The U.S. Securities and Exchange Commission enforced a temporary ban Friday on the short selling of 799 financial stocks in an effort to calm investor fear and markets in general.

The ban is in place until 11:59 p.m. EDT on Oct. 2, and can be extended 10 days or beyond if deemed necessary.

"The Commission is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets," said SEC Chairman Christopher Cox in the announcement.

"The emergency order temporarily banning short selling of financial stocks will restore equilibrium to markets. This action, which would not be necessary in a well-functioning market, is temporary in nature and part of the comprehensive set of steps being taken by the Federal Reserve, the Treasury, and the Congress."

The move follows similar actions in the UK late Thursday evening.

Meanwhile, Australia said it plans to institute a similar rule on Monday.

The announcement also came just hours after Treasury Secretary Henry Paulson said he is working on legislation that would allow the removal of illiquid assets from the balance sheet of financial institutions.

The Treasury Secretary pledged to continue working closely with Congress on a proposal, but warned that that systemic risks in markets need to be dealt with, and that a solution to meet the needs of the U.S. is necessary.

Equity indexes around the world have seen huge gains overnight, including London's FTSE 100 and the EuroStoxx, both of which are trading up more than 7%.

By Erik Kevin Franco
©CEP News Ltd. 2008