"We will persuade people concerned that it is (short selling by institutions) is needed and we hope it could come through in the calendar year 2007," SEBI chairman M Damodaran said at the FICCI annual capital market conference in Mumbai..

Short selling allows sale of securities that is not owned by the holder. However, the seller re-purchases the securities later at a lower price and returns it to the holder.

He also said SEBI had started work on the implementation of R H Patil Committee recommendations on strengthening the corporate bond market and results would be out soon.

"We are well on our way in doing all that is required to be done for a long-awaited corporate bond market...you will see action, numbers and results."

On a separate exchange for small and medium enterprises, the SEBI chief said the market watchdog was working on devising a model, which would facilitate smaller companies to tap the capital markets without lowering the bar for regulations.

"The Over the Counter Exchange of India was a failure but we could reinvent it," he said.

Damodaran said SEBI would actively encourage trade groups to be self-regulatory bodies and was looking into the issue of reducing the time taken by companies to tap the capital markets.