Malaysia mulls shortselling move for sharia 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 on Thursday.

With the change, sharia institutions would be able short-sell a limited number of stocks, Securities Commission Chairman 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 sharia 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.