This article first appeared in The Edge Financial Daily on April 17, 2018 - April 23, 2018

KUALA LUMPUR: Investors can once again engage in short selling of stocks on Bursa Malaysia, starting yesterday, said Bursa Malaysia Bhd.

The short selling of shares was banned following the 1997 Asian financial crisis.

In a statement yesterday, Bursa said intraday short selling (IDSS) can be carried out on a selected list of eligible securities, which currently comprises 280 securities. It will be reviewed every six months.

On Feb 6, Prime Minister Datuk Seri Najib Razak announced the move as part of measures to enhance vibrancy and stimulate greater trading activity in the stock market at the World Capital Market Symposium.

The exchange has implemented a clear framework to facilitate IDSS trade for all investors. Under the framework, investors are able to sell securities first and buy the securities later within the trading day itself.

“Introducing IDSS to a wider group of investors is timely considering the growing sophistication of market participants. This measure is part of the exchange’s strategy to boost market liquidity and further improve flexibility for market participants to refine their trading and risk management strategies,” said Bursa chief executive officer Datuk Seri Tajuddin Atan.

“The exchange will continue to undertake initiatives to provide a more efficient and facilitative market framework, and the introduction of IDSS is set to further advance the exchange’s efforts to build a dynamic and vibrant capital market,” he added.

Bursa noted that a robust compliance requirement and safeguards have also been put in place to allow for IDSS trade to take place, which include market controls for IDSS suspension if a stock’s price falls by more than 15% from the previous day’s closing price or if the gross short selling volume exceeds the daily maximum limit of 3% of outstanding shares per security.

The framework also specifies compliance obligation requirements for investors before IDSS activities can commence, the exchange added.

Former prime minister Tun Dr Mahathir Mohamad introduced a ban on short selling of shares during the 1998 Asian financial crisis to help curb the outflow of capital. In 2006, Malaysia partly lifted its ban on short selling of shares, but IDSS was only permitted for licensed proprietary traders on Bursa.