Short-Sale Rule

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Dictionary Says

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This regulation was rescinded in July 2007 by decree of the SEC; as a result short sales can occur (where eligible) on any price tick in the market, whether up or down.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".
Investopedia Says

Investopedia explains 'Short-Sale Rule'

The SEC began examining the possibility of eliminating this short-sale rule following the decimalization of the major stock exchanges in the early 2000s. Because tick changes were shrinking in magnitude following the change away from fractions, and U.S. stock markets had become more stable, it was felt that the restriction was no longer necessary.

The SEC ran a test program of stocks in 2003 to see if removing the short-sale rule would have any negative effects. After reviewing the results it was decided that the rule no longer needed to exist. However, naked shorting - selling shares short that don't exist or can't be verified - is still illegal.  
Search results for

'Short-Sale Rule'

  • Are ETFs subject to the short sale uptick rule?

    http://www.investopedia.com/ask/answers/06/uptickruleETFs.asp
    ... Are ETFs subject to the short sale uptick rule? Mutual fund use and development
    has increased rapidly ever since they were first introduced in the early 1920s. ...

  • ETFs Vs Index Funds: Quantifying The Differences

    http://www.investopedia.com/articles/mutualfund/05/ETFIndexFund.asp
    ... Ironically, ETFs are exempt from the short sale uptick rule that plagues regular
    stocks (the short sale uptick rule prevents short sellers from shorting a ...

  • What is the downtick-uptick rule on the NYSE?

    http://www.investopedia.com/ask/answers/165.asp
    ... uptick rule is not to be confused with the uptick rule, which was a rule that required
    every short sale to be entered at a price higher than the previous tick. ...

  • Upticked Off

    http://stocks.investopedia.com/stock-analysis/2009/Upticked-Off-MS-C-SCHW-TROW0116.aspx
    ... Specifically, the operational challenge of complying with the rule on every
    short sale would likely crimp returns for hedge funds. ...

  • Why do you need a margin account to short sell stocks?

    http://www.investopedia.com/ask/answers/05/marginaccountshortsell.asp
    ... This rule is motivated by the nature of the short sale transaction itself
    and the potential risks that come with short selling. ...

  • Short Selling: Why Short? | Investopedia

    http://www.investopedia.com/university/shortselling/shortselling1a.asp
    ... This rule required that every short sale transaction be entered at a higher price
    than that of the previous trade and kept short sellers from adding to the ...

  • Short Selling: Conclusion | Investopedia

    http://www.investopedia.com/university/shortselling/shortselling5.asp
    ... Let's recap: In a short sale, an investor borrows shares, sells them and must
    eventually return ... can be shorted and when a short can be carried out (uptick rule ...

  • Series 6 Study Guide - Securities Industry Regulations - Rules and ...

    http://www.investopedia.com/exam-guide/finra-series-6/securities-industry-regulations/mutual-fund-rules-reporting-requirements.asp
    ... Passive; 10.6 Suitability Factors; 10.7 Investment Objectives; 10.8 FINRA Conduct
    Rule 2310. 11. ... A mutual fund company may not effect a short sale of any security ...

  • Exchange Traded Funds Frequently Asked Questions | Investopedia

    http://www.investopedia.com/ask/exchangetradedfunds
    ... Are ETFs subject to the short sale uptick rule? View Answer; Why is it that when
    investors realize returns on a mutual fund, its price tends to fall? ...

  • Exchange Traded Funds Frequently Asked Questions | Investopedia

    http://www.investopedia.com/ask/exchangetradedfunds/
    ... Are ETFs subject to the short sale uptick rule? View Answer; Why is it that when
    investors realize returns on a mutual fund, its price tends to fall? ...

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