swift time, as it happens with earthquakes and avalanches.

The Shari`ah rulings upon the stock market transactions:

The stock market transactions are varied and overlapping: Some are immediate, and some are deterred, and some others are related to goods or products, and some are related to money exchange. Therefore, it is difficult to give one general Shari`ah ruling on them; rather we must elaborate and illuminate the rulings concerning every dealing separately. And this is what the Fiqh Assembly of the Muslim World League in its Seventh Conference which was convened in Makkah Al-Mukarrammah in 1404 A.H, corresponding to 1984, has ruled follows judgments concerning this issue:

"First: ……….

Second: The immediate transactions or dealings on present and available dealings with the seller on which the receiving is run, as it is conditioned for it in the receiving or cashing in the place of legal transacting are permissible transactions according to the Shari`ah rulings, except if they are illegal transactions, but if the sold product(s) is not in the hold of the seller, then it must have the conditions of the (Salam) transactions, and it will not be permissible for the buyer after that to sell it before receiving and cashing it.

Third: The immediate transactions on the shares of the companies and institutions, when these shares are in the possession of the seller are permissible from the Shari`ah point of view, unless these companies or institutions deal in prohibited and illegal transactions, like usury banks, and wine companies, then it is prohibited (Haraam) to deal in their shares whether in the form of selling or in buying.

Fourth: The immediate and deterred transactions on the loan bonds with interest of all kinds are not legal and they are prohibited (Haraam) from the Shari`ah point of view.

Fifth: The deterred transactions and dealings in all their kinds, which are short sales or concluded overtly, i.e. on the shares and goods that are not in the possession of the seller, on the way that runs in the stock exchange market, is prohibited (Haraam) from the Shari`ah point of view, because it comprises the selling of what the seller does not actually possess, depending or hoping that he will buy it later on and delivers it on the concluded time agreed upon, and this is prohibited in the Shari`ah , as it is said by the prophet, prayers and peace of Allah be upon him: "Do not sell what is not with you", and as it is also narrated about him by Zayd Ben Thabet, may Allah be content with him, who said that: "The prophet, prayers and peace of Allah be upon him warned against selling goods until the traders possess them in their holdings", (reported by Imams Ahmad and Abou-Dawoud).

Sixth: The deterred transactions in the stock market are not considered as of selling of the legally approved by the Shari`ah (Salam) transactions; because of the two differences between them:

A-    In the exchange stock market the price is not paid in the deterred transactions in the place of transacting, but paying the price is postponed or deterred up to the time of clearance or settlement; whereas the price in the (Salam) transaction must be paid in the place of transacting.

B-     In the exchange stock market the contracted upon product is sold when it is in the hold of the first seller, and before the first buyer possesses it, so many sellings, and the purpose of this is not except receiving or paying the balance or the difference between the non-actual sellers and buyers, and this is a risk on earning and profiting, exactly like gambling, whereas it is not permissible in the (Salam) transactions to sell the product before receiving it.

The point is that the sock market transactions could be categorized into permissible (Halaal) and prohibited (Haraam), and there is no problem for you in particular that the shares of your stocks to be in the stock market, but the problem lies in how the policies and plans of marketing such shares are circulated with, as well as those who are involved in it as sellers or buyers, if they opt for incorrect transactions which are prohibited by Allah and His Messenger, prayers and peace of Allah be upon him".

Allah knows best.