Uptick Rule

AAA

DEFINITION of 'Uptick Rule'

A former rule established by the SEC that requires that every short sale transaction be entered at a price that is higher than the price of the previous trade. This rule was introduced in the Securities Exchange Act of 1934 as Rule 10a-1 and was implemented in 1938. The uptick rule prevents short sellers from adding to the downward momentum when the price of an asset is already experiencing sharp declines.

The uptick rule is also known as the "plus tick rule".

INVESTOPEDIA EXPLAINS 'Uptick Rule'

The SEC eliminated the rule on July 6, 2007, but in March of 2009, following a conversation with SEC Chair Mary Schapiro, Rep. Barney Frank of the House Financial Services Committee said that the rule could be restored. Frank's conversations were spurred by a call for the return of the rule by several members of Congress and legislation reintroduced on January 9, 2009, for its reinstatement. On April 9, 2009, the SEC approved the release of five proposals for reinstating the uptick rule, which will each be put out for a 60-day public comment period.

By entering a short sale order with a price above the current bid, a short seller ensures that his or her order is filled on an uptick. The uptick rule is disregarded when trading some types of financial instruments such as futures, single stock futures, currencies or market ETFs such as the QQQQ or SPDRs. These instruments can be shorted on a downtick because they are highly liquid and have enough buyers willing to enter into a long position, ensuring that the price will rarely be driven to unjustifiably low levels.

RELATED TERMS
  1. Short Selling

    The sale of a security that is not owned by the seller, or that ...
  2. Uptick

    A transaction for a financial instrument that occurs at a higher ...
  3. Zero Uptick

    A transaction executed at the same price as the trade immediately ...
  4. Bid

    1. An offer made by an investor, a trader or a dealer to buy ...
  5. Tick Test Rules

    A now defunct rule that placed restrictions on when a short sale ...
  6. Securities And Exchange Commission ...

    A government commission created by Congress to regulate the securities ...
Related Articles
  1. What is the downtick-uptick rule on ...
    Investing

    What is the downtick-uptick rule on ...

  2. The Uptick Rule Debate
    Active Trading Fundamentals

    The Uptick Rule Debate

  3. Shorting ETFs: Profit Or Peril?
    Mutual Funds & ETFs

    Shorting ETFs: Profit Or Peril?

  4. Top 7 Questions About Currency Trading ...
    Forex Education

    Top 7 Questions About Currency Trading ...

Hot Definitions
  1. Halloween Strategy

    An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market ...
  2. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  3. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  4. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  5. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  6. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
Trading Center