The Australian Securities and Investments Commission extended a ban on the short selling of financial stocks imposed at the height of last year's global financial-market turmoil.
The ban will remain in place until March 6, ASIC said in an e-mailed news release.
''ASIC believes that in the context of the renewed volatility affecting banking stocks in many markets, including the UK and USA, this cautious approach is warranted,'' it said.
The move comes after day of falls for Australian banking stocks, the financials sub-index losing another 3%.
A temporary ban on all forms of short selling in Australia was introduced in September in an attempt to contain financial- market volatility after the collapse of US investment bank Lehman Brothers Holdings Inc earlier that month. Similar steps were taken worldwide, including in the US and UK, as credit markets froze, sending stock markets worldwide tumbling.
Lehmans' collapse fueled a rout that halved the value of equity markets worldwide to about $US30 trillion ($45 trillion) in 2008. The MSCI World Index, which tracks shares in 23 developed nations, tumbled a record 42% last year as credit-related losses at financial firms topped $US1 trillion.
Australia permanently outlawed naked short selling, with a few exemptions, in November, while lifting the ban on covered short sales for most non-financial companies. The ban on short selling of financial securities was to remain until at least January 27, ASIC said at the time.
In a short sale, traders borrow shares from their broker that they then sell. If the price drops, they buy back the stock, return it to their broker and pocket the difference. In a naked short sale, traders don't need to borrow the shares.
"As many factors are at play in these overseas markets, ASIC needs time to examine these latest developments. ASIC will therefore, over the next few weeks, assess the markets more carefully to determine the role of short selling and aggressive or predatory practices and whether there are similar risks for Australia when the ban is lifted," it said.
The regular said the turbulence hitting financial stocks overseas warranted the extension of the ban.
''ASIC believes that any possible loss of market efficiency or price discovery as a result of this additional short period of review is therefore justified.''
However, the regulator still intends to keep its intervention to ''an absolute minimum'' and will continue consultations with industry players and domestic and international regulators.
ASIC said that if it had sufficient information to lift the ban before March 6, it would consider doing so and would alert the market accordingly.
Covered short selling of non-financial stocks remains unaffected and was still permitted, ASIC said.