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 as Rule 10a-1 and was implemented in The uptick rule prevents short sellers from adding to the downward momentum when the price of an asset is already experiencing sharp declines.

Uptick Rule Definition & Example | Investing Answers

The uptick rule is also known as the "plus tick rule". The SEC eliminated the rule on July 6, , but in March of , 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, , for its reinstatement.

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On April 9, , the SEC approved the release of five proposals for reinstating the uptick rule, which will each be put out for a 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.

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Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. What is the '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.

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