BERLIN, Germany – GERMANY’S market regulator announced a ban yesterday on so-called naked short-selling of eurozone government debt and shares of major financial companies, a move that came as European officials seek to strengthen control of markets.

The regulator, BaFin, said the ban — which was to take effect at midnight yesterday and run through March 31 of next year — also would apply to naked credit default swaps involving eurozone debt. The move, it said, was aimed at upholding financial stability amid the continent’s persistent debt crisis.

Still, the ban itself appeared to underline markets’ concerns about European policymaking, and the euro fell yesterday evening. It bought around US$1.22, after trading well above US$1.23 earlier in the day.

BaFin cited the “extraordinary volatility” afflicting eurozone countries’ debt certificates and the widening of spreads on credit default swaps for several nations.

“Against this background, massive short-selling of the affected debt certificates and the conclusion of naked CDS on loan default risks of eurozone states would have as a consequence further excessive price movements,” BaFin said in a statement.

Those could lead to “significant detriment for the financial market and could endanger the stability of the whole financial system,” it added. It said the ban would be reviewed continuously.

Naked short-selling involves a trader selling shares or investments he doesn’t own. Credit default swaps are a type of insurance against a borrower going bankrupt that have become a lucrative market for traders.

European leaders have complained that speculators used credit default swaps on Greek government debt to bet the country would default on its borrowings — raising pressure to the point where it was forced to ask for a bailout.

Finance Minister Wolfgang Schaeuble said Germany was acting in anticipation of European regulations expected to be proposed next month.

He pointed to the “great worries” caused by speculation on debt over recent months as the reason for banning short-selling, and added on ZDF television: “We can do that, and when you do something like this, you don’t take a long run-up.”

“The German ban seems to be a bit of ‘flailing,'” Marc Chandler, the chief foreign exchange strategist at Brown Brothers Harriman, a New York investment firm, said in a market commentary.

He added that “it appears to be half-baked and not really thought out, and plays into market doubts about European policymaking credibility.”

The ban on naked short-selling of financial companies’ shares applies to several banks — Aareal Bank AG, Commerzbank AG, Deutsche Bank AG and Deutsche Postbank AG.

It also covers insurer Allianz SE; reinsurers Hannover Re AG and Munich Re AG; Generali Deutschland Holding AG, MLP AG, and Frankfurt stock exchange operator Deutsche Boerse AG.

BaFin applied a similar ban to short-selling of financial stocks at the height of the financial crisis in late 2008.

Lawmakers from Chancellor Angela Merkel’s governing centre-right coalition had advocated earlier yesterday a ban on naked short-selling, among other efforts to beef up regulation.

The lawmakers also want to see “a financial transaction or finance activity tax” in Europe and elsewhere, said Volker Kauder, the parliamentary leader of Merkel’s conservative bloc.

“We want the stabilisation of the euro,” he said after a meeting of the coalition’s top lawmakers. “But we also want the financial markets to be involved in this stabilisation.”