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Definition of 'Short-Sale Rule'
A Securities and Exchange Commission (SEC) trading regulation that restricted short sales of stock from being placed on a downtick in the market price of the shares. Short sales could only be permitted on upticks (last trade higher than the one before) or zero-plus ticks (last trade is the same as previous, which was an uptick). The regulation was passed in 1938 to prevent selling shares short into a declining market; at the time market mechanisms and liquidity couldn't be guaranteed to prevent panic share declines or outright manipulation.
This regulation was rescinded in July 2007 by decree of the SEC; as a result short sales can occur (where eligible) on any price tick in the market, whether up or down.
The short sale rule was also known as the "plus-tick rule", "tick-test rule", or "uptick rule".
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