Tick Test Rules

AAA

DEFINITION of 'Tick Test Rules'

A now defunct rule that placed restrictions on when a short sale may be executed. Tick test rules dictated that a short sale could be made only in two situations:

1. When the price of the particular stock was higher than the last trade price (an uptick).

2. When there was no change in the last trade price. The previous trade price had to be higher than the trade price that preceded it (a zero uptick or zero plus tick)

Also known as the "short sale rule".

INVESTOPEDIA EXPLAINS 'Tick Test Rules'

This rule was intended to prevent investors from destabilizing a stock's price when it was falling. However, on July 6, 2007, the Securities and Exchange Commission struck Rule 10a-1, the regulation that put the uptick restrictions in place, from the books.

RELATED TERMS
  1. Short-Interest Theory

    A theory which holds that a security with a high degree of short ...
  2. Short Covering

    Buying back borrowed securities in order to close an open short ...
  3. Short Squeeze

    A situation in which a heavily shorted stock or commodity moves ...
  4. Short-Sale Rule

    A Securities and Exchange Commission (SEC) trading regulation ...
  5. Uptick Rule

    A former rule established by the SEC that requires that every ...
  6. Short Sale

    A market transaction in which an investor sells borrowed securities ...
RELATED FAQS
  1. How can an investor profit from a decline in the aerospace sector?

    Several forms of speculation enable investors to profit from a decline in the aerospace sector. Short selling aerospace stock ... Read Full Answer >>
  2. How can I profit from a decline in the drugs sector?

    Profit from a decline in the drugs sector by short selling or by purchasing futures contracts or put options. Investors use ... Read Full Answer >>
  3. How can I profit from a fall in the automotive sector?

    You can profit from a fall in the automotive sector by short selling automotive stocks and exchange-traded funds (ETFs) or ... Read Full Answer >>
  4. If I believe Internet sector companies are overvalued, how can I profit from a fall ...

    If you believe Internet sector companies are overvalued, you can profit from a fall in their share prices by engaging in ... Read Full Answer >>
  5. How can I profit from a fall in stock prices of companies in the financial services ...

    The financial services sector, made up of investment brokerage houses, credit services companies and asset management firms, ... Read Full Answer >>
  6. Is going long considered to be less risky than going short?

    Two positions an investor can be in are long or short. A long position is created when an investor buys a security, such ... Read Full Answer >>
Related Articles
  1. Active Trading Fundamentals

    The Uptick Rule Debate

    This rule was deemed ineffective and repealed in 2007, but critics argue it protects the market from bear raids.
  2. Active Trading Fundamentals

    The Uptick Rule: Does It Keep Bear Markets Ticking?

    This rule prevents traders from driving stocks down, but its effect on market volatility is debatable.
  3. Active Trading Fundamentals

    Short Selling Tutorial

    Want to profit on declining stocks? This trading strategy does just that.
  4. Trading Strategies

    Bucking The Trend With Pattern Failure Strategies

    The best trade could be in the opposite direction when a classic price pattern doesn't behave according to ideal rules.
  5. Mutual Funds & ETFs

    How To Start a Hedge Fund In the United States

    A general overview of how to start a hedge fund firm in the United States, including complying with state and federal regulations.
  6. Trading Strategies

    A Guide Of Option Trading Strategies For Beginners

    Options offer alternative strategies for investors to profit from trading underlying securities, provided the beginner understands the pros and cons.
  7. Mutual Funds & ETFs

    How To Start A Hedge Fund In The UK

    Starting a new hedge fund in the United Kingdom is more complex than in the United States. We discuss UK laws and regulations for starting a new hedge fund.
  8. Active Trading Fundamentals

    Are You Ready To Be A Professional Trader?

    Here's help in making the quantum leap from novice to crackerjack trader.
  9. Mutual Funds & ETFs

    How To Start A Hedge Fund In Canada

    Would-be hedge fund managers in Canada need to understand the laws and regulations that must be followed in order to start a fund in the country.
  10. Technical Indicators

    Use Volume And Emotion To Tackle Topping Patterns

    Selling short in a topping pattern offers an advantageous reward-to-risk profile, but it can be hard to find good entry prices.

You May Also Like

Hot Definitions
  1. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
  2. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
  3. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  4. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  5. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  6. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
Trading Center