New Delhi: C.B. Bhave, chairman of market regulator Securities and Exchange Board of India (Sebi), Tuesday said there was no need for imposing a ban on short sales as existing regulations were adequate to deal with any volatile situation.

"If evidence is found against any firm circumventing short selling norms, severest action will be taken," the Sebi chief said to calm market jitters.

"Sebi is closely monitoring the situation and has verified with the stock exchanges that there are no settlement issues," Bhave told reporters here.

The hurriedly called press briefing came in the wake of news that the US House of Representatives had rejected the Bush Administration's $700-billion bailout plan Monday.

The Sebi chief's attempts to pep up the market appeared to calm investor sentiments to some extent as the equities markets, after opening very weak, recovered somewhat though still remaining in the red.

The 30-share benchmark sensitive index (Sensex) of the Bombay Stock Exchange opened Tuesday nearly 200 points or 1.6 percent down from its previous close Monday, but had recovered somewhat by the time of the Sun outage break at 11.25 a.m.

It was only about 65 points or 0.5 percent down when trading stopped due to unavailability of satellite services due to excessive Sun spot activity during this time of the year.

Bhave said existing regulations allowed only retail short sales and that too on a T+2 basis. That means if there is short sale, the trader will have to deliver within two days of the trade.

So, the scope for building up speculative positions was limited and no ban on short sales was called for immediately.

"If the situation demands, regulations will be reviewed and appropriate measures taken," the Sebi chief said.

Also, at present, the rules regarding short sales by domestic or foreign institutional investors (FIIs) require that if they short sell, they must do so by borrowing the stock on the stock exchanges.

Hence, again there is not much scope for building up speculative positions.

"At present, there are no volumes in the borrowing or lending markets," Bhave said. "Therefore, there is no concern that institutions may be short selling in bulk."

He said FIIs will buy and sell as per their decisions. "You cannot anticipate what investors will do," he said.

Maintaining that the Indian equities markets were resilient and that there was no need for panic, Bhave said: "The clearing system is capable of dealing with stock fluctuations. The clearing and settlement mechanism has been tested in times of great volatility."

Earlier, Finance Minister P. Chidambaram had a meeting with Bhave to assess the market situation.