Battered shares in housing finance giants Fannie Mae (FNM) and Freddie Mac (FRE) have seen their fortunes swing wildly in the past few weeks: on the precipice of the unthinkable a few weeks ago, share prices in both government-sponsored entities have surged in the past few days as investors seem to have sloughed off fears of an imminent collapse amid a plan by officials at the Treasury and Federal Reserve to provide rescue to both GSEs -- should it be needed. While we've suggested at HW for weeks now that immediate investor fears over capital adequacy at both GSEs were likely an overreaction, a change in the "rules of the game" for most equity investors appears as if it also has helped restore the fortunes -- and market capitalizations -- of both battered companies. According to market statistics analyzed by S3 Matching Technologies, a firm that processes trades for the country's largest brokerages, an emergency order by the Securities and Exchange Commission last week to enhance investor protections against "naked" short selling in 17 financial institution securities has reduced short sells by about 70 percent for the targeted symbols, and 90 percent of short selling of Fannie Mae and Freddie Mac securities. "Looking at the data from our clients," said Jack Holt, CEO of S3 Matching Technologies, "it seems clear the market responded to what regulators wanted." "Short sells, 'naked' or not, have accounted for a little over 1 percent of our clients' total volume. 2/3rds of that short sell volume disappeared on the first day the rule went into effect. For Fannie Mae and Freddie Mac, it's more dramatic at 90 percent," he said. According to S3's Holt, analysis of his company's data shows the emergency rule appears to have all but eliminated the short selling of Fannie Mae and Freddie Mac securities, two institutions that many analysts feared were at risk of collapse. "The short sell slowdown during the first day was very significant across the targeted symbols," Holt added. "While there is no way for data to reveal if a short sell is 'naked,' there's no doubt the SEC has put a rule in place that has drastically reduced short selling, especially with regards to the Fannie Mae and Freddie Mac mortgage institutions." Some market participants have remarked to HW in the past few weeks about the existence of what some have taken to calling the "Plunge Protection Team," sort of a tongue-in-cheek reference to the government's interest in ensuring that the nation's financial markets don't unhinge themselves completely. While investor's nerves have clearly settled as well, it's clear that the SEC rules have helped limit panicked and/or opportunistic trades designed to profit from fear-based sell-offs on some of the financial sector's hardest-hit equity trades. Disclosure: The author was long FRE and held no positions in FNM when this story was written; further indirect holdings may exist, however, via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.