The BATS Exchange, the New York Stock Exchange and the Nasdaq have joined the growing ranks of proponents for a change to the so-called uptick rule.

BATS, along with the NYSE and Nasdaq, said in a letter to the Securities and Exchange Commission that a modified uptick rule and circuit breaker would help deal with the critical issue facing the U.S. equity markets.

The uptick rule, instituted by the SEC following the Great Depression, said that the short selling of stocks could be done only after the share price ticked higher above the prior sale. The rule was designed as a guardrail to slow down the short selling process, preventing short sellers from driving the price of a stock at a faster clip.

In a short sale, an investor borrows stock from a broker, sells it to other investors, and buys it back at a lower price before returning it to the original lender. The difference in the transactions is kept as a profit.

The SEC eliminated the uptick rule in June 2007 after determining it did little to prevent the manipulation of share prices. Of course, many market participants point to the decision as the catalyst that helped short sellers thrive last year.

The argument is that the lack of a rule that required share prices to go higher before more short sellers could pile in created an environment where shorts could accelerate the failures of a number of companies, especially financial names like Bear Stearns, Lehman Brothers and Washington Mutual.

Other financial names, like Citigroup ( C), Bank of America ( BAC), AIG ( AIG), Goldman Sachs ( GS) and Morgan Stanley ( MS), have also seen share prices driven down dramatically, with many attributing the moves lower to unfettered short selling.

"We worked closely with the SEC to implement new rules and emergency measures in the wake of the market turmoil in late 2008," said BATS Exchange COO Chris Isaacson in a statement. "BATS is well positioned to continue playing an important role, along with other exchanges and the SEC, to help design and implement effective regulation aimed at curbing abusive short selling and other potentially manipulative practices."

Several critics have called for an immediate reinstitution of the uptick rule. Last week, a bill co-sponsored by Sen. Ted Kaufman (D., Del.) and Sen. Johnny Isakson (R., Ga.) was introduced that seeks to reinstate the uptick rule. The senators are asking the SEC to write new regulations within 60 days.

Two weeks ago, Rep. Barney Frank (D., Mass.), among others, also expressed support for the return of the uptick rule.

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