Uptick Rule
A regulation requiring short sales to be executed at a price higher than the last trade price, designed to prevent short sellers from accelerating a stock's decline.
What is Uptick Rule?
The uptick rule is a Securities and Exchange Commission (SEC) regulation that restricts the price at which short sellers can execute a sale of borrowed shares. The original uptick rule (SEC Rule 10a-1) required that a short sale could only occur at a price above the last trade price (an uptick) or at the same price if the last price change was up (a zero-plus tick). It was in effect from 1938 until 2007, when the SEC eliminated it following studies suggesting it was ineffective. After the 2008 financial crisis, the SEC implemented the alternative uptick rule (Rule 201) in 2010, which is triggered only when a stock falls 10% or more in a single day — at which point short sales are restricted to above the current national best bid for the remainder of the day and the next trading day.
Example
Under the alternative uptick rule (SEC Rule 201), if a stock drops from $50 to $45 — a 10% decline — the circuit breaker is triggered. Short sellers can no longer hit the bid to sell short; they can only short the stock at prices above the best bid, preventing a pile-on that might accelerate the decline into a disorderly market.
Source: SEC — Regulation SHO and the Alternative Uptick Rule