"Short sales are deemed to be uncovered if the relevant securities cannot be delivered punctually," the SWX clarified in an official statement released at the end of last week.

"The non-deliverability of the securities is an indication that the applicable rules of conduct have been breached. In such instances, SWX will initiate an investigation and take the necessary measures, which can extend to the suspension or termination of participation in SWX. Covered short sales remain fundamentally permissible," the statement explained.

The statement also warned traders that "the spreading of rumours of a nature that violates the applicable rules of conduct is also forbidden."

In consideration of the turmoil that gripped the stock markets last week as short traders reportedly accelerated the decline in value of banking sector stocks, the Swiss Federal Banking Commission (SFBC) has announced that naked short sales are no longer permitted and are incompatible with the SFBC-Code of Conduct for Securities Markets, in particular when used to distort or manipulate the market.

"Banks must make sure that when selling securities for clients they are able to deliver the securities on settlement date. The SFBC will prosecute any abusive behaviours," the Commission has warned.

"Considering the current financial environment, the SFBC reminds all market participants to rigorously comply with the supervisory regulation in particular with the Code of Conduct for Securities Markets," the regulator stated.