Congress is flailing, Cramer is frothing, brokers are defensive, the SEC is deliberating, exchanges are salivating and investors are, for the most part, in the dark. So what's with uptick?

For those who don't know, the Uptick Rule was a set of Depression-era requirements eliminated in 2007 that precluded investors from short selling a stock until the price moved up (hence, "uptick"). But while I am all for a rising market -- especially now -- reinstating an uptick rule will not be effective, especially in today's electronic, decimalized and fully connected world.

The market today is not like it was in 2007 and certainly not like it was pre-decimalization. Instead of the market being managed by a limited number of human specialists and market makers, today's market is a network of linked machines trading against themselves in millisecond intervals across 45 trading venues. Implementing an uptick rule may slow these machines down, but they won't be dissuaded.

Further, if it's an uptick you want, implementing an uptick rule in the equities market alone will not suffice. Today the derivatives markets dwarf the equities world, and there are a number of derivative transactions that can be leveraged to make negative bets that are not governed by equity markets and upticks, including options, futures, short ETFs and credit default swaps (CDSs). In many cases shorting these products is much more efficient than shorting stocks. With the average equity trade size under 250 shares, accumulating a sizable short position can take time. Stock options or CDSs can be accumulated in much larger quantities with much greater leverage. And while shorting stock has a longer duration, equity must be borrowed to back those positions; with puts or CDSs, all you need is margin.

In addition, if a single name is not important but a sector is, there are a host of futures and, increasingly, short ETFs (including double- and triple-leveraged short ETFs) that can be acquired without even going short. These products force the dealers (which traditionally have had an uptick exemption) to short the stocks.

Further, most institutional short sellers are not looking to smash companies into the ground; they are simply market-neutral, long/short funds or are active extension funds (130/30 funds) that use short position proceeds to fund additional long positions. Granted, they aren't shorting companies that they believe will rise. But without these firms shorting the market, there would be less market liquidity.

Exchanges, however, are subtly trying to push for an uptick rule, as uptick legislation could retard dark liquidity. Dark pools mostly match at midpoint. If short sellers need to change a short-sell market order into a limit order a penny above the bid, then short sellers will not be able to effectively use dark pools. This will force liquidity back onto traditional markets.

So what is the answer? First, the regulators went a long way toward curtailing shorting in late 2008 by forcing prime brokers to actually borrow the securities they are shorting rather than allowing naked short selling. This increases the cost of short positions and restricts the supply. Second, if short selling is truly a challenge, then restrict brokers and institutional investors from lending stock; if no stock is lent, then no stock could be shorted.

And third, if regulators really want to get tough on short sellers, they need to do this across the board by eliminating any negatively correlated financial product, such as inverse ETFs, as well as significantly restrict derivatives (options, futures and especially the dreaded CDSs). However, this must be done at investors' peril. If you eliminate negatively correlated products, then you eliminate hedging. I don't know, but I kind of wish I had been hedged over the past year.

While the furor over short selling is tremendous, let's not ruin the market for some feel-good regulation. If we just want an uptick rule, then let's craft it wisely, so it does little harm. If the real purpose is to clamp down on short sellers, then an uptick rule won't ever be enough. Let's understand the real purpose behind any regulation: to limit negatively correlated transactions and financial products. To the besieged, this may sound wonderful. But to the market as a whole, watch out.