What is the Uptick Rule?

Uptick Rule Definition. The “Uptick Rule” states that a short seller may only initiate a short sell position after an “uptick” in the market for the security. An Uptick refers to a positive movement in the price of a security, commodity or currency, and is a term specifically noting that time when a new price quote exceeds the preceding quote in the market. It is the opposite of a downtick. Another associated term is a zero-plus tick, which is when the last trade is the same as previous, but only if the previous trade was an uptick. These terms have become common usage when employed by the “Uptick Rule”. It was put in place in 1938 to restrict the ability of short sellers to generate further downward momentum when a stock is falling in price. When stock markets moved to decimalization in the early 2000s, the SEC eliminated the rule in 2007. Due to abuses that followed, Congress requested that the rule be reinstated. After reviewing a number of proposals and after an acceptable trial period, the SEC announced new rules in February of 2010. A 10% circuit breaker rule requires that short selling stop once a stock’s price has fallen by 10% from the previous day’s closing price and may only resume after an uptick or zero-plus tick in the market. The Uptick Rule is also known as the “plus-tick rule”, “tick-test rule”, or “short sale rule”. The process known as naked shorting, the selling of shares short that are not owned, cannot be borrowed or cannot be verified, is still illegal.

Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.