With the Senate passing the USD 700-billion bailout package, American market regulator Securities and Exchange Commission has extended the ban on short selling to allow time for the rescue Bill to be enacted into a legislation.

The current ban would expire on the third business day after enactment of the legislation. However, the order would expire in no case later than October 17, SEC said in a statement on Wednesday.

In September, the American regulator had taken a temporary emergency action to prohibit short-selling in financial companies to protect the integrity and quality of the securities market as well as strengthen investor confidence.

"We have carefully re-evaluated the current state of the markets and we remain concerned about the potential of sudden and excessive fluctuations of securities prices generally and disruption in the functioning of the securities markets that could threaten fair and orderly markets," SEC said in the latest statement.

This order would be extended beyond its currently scheduled expiration, to allow time for completion of work on the anticipated passage of legislation, it added.

Short-selling means borrowing a security from a broker and selling it with the understanding it must be bought back and returned to the broker. Investors use this to make profit from falling price of the stock.

Last month, in a move to strengthen investor confidence, the market regulators in the UK and the US had halted short-selling in 799 financial stocks with effect from September 19.