A Juridical Inquiry into Stock Exchange

Financial markets are among the most important pillars of the economic system, which are responsible for directing savings to investment to reduce transaction costs and transfer risk and provide firms and companies with liquidity. The stock market is the capital market entity in the capitalist economy, whose main task is to regulate the relationship between suppliers and investors in order to help realize the market economy as well as to participate in investment and share the risks and profits of investors. The unique role of the stock exchange in economic developments, and its high capacity in creating a partnership structure and undertaking macro-projects by collecting small funds and sharing the risks among investors has made it an indicator of the economic situation. This article reviews, with an analytical and document-based approach, the theoretical framework of the atmosphere in which the stock exchange emerges as well as some of its consequences. It seeks to explain the feasibility of its application in the Islamic society by examining the relationship between the stock exchange (as a phenomenon begotten by the capitalist economy) and the governing rules in Islam. The theoretical scope of the arguments laid out in this article focuses on the subject matter as well as on the positive and negative impacts of stock exchange. Two main objections have been raised from individual and social perspectives on the stock market, one relating to promissory notes and the other to the nature of the stock market being similar to gambling. However, it is concluded from the discussion that the objection regarding the activities of the stock market being similar to gambling is out of place for the simple reason that there is no problem in sale and purchase of financial assets with the purpose of gaining more profit as long as the transactions take place within an Islamic framework but from the perspective of social jurisprudence, if it leads to injustice and disorder in the economic system, it is not permissible. It is therefore necessary to make use of Shari'ah compliant instruments in financing projects and it should involve acceptance of the right to dissolution of the transactions so as to help reduce speculations in financial markets.