In a key change in its stance, the Securities and Exchange Board of India said it is keeping its options open on banning short sales, which a section of brokers believes are responsible for the collapsing stock market. The benchmark Bombay Stock Exchange Sensex fell below 10,000 Friday, the first time since July 2006.

Clarifying the regulator's stand, a senior Sebi official told Business Standard, "We should not close the options available before us." The regulator is studying the data before taking a final decision, the official said.

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Short selling or "shorting" refers to the practice of selling shares that the seller does not own at the time of the sale with the intent of buying it later at a lower price. Short-sellers attempt to profit from expected decline in share prices.

The market regulator has so far maintained that there is no need to ban short selling, ignoring growing pressure from a section of brokers to do so. These brokers believe that a cartel is "shorting" to pull the market down at a time when Foreign Institutional Investors, under pressure in their home countries, have been selling consistently since September 15, when Lehman Brothers, one of the largest investment banks in the US, filed for bankruptcy.

Sebi has also begun receiving data on short selling by foreign investors by borrowing shares through participatory notes (P-notes). The first set of data has proved that short selling has been taking place and the regulator has now asked for data before October 9.

P-notes are financial instruments used by foreign investors that are not registered with Sebi to invest in Indian securities. They were banned in October last year when the Sensex was rising strongly and were recently restored when the markets started tanking.

Sebi has also taken a view that shares held under P-notes and lent to another investor and sold on the Indian bourses amounts to short selling.

If further data show that the volume of such sales is significant, Sebi might ask leading FIIs to discontinue lending shares.

On the issue of shorting, several companies are said to be planning to complain to authorities against some middle-level brokerages for allegedly spreading rumours and sending incorrect notes and research reports to their clients. ICICI Bank [Get Quote], which saw its share price tank last week on rumours of heavy exposure to the bad housing loan crisis abroad, did so last week and even filed a police case to this effect.