In a move being lauded by financial institutions and others, the Securities and Exchange Commission today unanimously approved five separate proposals to curb the short selling of shares. The proposals will be subject to a 60 day public comment period.

One market-wide proposal would reinstate the "Uptick Rule," which has regulated short selling since the late 1930s. The rule, allowed short sales only when a share was trading up in order to prevent precipitous declines in share price due to continued shorting, was eliminated in 2007.

Another market-wide proposal would provide for a modified version of the uptick rule, whereby a short sale price test would be based on a national best bid. Three other proposals would effectively impose a "circuit breaker," limiting short sales during a trading session on stocks that have declined in excess of 10 percent.

Critics of short selling, which allows for a profit on a decline in share price, say the practice–and so-called "bear raids" to bring down a stock to cover a short position–led to the collapse of firms including Bear Stearns and have contributed to the ongoing decline in capital markets. Proponents argue the practice allows for price discovery, however, while also providing a means to identify corporate laggards.

Hedge funds and others who commonly employ a short selling strategy decried the proposals. "It seems like short sellers are a total scapegoat in this instance, and regulators want to look like they're protecting individuals," Richard Gates, portfolio manager at long/short mutual fund TFS Capital, told Reuters. "I'm not sure this is the most effective way." Some 60 percent of brokers, hedge funds, and other institutional investors surveyed by research and consulting firm TABB Group said liquidity will suffer if the original uptick rule is reinstated, according to Reuters. More than 80 percent said hedge funds would be hit hardest.

The American Bankers Association was among those welcoming the today's proposals, however. "Without the limits imposed by an uptick rule, short-sellers have been generating lower prices and creating 'bear raids' on bank stocks," ABA officials said in an April 8 statement. "Reinstating the 'speed bump' imposed under an uptick rule is the right thing to do."