What's happened?

Germany has banned the "naked" short-selling of eurozone government bonds, their credit default swaps (CDS) and the shares of the country's 10 biggest financial institutions.

Why have the German authorities taken this step?

BaFin, the German financial regulator, wants to crack down on the speculators it blames for destabilising financial markets and making the Greek debt crisis worse. The watchdog said that large-scale short-selling could have "endangered the stability of the entire financial system".

What is short-selling?

Short-selling is selling borrowed shares in the hope their price will fall and that they can be bought back at a profit later on. In 2008 the British watchdog the Financial Services Authority (FSA) rushed in emergency rules to ban the short-selling of UK bank shares after a collapse in the HBOS share price was – wrongly as it turned out – blamed on the practice.

So what is "naked" short-selling?

The same as short-selling but without borrowing the shares first, or by just getting the nod to do so if necessary. When the seller does not obtain the shares in the required time, the result is known as a "fail to deliver". However, the transaction generally remains open until the seller or seller's broker can fill the order.

What is new about the ban?

The short-selling of shares of financial institutions is already banned in France but Germany is the first to extend the moratorium to eurozone government bonds and related CDSs.

Remind me what a CDS is?

Credit default swaps are insurance against defaults on corporate and government bonds.

How long will the German ban last?

It took effect from midnight on Tuesday and lasts until 31 March 2011.

Will it work?

It is not clear how Germany will be able to police the ban as the debt and CDS markets cross national borders, with most European trade in CDSs done in London. The FSA says the ban will not apply to branches of German institutions based here.

What was the reaction from investors?

World stock markets fell sharply and the news also hit the already fragile euro. Traders called the ban "draconian", arguing that it was an attempt to buy time and take the heat off the EU economies in the wake of the Greek financial crisis.