PLS Security

Definition of "PLS Security"

A proposed financial instrument in the interest-free frame- work. It is a title of ownership of a common share in the net worth of a project and is entitled to any profit or loss arising from the operations of the project. The seller issues PLS securities and invests the funds in buy- ing goods for cash or for an advance payment and reselling the goods on deferred payment basis or for renting the asset. The PLS securities could be either of the following types: (i) one transaction mudarabah certificates; (ii) fixed-term mudarabah certificates; (iii) one-term musharakah certificates; and (iv) fixed-term musharakah certificates. The PLS securities would be negotiable in secondary market provided their value represents real assets to the extent of more than 50 per cent of their value. While announcing the sale of PLS securities, the seller should guarantee that at no time the real assets of the project will become less than 50 per cent. If the certificates may become non-negotiable at any time (as they represent less than 50 per cent of the real assets of the project), the seller should undertake to inform the holders of the certificates of any change in the structure of the net worth, which may prevent their negotiability.