Uptick Rule

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".

BREAKING DOWN '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

    Short selling is the sale of a security that is not owned by ...
  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. Securities And Exchange Commission ...

    A government commission created by Congress to regulate the securities ...
  5. Tick Test Rules

    A now defunct rule that placed restrictions on when a short sale ...
  6. Bid

    1. An offer made by an investor, a trader or a dealer to buy ...
Related Articles
  1. Forex Education

    Top 7 Questions About Currency Trading Answered

    Whether you're puzzled by pips or curious about carry trades, your queries are answered here.
  2. 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    This rule was deemed ineffective and repealed in 2007, but critics argue it protects the market from bear raids.
  3. Mutual Funds & ETFs

    Shorting ETFs: Profit Or Peril?

    Although more detail and attention may be needed, ETFs can be shorted - and at a great profit.
  4. 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.
  5. Mutual Funds & ETFs

    ETFs Can Be Safe Investments, If Used Correctly

    Learn about how ETFs can be a safe investment option if you know which funds to choose, including the basics of both indexed and leveraged ETFs.
  6. Investing News

    Obama Wants to Double Wall Street Regulation

    President Obama wants to double the budgets of the SEC and the CFTC over the next five years.
  7. Mutual Funds & ETFs

    The Top 5 Large Cap Core ETFs for 2016 (VUG, SPLV)

    Look out for these five ETFs in 2016, and learn why investors should closely watch how the Federal Reserve moves heading into the new year.
  8. Taxes

    Why People Renounce Their U.S Citizenship

    This year, the highest number of Americans ever took the irrevocable step of giving up their citizenship. Here's why.
  9. Economics

    India: Why it Might Pay to Be Bullish Right Now

    Many investors are bullish on India for all the right reasons. Does it present an investing opportunity?
  10. Personal Finance

    What it Takes to Get a Green Card

    Grounds for getting a green card include having family members in the U.S., being a certain type of refugee or specialized worker, or winning a lottery.
RELATED FAQS
  1. What is the downtick-uptick rule on the NYSE?

    To ensure orderly markets, the New York Stock Exchange (NYSE) has a set of restrictions that it can implement when experiencing ... Read Full Answer >>
  2. Can you short sell ETFs?

    ETFs (an acronym for exchange-traded funds) are treated like stock on exchanges; as such, they are also allowed to be sold ... Read Full Answer >>
  3. 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. In the United ... Read Full Answer >>
  4. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  5. What is the Writ of Mandamus?

    A writ of mandamus is a court order issued by a judge at a petitioner’s request compelling someone to execute a duty he is ... Read Full Answer >>
  6. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
Hot Definitions
  1. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  2. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  3. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  4. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  5. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  6. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
Trading Center