What is Uptick Rule?

Online Stock Trading - the Uptick Rule

What is the Uptick Rule?

The Uptick Rule was introduced by the SEC and "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."

The aim was to stop people engaged in short selling from driving companies' stock prices lower and lower. At the end of 2007 the SEC abandoned the uptick rule, much to the dismay of many, and the result has been precisely the situation the uptick rule was designed to prevent. It appears however that the uptick rule will soon be brought back.

The uptick rule says that you cannot short a stock on a down tick, you have to wait until the price of the stock you are short selling has an uptick before you can short it.

This is designed to reduce dramatic bear runs on stocks, as obviously if a stock never ticks back up, short sellers will be unable to short more shares.

Recently Fed Chairman Ben Bernanke said that reinstating the uptick rule for all stocks, "might have had some benefit" on stock values during the market collapse in 2008.

On March 10, 2009, Republican Barney Frank, Chairman of the Financial Services Committee, said that hopefully the Uptick Rule will be reinstated within one month from said date.
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