Malaysia said it will lift a ban on short-selling of stocks, as part of efforts to create a flexible capital market, woo investors and spur market activity.

Second Finance Minister Nor Mohamed Yakcop told an investors' conference in Kuala Lumpur yesterday that the government would lift the ban on short-selling but that it would also limit its re-introduction to less than 100 stocks.

The ban has been in place for eight and a half years. No timeframe was given for how soon it will be lifted.

He also said security lending and borrowing will be reintroduced to the domestic market to pave the way for short-selling to resume.

He said the government will introduce measures to ensure that stocks are not "cornered," or manipulated, when short-selling is brought back.

Secondary listings overseas

Malaysia would also amend stock exchange listing rules to encourage foreign-listed companies with more than one billion ringgit (US$0.27 billion) worth of assets to list on the country's bourse. It would also allow local firms to seek secondary listings overseas.

Short-selling is the practice of making a profit by borrowing stock, then selling it in hope that the price will go down so it can be bought back at a lower price before the shares have to be returned to its owner.

The move comes as Malaysia is seeking to liberalise the financial sector and lift capital controls, which were imposed along with the pegging of the ringgit in 1998 to insulate the country from the fallout of the Asian crisis.

The fixed exchange rate regime was scrapped in July 2005 in favour of a managed float after China announced a similar move.