DEFINITION of Zero Plus Tick
Zero plus tick or zero uptick is a security trade that is executed at the same price as the preceding trade but at a higher price than the last trade of a different price. For example, if a succession of trades occurs at $10, $10.25 and $10.25 again, the latter trade would be considered a zero plus tick, or zero uptick trade, because it is the same price as the previous trade, but a higher price than the last trade at a different price. The term zero plus tick or zero uptick can be applied to stocks, bonds, commodities and other traded securities. The opposite of a zero plus tick is a zero minus tick.
BREAKING DOWN Zero Plus Tick
It is believed that a zero plus tick indicates that the price of a stock is going up and staying up. It was for this reason that, for more than 70 years, there was an uptick rule as established by the U.S. Securities and Exchange Commission (SEC); the rule stated that stocks could be shorted only on an uptick or a zero plus tick, not on a downtick. The uptick rule was intended to stabilize the market by preventing traders from destabilizing a stock’s price by shorting it on a downtick. Prior to the implementation of the uptick rule, it was common for groups of traders to pool capital and sell short in order to drive down the price of a specific security; the goal of this was to cause a panic among shareholders, who would then sell their shares at the lower price. This manipulation of the market caused securities to decline even further in value.
It was thought that short selling on downticks may have led to the stock market crash of 1929, following inquiries into short selling that occurred during the 1937 market break. The uptick rule was implemented in 1938 and lifted in 2007 after the SEC concluded that markets were advanced and orderly enough to not need the restriction. It is also believed that the advent of decimalization on the major stock exchanges helped to make the rule unnecessary. In 2008, widespread calls for the reinstatement of the uptick rule led the SEC to implement an alternative uptick rule in 2010.