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. Zero Plus Tick

    A security trade that is executed at the same price as the preceding ...
  5. Naked Shorting

    The illegal practice of short selling shares that have not been ...
  6. Uptick Rule

    A former rule established by the SEC that requires that every ...
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    This rule was deemed ineffective and repealed in 2007, but critics argue it protects the market from bear raids.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. Investing

    How to Short Alibaba

    We explain how and why to short Alibaba stocks.
  5. Home & Auto

    What is the difference between capitalization rate and rent?

    Find out the difference between capitalization rate and rent and why they are so important to making wise investments.
  6. Options & Futures

    What is the difference between a short position and a short sale?

    Learn how short selling and short positioning are different, specifically in regards to the nature of the commodity being bought and sold.
  7. Trading Strategies

    How do I build a profitable strategy when spotting a Rounding Top pattern?

    Learn a simple stock trading strategy that is designed to profit from a bearish trend reversal following the formation of a rounding top pattern.
  8. Trading Strategies

    Risk Management Techniques For Shorting Call Options

    Shorting covered calls is a popular options trade strategy. Here are the methods to mitigate the risk/loss and enhance profits for selling covered calls
  9. Trading Strategies

    Under what circumstances is short selling advisable?

    Find out when short selling a stock is profitable and what an investor should keep in mind before deciding to pursue a short sale investment strategy.
  10. Trading Strategies

    Why is short selling illegal in some countries but legal in the U.S.?

    Discover why many countries around the world banned the practice of short selling financial stocks and why the United States is not one of those countries.

You May Also Like

Hot Definitions
  1. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  2. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  3. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  4. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  5. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  6. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
Trading Center