Mufti A'zam of Hind, Mufti Kifaayatullah Saahib states in his Fataawathat trading in shares is based on gambling (sattah baazi.). His Fatwa is reproduced hereunder:

"Question: In our age the tramways, railways and other factoriessell what they term shares. A company is established for operatingtramways, railways or for manufacturing and trading in other productssuch as steel, timber, etc. The capital is fixed and shares aresold. Salaried employees (officials and directors) are appointed tomanage the affairs of the company. They issue periodical financialreports of the shareholders while a portion of the profits is retained(not distributed).

This capital is also invested in interest ventures.The interest is also included in the profit for distribution to theshareholders.The value of these shares rises and falls according to the performanceof the company. According to these (market) values, shareholderssell their shares. The method of selling is as follows: the sellerinstructs an agent to sell his shares. The agent keeps the seller informedof the fluctuating prices. If the seller is satisfied with a price,he instructs the agent to sell. The buyer does not take possession ofany tangible assets.

What happens is that the name of the seller isexpunged and the name of the buyer is now listed as the owner of theshares.If the buyer wishes to acquire a share of the tangible assets of thecompany (in view of him being a shareholder), this is not possible.The company's employees will not comply nor will they refund himthe price (of his share of the asset). The only option he has is to sellthe shares at the market value in the way he has purchased them. Is itpermissible to trade in these shares according to the Shariah? If it ispermissible, what type of transaction is this. Is Zakaat incumbent onthe value of the shares or on the profit (i.e. the dividend)?

ANSWER: The aforementioned transaction is unlawful on the basisof several factors:

(1) This deal does not come within the scope of any transaction of commerce of the Shariah. It is neither a sale nor a partnershipnor any other lawful Shar'i transaction.

(2) Riba dealings are haraam.

(3) Buying and selling of these 'shares' are not permissible becausethe item of sale is unknown. It is quite apparent that thecertificate which the buyer receives is not the 'mabee' (the tangibleasset of the transaction). The assets being sold are thus eitherthe cash which the company holds or the stock of the companywhich belongs to all the shareholders. If the mabee is the cash,then is it obvious that inequality (between the price paid and theproportionate cash) is not permissible (since it is riba).

Furthermore,the shareholder cannot acquire his proportionate cash fromthe company. The seller is therefore unable to deliver the mabeeto the buyer. At the time of the sale, the seller and the buyer areunaware of the amount of cash which belongs to the seller. If themabee is a proportionate share of the company's stock, then althoughthe sale of a portion of the partnership asset is permissible,it being unknown renders the transaction unlawful.........This transaction is not permissible. Buying and selling ofshares is forbidden." (Kifaayatul Mufti, Vol.8, page 12)