Leonteq Securities is betting on automation to unlock a broader investor base for its Shariah compliant structured products, aiming to disrupt a market traditionally characterized by high entry barriers.
The Zurich-based firm is making trust certificates – structured using a combination of Murabahah and Waad contracts – accessible to a wider pool of investors instead of a select, wealthy few, Mohamed Taibi, executive director and cross-asset structurer for Shariah compliant offerings at Leonteq, shared with IFN Investor.
“Our key objective in this expansion is really to lower the entry barrier for Shariah compliant structured products,” Mohamed said, explaining Leonteq’s push to broaden the reach of Islamic finance. “We want to democratize it.”
Mohamed said a majority of proceeds from the trust certificates go into Shariah compliant assets, mainly stocks, marking a stark departure from traditional structures where cash might simply sit in the bank’s treasury.
Unlike conventional financial instruments, the Murabahah and Waad contracts products require a tangible asset backbone, involving intricate commodity transactions for every issuance. This inherent complexity has historically led to high minimum investment thresholds, between US$1 million and US$2 million, effectively limiting participation.
To get over this hurdle, Leonteq relies on deep integration of its digital and automation capabilities to offer Shariah compliant products with minimum subscription sizes comparable to conventional offerings.
The automation is very, very powerful in terms of making diversification easier for investors. Additionally, the process allows investors to diversify across various underlying assets, from US equities to gold and oil, with smaller allocations.
The operational backbone of this automation includes a sophisticated link with the ETHOS AFP platform, a system managed by DDCAP Group in collaboration with commodities broker, DD&Co.
This integration allows Leonteq to seamlessly execute multiple commodity trades and generate the necessary legal documentation required for Shariah compliance, a process audited annually by Amanie Advisors. The streamlining ensures both efficiency and the integrity of the Islamic principles that govern each transaction.
Leonteq’s strategic expansion is also marked by a significant partnership with Emirates Islamic. This collaboration is innovative, blending the established market presence of a major Islamic financial institution with Leonteq’s agile fintech capabilities.
The alliance is expected to extend these accessible Shariah compliant products to Emirates Islamic’s client base. While Leonteq directly targets institutional investors, the partnership itself serves as a key endorsement of its automated platform.
The firm’s ambitions extend beyond its current operations in the UAE. Leonteq plans to expand its geographical footprint across the GCC, targeting Saudi Arabia, Qatar and Bahrain.
Leonteq’s aim to foster a broader ‘Islamic ecosystem’ by partnering with more banks also allows them to leverage Leonteq’s automation technology for their own Shariah compliant offerings.
“There is a lot of innovation in the trajectory of investment products. But the Shariah aspect is a bit behind,” Mohamed said, adding that Leonteq hopes to bridge the gap by tapping into the significant, underdeveloped potential of the Islamic structured products market.
