The Securities and Exchange Commission announced a “temporary emergency action” early this morning to prohibit short selling in 799 financial companies’ stocks until end-of-day on October 2.

“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,” SEC chairman Christopher Cox said in an announcement, adding that the move was intended to “restore equilibrium to markets.”

The SEC said that there is an “essential link” between confidence in a bank and its stock price. While short selling contributes to market efficiency under normal circumstances, the SEC said, “At present, it appears that unbridled short selling is contributing to the recent, sudden price declines in the securities of financial institutions unrelated to true price valuation.”

The SEC said it may extend the order beyond 10 days if it deemed it necessary “in the public interest,” it said. The Financial Services Authority in the United Kingdom took similar action yesterday.

The SEC also listed additional steps it had taken to address turmoil in the markets, including requiring institutional money managers to report any new short sales of certain publicly traded securities and temporarily easing restrictions on the ability of securities issuers to repurchase their securities. The latter change was intended to help restore liquidity.

The move comes just one day after Republican presidential nominee John McCain said, in prepared remarks, that were he president, he would fire Cox for turning “our markets into a casino.” McCain singled out naked short selling and noted that in the latest crisis, speculators “pounded the shares of even good companies into the ground.”

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