The Securities and Exchange Commission ended its ban on short selling just as On Wall Street started going to press on Oct. 8. The ban initially applied to 799 financial stocks and later increased to nearly 1,000. And this came just a few days after a previous crackdown on "naked" short selling.

These moves were intended to help restore calm to the markets that were being riled by bailouts, bankruptcies and hastily arranged acquisitions in the financial world.

The second ban was put in place with the aim of being lifted either in 30 days, or three business days after a bailout bill was passed by Congress, whichever came first. After the House passed the bill on a second try on Oct. 3, the clock was ticking on the ban.

Even though the ban was lifted as planned, high-level questions remain. Is such a ban good sound policy in times of crisis, or is it a misguided reaction that castigates the wrong people? Plus, how does it affect financial advisors trying to serve their clients?

To be sure, short selling bans are a popular sentiment when the markets are in a free fall. Similar moves were passed in Britain, Ireland, Switzerland, Australia and other countries. Some of them were stricter than the U.S. ban, in how broad they were written and how long they would last.

Several financial advisors and branch managers declined to speak on the record about short selling.

For advisors, though, regardless of whether they work at a large company or an independent firm, one of the immediate headaches of such a ban stems from their internal computer systems, says Jerome Roche, partner in the Washington office of law firm Mayer Brown, who advises broker-dealers, investment advisors and banks. A short-term ban like this is difficult to adhere to from a compliance perspective, he says.

Roche noted that the SEC has usually been hesitant to use its emergency powers for a prolonged time, but there are still questions regarding other authorities. Most notably, New York State announced that it would begin regulating credit default swaps beginning in January, although it only has jurisdiction for a small part of the overall $62 trillion credit default swap market. There is also a question whether the SEC will pass new bans in the future when the markets hit a major downturn, he says.

Another effect on advisors comes from their sudden inability to offer hedge funds to high-net-worth clients, says Thomas Orecchio, principal at money manager Greenbaum and Orecchio Inc. He says he understands why the idea of a ban on short selling is appealing in times of crisis, but it is still a mistake. In fact, after the ban took effect, the markets continued to plunge, he says. He notes that even after the $700 billion bailout passed Congress, the markets continued their historic fall. Those declines fly in the face of the argument that short sellers were to blame for the previous market turmoil.

He says that the negative reaction from some regulators and investors comes from a misunderstanding of what short sellers do. He maintains that those short sellers in fact provide a much-needed red flag to the rest of the market when companies become overvalued.

As for the contention that short sellers try to manipulate stock prices to fall, he says that has always been illegal and should definitely be guarded against, but across-the-board bans on short selling are not the way to accomplish that.