Malaysia mulls short-selling for syariah firms

 

MALAYSIA is reviewing rules to allow Islamic financial institutions to short-sell shares in an effort to improve market liquidity and encourage hedging, the market regulator said today.

With the change, syariah institutions would be able short-sell a limited number of stocks, Securities Commission chairman Datuk Seri Zarinah Anwar said.

“It should be an objective of securities regulators to facilitate the hedging of risks in markets,” Zarinah told an Islamic capital market forum.

“From our perspective, problems arise when hedging activities are opaque, when there is lack of oversight and a sense of accountability and ethical conduct.”

She said the Securities Commission’s syariah advisers had approved the short-selling move.

Short-sellers borrow shares and sell them in the hope of buying them back later at a lower price. This can boost market liquidity and lift returns for fund managers who lend out their shares for a fee.

The practice has come under strong criticism in the West in recent months with some politicians saying it has helped to fuel crushing share price declines, particularly for banks and other financial institutions reeling from the global credit crisis.

Islamic financial institutions lack hedging tools. This is largely because the industry is divided on the use of derivatives which some experts say encourages gambling — a practice that is haram, or forbidden by Islamic law.

The Malaysian stock exchange reintroduced regulated short-selling last year after a gap of nearly a decade in an attempt to boost turnover and foreign interest in the domestic market.

The Southeast Asian country banned the practice in 1997 at the outset of the Asian financial crisis in order to halt speculative selling. - Reuters