Malaysia's stock exchange plans to launch a platform to facilitate regulated Islamic short-selling and hedge fund activities towards the end of the year, the bourse's head said on Mar 30, reports Reuters.
Short-selling — the sale of borrowed stock with a view to buying it back more cheaply later — is controversial among Islamic scholars, as some believe that sharia does not permit selling what one does not own.
Bursa Malaysia is still working out the platform's structure, but one way to enable Islamic short-selling is for investors to buy — instead of borrowing — a stock by paying a fraction of the stock price and executing a simultaneous agreement to sell it back to the seller at a later date, the report added.
It quoted Bursa Malaysia chief executive Yusli Mohamed Yusoff as saying: "This is being worked on, and we hope to offer an alternat ive way of stock borowing and lending which is sharia-compliant...This will help in bringing in Islamic hedge fund activities. Short-selling is an essential ingredient for capital markets to perform efficiently."
Short-sellers can boost market liquidity and lift returns for fund managers who lend out their shares for a fee.
Eighty-seven percent of securities listed on Bursa Malaysia meet Islamic law standards, which forbid activities such as interest-based lending, gambling, alcohol and tobacco. The practice of short-selling has come under criticism in the West recently, with some politicians saying it has helped to fuel sharp tumbles in the price of shares, particularly for banks reeling from the global credit crisis. The Malaysian stock exchange reintroduced regulated short selling in 2007 after a gap of nearly a decade in an attempt to boost turnover and foreign interest in the domestic market, the report added.Any source
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