SEC Chairman Mary Schapiro recently said of the hundreds of letters she's received since taking the helm in January, those on short selling easily top the list.

The commission is currently seeking comment on whether short sale price restrictions or circuit breaker restrictions should be imposed and whether such measures would help promote market stability and restore investor confidence. Short selling is generally defined as selling securities that an investor does not own or has borrowed and attempting to purchase replacements at a lower price. The SEC said short selling is used to profit from an expected downward price movement or to provide liquidity in response to unanticipated demand.

The SEC has long held the view that short selling provides the market "with important benefits, including market liquidity and pricing efficiency," Schapiro said at an April 9 SEC meeting. However, the practice may also be used to illegally manipulate stock prices.

Since the commission eliminated short sale price tests in 2007, there has not been enough empirical evidence linking short selling to volatility in the stock markets worldwide, the agency said. Still, Schapiro said "many members of the public have come to associate short selling with that volatility, and with a loss of investor confidence."