It does not increase volatility, it dampens volatility. When the sec banned short selling in financials during the 'crisis' those stocks plunged faster and farther than at any other point. Case closed. http://finance.yahoo.com/banking-budgeting/article/108965/coming-up-short Coming Up Short by Chuck Jaffe Thursday, March 4, 2010provided byMarketWatch Commentary: SEC's new version of 'uptick rule' lets investors down More from MarketWatch.com: Last week, the Securities and Exchange Commission adopted a new rule "designed to preserve investor confidence and promote market efficiency." Sadly, the rule does neither. Mostly it serves to make politicians and regulators feel like they are doing something. The "alternative uptick rule" is regulators' new twist on limiting short sales -- attempts by investors to bet against securities and to profit when they fall in price -- which was deemed necessary because a previous version that had stood for 70 years was eliminated in 2007. Trading rules always sound like inside baseball because the logic behind both the rules and stock trading can be hard to follow. But short-selling is a controversial subject, with many market observers suggesting that the betting against the market artificially depresses stock prices and keeps the market chained down, accelerating the effect of bad news and heightening volatility.