|
EDUCATION - Article |
|
What Is the Uptick Rule?
You will find in this section a set of articles accessible to any public wishing to better understand the definitions that we consider important in today's finance and Trading in Very Volatile Markets.
Source : Uptick Rule (investopedia.com), INVESTING , LAWS & REGULATIONSUptick Rule
By JAMES CHEN, Updated January 19, 2022, Reviewed by CHIP STAPLETON, Fact checked by DANIEL RATHBURN
Source : Uptick Rule (investopedia.com), INVESTING , LAWS & REGULATIONSUptick Rule
By JAMES CHEN, Updated January 19, 2022, Reviewed by CHIP STAPLETON, Fact checked by DANIEL RATHBURN
What Is the Uptick Rule?
The Uptick Rule (also known as the "plus tick rule") is a rule established by the Securities and Exchange Commission (SEC) that requires short sales to be conducted at a higher price than the previous trade.
Investors engage in short sales when they expect a securities price to fall. The tactic involves selling high and buying low. While short selling can improve market liquidity and pricing efficiency, it can also be used improperly to drive down the price of a security or to accelerate a market decline.
KEY TAKEAWAYS
The Uptick Rule prevents sellers from accelerating the downward momentum of a securities price already in sharp decline. By entering a short-sale order with a price above the current bid, a short seller ensures that an order is filled on an uptick.
The original rule was introduced by the Securities Exchange Act of 1934 as Rule 10a-1 and implemented in 1938. The SEC eliminated the original rule in 2007, but approved an alternative rule in 2010. The rule requires trading centers to establish and enforce procedures that prevent the execution or display of a prohibited short sale.
The Alternative Uptick Rule
The 2010 alternative uptick rule (Rule 201) allows investors to exit long positions before short selling occurs. The rule is triggered when a stock price falls at least 10% in one day. At that point, short selling is permitted if the price is above the current best bid.1 This aims to preserve investor confidence and promote market stability during periods of stress and volatility.
The rule's "duration of price test restriction" applies the rule for the remainder of the trading day and the following day. It generally applies to all equity securities listed on a national securities exchange, whether traded via the exchange or over the counter.
The Uptick Rule is designed to preserve investor confidence and stabilize the market during periods of stress and volatility, such as a market "panic" that sends prices plummeting.
Exemptions to the Rule
For futures, there are limited exemptions to the uptick rule. 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.
To qualify for the exemption, the futures contract must be deemed to be "owned by the seller." This means that according to the SEC, that the person "holds a security futures contract to purchase it and has received notice that the position will be physically settled and is irrevocably bound to receive the underlying security.”
Related Terms
Plus Tick Definition
A plus tick is a price designation referring to the trading of a security at a price higher than the previous sale price for the same security. more
Zero Uptick
A zero uptick is a transaction executed at the same price as the trade immediately preceding it, but at a price higher than the transaction before that. more
Downtick
A downtick is a transaction on an exchange that occurs at a price below the previous transaction. more
What Was the Short Sale Rule? Definition, History and Controversy
The short-sale rule was a Securities and Exchange Commission (SEC) trading regulation that restricted short sales of stock from being placed on a downtick in the market price of the shares. more
Regulation SHO: Definition, What It Regulates, and Requirements
Regulation SHO is a Securities and Exchange Commission (SEC) regulation that updated policies that govern short sale practices. more
What Is Short Exempt? Definition and How It Works in Trading
"Short exempt" refers to a short sale order exempted from the uptick rule regulated under the Securities and Exchange Commission’s (SEC) Regulation SHO. more
The Uptick Rule (also known as the "plus tick rule") is a rule established by the Securities and Exchange Commission (SEC) that requires short sales to be conducted at a higher price than the previous trade.
Investors engage in short sales when they expect a securities price to fall. The tactic involves selling high and buying low. While short selling can improve market liquidity and pricing efficiency, it can also be used improperly to drive down the price of a security or to accelerate a market decline.
KEY TAKEAWAYS
- The SEC's Uptick Rule requires short sales to be conducted at a higher price than the previous trade.
- There are limited exemptions to the rule.
- A revised rule implemented in 2010 lets investors exit long positions before short selling is triggered.
The Uptick Rule prevents sellers from accelerating the downward momentum of a securities price already in sharp decline. By entering a short-sale order with a price above the current bid, a short seller ensures that an order is filled on an uptick.
The original rule was introduced by the Securities Exchange Act of 1934 as Rule 10a-1 and implemented in 1938. The SEC eliminated the original rule in 2007, but approved an alternative rule in 2010. The rule requires trading centers to establish and enforce procedures that prevent the execution or display of a prohibited short sale.
The Alternative Uptick Rule
The 2010 alternative uptick rule (Rule 201) allows investors to exit long positions before short selling occurs. The rule is triggered when a stock price falls at least 10% in one day. At that point, short selling is permitted if the price is above the current best bid.1 This aims to preserve investor confidence and promote market stability during periods of stress and volatility.
The rule's "duration of price test restriction" applies the rule for the remainder of the trading day and the following day. It generally applies to all equity securities listed on a national securities exchange, whether traded via the exchange or over the counter.
The Uptick Rule is designed to preserve investor confidence and stabilize the market during periods of stress and volatility, such as a market "panic" that sends prices plummeting.
Exemptions to the Rule
For futures, there are limited exemptions to the uptick rule. 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.
To qualify for the exemption, the futures contract must be deemed to be "owned by the seller." This means that according to the SEC, that the person "holds a security futures contract to purchase it and has received notice that the position will be physically settled and is irrevocably bound to receive the underlying security.”
Related Terms
Plus Tick Definition
A plus tick is a price designation referring to the trading of a security at a price higher than the previous sale price for the same security. more
Zero Uptick
A zero uptick is a transaction executed at the same price as the trade immediately preceding it, but at a price higher than the transaction before that. more
Downtick
A downtick is a transaction on an exchange that occurs at a price below the previous transaction. more
What Was the Short Sale Rule? Definition, History and Controversy
The short-sale rule was a Securities and Exchange Commission (SEC) trading regulation that restricted short sales of stock from being placed on a downtick in the market price of the shares. more
Regulation SHO: Definition, What It Regulates, and Requirements
Regulation SHO is a Securities and Exchange Commission (SEC) regulation that updated policies that govern short sale practices. more
What Is Short Exempt? Definition and How It Works in Trading
"Short exempt" refers to a short sale order exempted from the uptick rule regulated under the Securities and Exchange Commission’s (SEC) Regulation SHO. more
« From a Seed to a Banyan Tree »
Devenez une graine de croissance de votre propre « Indépendance Financière ».
AVERTISSEMENT : Introduction à la formation
Les renseignements fournis dans les présentent publications sont donnés uniquement à titre d’information et ne constituent en aucun cas une offre, sollicitation, démarchage ou recommandation d’achat ou de vente de placements ou d’engagement dans toute autre transaction. Toute information, description, exemple et calcul contenus dans cette publication sont fournis à titre d’indication et ne doivent pas être traités comme faisant autorité.
Les informations présentées ne constituent pas un conseil en investissement. Les présentes informations proviennent de sources extérieures et sont données à titre indicatif. AZ Parking et son Auteur Christian P. GATT, lui-même, ne sauraient être tenue responsable pour les dommages directs ou indirects résultants d'erreurs, d'omissions ou de modifications ultérieures des données.
Le placement en Bourse est risqué. Vous pouvez subir des pertes. Les performances passées ne préjugent pas des performances futures, elles ne sont pas constantes dans le temps. Avant toute décision d'investissement ou de désinvestissement dans ces produits, le Client doit impérativement apprécier ses choix en fonction de sa situation financière, de son expérience et de ses objectifs personnels en matière de placement (notamment en termes de degré d'acceptation du risque de perte en capital et de durée d'investissement envisagée).
ici pour modifier.
Les informations présentées ne constituent pas un conseil en investissement. Les présentes informations proviennent de sources extérieures et sont données à titre indicatif. AZ Parking et son Auteur Christian P. GATT, lui-même, ne sauraient être tenue responsable pour les dommages directs ou indirects résultants d'erreurs, d'omissions ou de modifications ultérieures des données.
Le placement en Bourse est risqué. Vous pouvez subir des pertes. Les performances passées ne préjugent pas des performances futures, elles ne sont pas constantes dans le temps. Avant toute décision d'investissement ou de désinvestissement dans ces produits, le Client doit impérativement apprécier ses choix en fonction de sa situation financière, de son expérience et de ses objectifs personnels en matière de placement (notamment en termes de degré d'acceptation du risque de perte en capital et de durée d'investissement envisagée).
ici pour modifier.