The situation for short Financial sector exchange-traded funds, and for leveraged ETFs more generally, probably won't get any less tricky in the near future.

The Securities and Exchange Commission has decided to extend its selective ban on short-selling through at least Oct. 17. The ban, which covers more than 1,000 stocks, was  originally set to expire today, but the SEC extended the ban in light of Congress' failure to pass a comprehensive banking bailout bill. If (as many expect) Congress passes that bill before the October 17th deadline, the SEC says it will lift the short-selling ban three days later.

The  bailout plan passed the U.S. Senate today by a wide margin; it will be reconisdered by the House of Representatives on Friday.

In the meantime, the extension of the ban means that ProShares and Rydex will continue to have trouble operating their short and leveraged ETFs normally. (See related story.)  The funds most acutely affected are those that take short positions on Financial stocks: the ProShares Short Financials (AMEX: SEF), ProShares UltraShort Financials (AMEX: SKF), Rydex 2X Inverse S&P Select Sector Financial ETF (AMEX: RFN) and in Europe, Deutsche Bank's db x-trackers Bank Shorts Fund. (See story here). Those funds have stopped creating new shares because it is hard to achieve short exposure inthe market.

The SEC already added an amendment to the rule banning short sales in financial stocks, which was intended to alleviate the problems for some derivatives market makers and managers including ETFs, but the funds have still been unable to return to normal trading and creation activity.

Some market watchers have indicated that the SEC amendment was only partially effective because many of the market-making partners of ETFs are not registered specifically as market makers at the SEC, and the amendment was written specifically referring to "registered" market makers. Overall, published reports have also argued that that the ban failed to prevent stock-price declines, increased volatility, and made trading more expensive.

While the SEC short-sales ban has caused trouble for the inverse Financial sector ETFs, leveraged ETFs as a whole have taken full advantage of the wild market ride in the past quarter to post some outsized returns relative to the rest of the ETF universe.

Among the best was a ProShares portfolio, UltraShort Basic Materials (AMEX: SMN), the best performing ETF during the third quarter (See IU.com's Q3 ETF performance survey here.)