Tick Test Rules


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".

BREAKING DOWN '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.

  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. Naked Shorting

    The illegal practice of short selling shares that have not been ...
  5. Zero Plus Tick

    A security trade that is executed at the same price as the preceding ...
  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    This rule was deemed ineffective and repealed in 2007, but critics argue it protects the market from bear raids.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. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  5. Investing News

    Defensive Investing: Learn from a Hedge Fund Pro

    Looking for ideas on companies, sectors or investments to short? Consider the opinion of this hedge fund luminary.
  6. Trading Strategies

    Finding Momentum Plays in Flat Markets

    Momentum traders should reduce frequency and size in flat markets, while seeking out story stocks that continue to trend higher or lower.
  7. Trading Strategies

    Why Short Sales Are Not For Sissies

    Short selling has a number of risks that make it highly unsuitable for the novice investor.
  8. Trading Strategies

    Know When To Hold, Know When To Fold A Short Sale

    Consider making a short sale in the following circumstances: Bearish trend is developing rapidly, fundamentals are deteriorating, technical indicators are signaling "Sell," and there is an abrupt ...
  9. Personal Finance

    Playing The Decline of Traditional Retailers

    Play the decline of traditional retailers with a strategy that lowers built-in exposure to online sales.
  10. Stock Analysis

    Where Do Chinese Equities Go from Here?

    Is it time to go long or short on Chinese equities?
  1. How can an investor profit from a fall in the utilities sector?

    The utilities sector exhibits a high degree of stability compared to the broader market. This makes it best-suited for buy-and-hold ... Read Full Answer >>
  2. How can an investor profit from a decline in the real estate sector?

    Speculation enables investors to profit from a decline in the real estate sector. The most popular forms of speculation for ... Read Full Answer >>
  3. How can I evaluate if a stock is a short squeeze?

    To evaluate whether a stock is a short squeeze, traders should examine its fundamentals, short interest and price history. ... Read Full Answer >>
  4. How does days to cover a short position relate to a short squeeze?

    Days to cover a short position reveals the intensity and duration of a potential short squeeze. A short squeeze occurs when ... Read Full Answer >>
  5. What is the difference between a short squeeze and short covering?

    "Short covering" and "short squeeze" are different terms to describe a situation involving short positions. A short squeeze ... Read Full Answer >>
  6. What is the difference between speculation and hedging?

    Speculators and hedgers are different terms that describe traders and investors. Speculation involves trying to make a profit ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  4. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  5. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  6. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
Trading Center