DUBAI, Jan 9 (Reuters) - The Saudi Stock Exchange will introduce settlement of trades within two working days of execution during the second quarter of 2017, the bourse said on Monday as it published draft rules for short-selling and the borrowing and lending of securities.

Trades must be settled on the same day for now. This has inconvenienced foreign investors in particular as they must have large amounts of money on hand before trading, which can be hard given Riyadh's time zone and its Sunday-Thursday business week.

"Introducing the T+2 settlement cycle aims to align the Saudi stock market with leading global settlement practices, and to increase levels of asset safety for investors," the exchange said in a statement.

As part of a drive to attract more foreign investment, the Capital Market Authority said last May that a switch to T+2 settlement, which is used by many big emerging markets, would occur sometime during the first half of 2017.

The exchange said on Monday that T+2 settlement would be applied in ways that did not slow trading activity. "Sellers are ... able to sell purchased securities immediately with no need to wait for cash settlement of the transaction."

It asked the public for comments by Feb. 8 on draft rules for introducing covered short-selling and the borrowing and lending of stocks. In short-selling, an investor sells borrowed securities in the hope of buying them back at a cheaper price.

The exchange did not specify when short-selling would begin. Saudi regulators hesitated to introduce the practice for years because of concern that it could destabilise the market, but it may help to attract foreign investors by giving them a chance to hedge their purchases.

(Reporting by Tom Arnold and Andrew Torchia; Editing by Louise Ireland) ((andrew.torchia@thomsonreuters.com)(+9715 6681 7277)(Reuters Messaging: andrew.torchia.thomsonreuters.com@reuters.net))