KUALA LUMPUR (April 13): Securities Commission Malaysia (SC) announced today that principal dealers are now allowed to perform regulated short selling of corporate bonds in the local capital market.

The move, which expands the range of bonds that can be sold short, follows the introduction of the new "Guidelines on Regulated Short Selling of Corporate Bonds".

"The guidelines aim to provide certainty as to the parties who would be permitted to conduct short selling of corporate bonds as well as the requirements involved," said SC in a statement.

"Recognising the importance of ensuring market stability, conditions on how regulated short selling of corporate bonds are to be conducted have also been put in place," it added.

The commission said this latest initiative is part of its continuous efforts towards enhancing the liquidity of the secondary bond market while ensuring a comprehensive and facilitative infrastructure and regulatory framework.

"This is in line with SC's ongoing commitment towards sustaining the overall development and growth of Malaysia's bond market," it said.

Meanwhile, Bank Negara Malaysia (BNM) — which issues treasury notes and government debt papers — is also considering easing the rules governing short selling of government bonds as it seek to "deepen domestic financial markets and revive interest in its debt".

Last month, BNM assistant governor Adnan Zaylani Mohamad Zahid said fund management companies and insurers will be allowed to short sell sovereign bonds to help them manage their interest-rate exposure and generate more trading volume.