Series 7

Customer Accounts - Plus Tick Rule

Prior to 2007, The Securities Exchange Act of 1934 regulated short selling through its "Plus Tick" Rule. The rule stated that short sales may only be done on a plus tick or on a zero-plus tick (explained below). This prevented short sellers from driving down the price of a security.

What is a "Plus Tick"?
A plus tick is a transaction at a price higher than the preceding one for the same security; a minus tick is a trade executed at a price below that of the previous sale.

Look Out!
On July 7, 2007, the SEC eliminated the uptick rule for short-selling. Remember this change of legislation as it may be used as a trick question.

Zero-Plus Tick
There is another level of refinement: a zero-plus tick is a transaction executed at the same price as the previous trade, but at a higher price than the most recent transaction that was different. A zero-minus tick is a transaction executed at the same price as the previous trade, but at a lower price than the most recent transaction that was different.

This process is best explained by example:

  1. Suppose a block of PQR trades at $60.10. If it sells a moment later at $60.11, that is a plus tick. If, instead, it sells at $60.09, that is a minus tick.

  2. If PQR trades at $60.10, then at $60.10 again, this sets up that next level of refinement. If it trades twice in a row at $60.10 then trades at $60.11, that is a zero-plus tick. If, instead, it sells at $60.09, that is a zero-minus tick.


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