The U.S. Securities and Exchange Commission today announced that it is following the lead of the UK Financial Services Authority and banning short selling to financial firms.

The SEC took temporary emergency action to prohibit short selling in financial companies “to protect the integrity and quality of the securities market and strengthen investor confidence.” The FSA took similar action yesterday.

The commission’s action will apply to the securities of 799 financial companies, and is immediately effective. It is also: temporarily requiring that institutional money managers report their new short sales of certain publicly traded securities, and temporarily easing restrictions on the ability of securities issuers to re-purchase their securities.

SEC chairman Christopher Cox said, “The commission is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets. 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.”

Last night it was reported that the Fed, Treasury and Congress are working on a comprehensive bailout plan for the U.S. financial industry, which could involve it buying up distressed assets from financial firms.

IE