CandleFocus Glossary Editor
The Uptick Rule is a federal regulation enacted by the U.S. Securities and Exchange Commission (SEC) in 1938 in order to discourage short selling and excessive stock market speculation. Short selling is a practice in which someone sells a stock they do not own in order to profit if the stock's price falls. The Uptick Rule requires that the price of a stock must be higher than the previous trade in order for short sales to be allowed.
The Uptick Rule served as an important safeguard for investors. With the rule in place, investors were more confident in their investments because larger, more sustained declines in stock prices were prevented which can otherwise lead to a cascading effect across the entire market.
The Uptick Rule was not without its critics. Some argued that the rule made it harder for investors to capitalize on falling markets or to establish positions. As such, in 2007 the SEC proposed revising the rule. The revised rule – known as the Alternative Uptick Rule – was implemented in 2010.
The revised Uptick Rule allows investors to exit long positions before short selling is triggered. It also allows long investors to explore strategic trading opportunities while still offering investors much needed protection from unrestrained short selling.
In addition, the revised Uptick Rule also limited exemptions to the rule. Previously, when a stock fell 10 percent or more in one day, the uptick rule was temporarily suspended for that stock for 30 minutes. This exemption was completely eliminated by the 2010 revision.
The Uptick Rule is one of many tools the SEC uses to maintain orderly markets and to protect investors from excessive speculation and market manipulation. As markets and regulations continue to evolve, the SEC will continue to review and reassess the need for the rule, if any, to ensure order and fairness in the markets.
The Uptick Rule served as an important safeguard for investors. With the rule in place, investors were more confident in their investments because larger, more sustained declines in stock prices were prevented which can otherwise lead to a cascading effect across the entire market.
The Uptick Rule was not without its critics. Some argued that the rule made it harder for investors to capitalize on falling markets or to establish positions. As such, in 2007 the SEC proposed revising the rule. The revised rule – known as the Alternative Uptick Rule – was implemented in 2010.
The revised Uptick Rule allows investors to exit long positions before short selling is triggered. It also allows long investors to explore strategic trading opportunities while still offering investors much needed protection from unrestrained short selling.
In addition, the revised Uptick Rule also limited exemptions to the rule. Previously, when a stock fell 10 percent or more in one day, the uptick rule was temporarily suspended for that stock for 30 minutes. This exemption was completely eliminated by the 2010 revision.
The Uptick Rule is one of many tools the SEC uses to maintain orderly markets and to protect investors from excessive speculation and market manipulation. As markets and regulations continue to evolve, the SEC will continue to review and reassess the need for the rule, if any, to ensure order and fairness in the markets.