Uptick Rule

The uptick rule is a trading regulation designed to prevent short sellers from accelerating a stock's decline by restricting when short sales can be executed. The original uptick rule (SEC Rule 10a-1), established in 1938 after the devastating market crashes of the 1930s, required that every short sale be executed at a price higher than the previous trade price (an "uptick") or at the same price as the last uptick (a "zero-plus tick"). This rule was eliminated by the SEC in 2007 after studies suggested it was no longer necessary in modern markets. However, the severe market declines of 2008-2009 led to the adoption of the Alternative Uptick Rule (Rule 201) in 2010, also known as the "circuit breaker short sale rule." Under Rule 201, the uptick restriction is triggered only when a stock's price drops 10% or more from the previous day's closing price. Once triggered, short selling is restricted to prices above the current national best bid for the remainder of that day and the following trading day. This modified approach balances the need to prevent predatory short selling during market stress while allowing normal short-selling activity in stable conditions. The rule applies to all equity securities listed on national exchanges.