Without Uptick Rule, Downside Will Rule

Just when you thought it couldn't get nastier for the "longs" out there, the people who just play from the long side, the SEC passes the Hedge Fund Relief Act, and it goes into effect Monday.

Oh, it's not called that. It is just the suspension of the "uptick rule." But it certainly will have that impact, for both the hedge funds and the market.

You probably aren't even aware of it. Most people don't even seem to think it is important. It's a two inch story at the bottom of page C-4 of The Wall Street Journal today. How fitting, though; just like a two-inch block of C4, the plastic explosive, this little note could take the market to kingdom come if used incorrectly. And it will be.

Here's the deal. Right now, when a company reports a bad quarter and you aren't long it, you have to wait to short until you get an uptick, or you can go into the put market and get a dealer to make a market in puts for you. He has to lay off his short himself, so it really doesn't matter; you can't get a good price and it is cumbersome.

So, often you just give up. Oh, Molson (TAP - commentary - Cramer's Take) reported a bad quarter, eh? Well, I can't get an uptick, no one will pay me a higher price for it and the put market's too illiquid, so on to the next.

Not anymore. Starting Monday, hedge funds can sell shares short just like they sell them long: with reckless abandon. If I were back at my old hedge fund and this rule was suspended, I would have gone into Molson down 6 or 7 and blown it right down 10, sans uptick.

I know I would have done it because I know I can process this stuff faster than the longs. I was not alone. Most hedge funds can do it quicker than the longs can. No committees, either.

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James J. Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS by clicking here. While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column to [e-mail]. Listen to Cramer's RealMoney Radio show on your computer; just click here. Watch Cramer on "Mad Money" at 6 p.m. ET weeknights on CNBC. Click here to order Cramer's latest book, "Real Money: Sane Investing in an Insane World," click here to get his second book, "You Got Screwed!" and click here to order Cramer's autobiography, "Confessions of a Street Addict."