(MoneyWatch) Italian and Spanish stock market regulators today banned short-selling on all securities. Italy's ban will last at least a week; Spain's will be in place for at least three months.
"The situation of extreme volatility across the European markets could interfere with their smooth functioning and the normal course of their activities," the Spanish regulator said in a statement.
Trading in some Italian banks and financial groups was also halted temporarily because of excessive losses as fears over an escalation in Europe's debt crisis gripped markets once again.
In a short sale, investors sell stock that they do not own, betting that they can buy it back at a lower price. The investor seeks a profit by betting that the price of certain shares will fall.
Short-selling of shares has been blamed for driving down markets during the financial crisis and several European regulators have in the past imposed temporary bans on the practice. Italy in February let expire a ban that had been imposed the previous summer.
However these bans have seldom provided any long-term relief. As the blog ZeroHedge pointed out: "Within a few days of the last ban, following a very short-term squeeze - European banks were back below the pre-short-sale-ban level."
The ban, which will not apply to market makers, will apply to any operation on stocks or indexes, including cash operations, derivatives traded on platforms as well as OTC derivatives, the regulator said in a statement.
The Associated Press contributed to this report