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Uptick rule

AnalyticsTrade Team
AnalyticsTrade Team Last updated on 26 Apr 2023

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Uptick Rule

The Uptick Rule is a regulation that was put in place by the Securities and Exchange Commission (SEC) in 1938. The rule requires that a stock must be sold at a higher price than the price at which it was last sold before it can be bought. This rule was put in place to prevent investors from taking advantage of a stock’s downward momentum and to protect investors from potential losses. The Uptick Rule is also known as the “plus tick” rule or the “tick test”.

History of the Uptick Rule

The Uptick Rule was first introduced in 1938 as part of the Securities Exchange Act of 1934. The rule was put in place to protect investors from potential losses due to short selling. Short selling is when an investor sells a stock they do not own in hopes of buying it back at a lower price. The Uptick Rule was designed to prevent investors from taking advantage of a stock’s downward momentum by requiring that a stock must be sold at a higher price than the price at which it was last sold before it can be bought.

The Uptick Rule was amended in 2007 to allow for “naked” short selling. Naked short selling is when an investor sells a stock they do not own without first borrowing the stock from another investor. This amendment was put in place to allow for more liquidity in the market. However, the SEC has since reversed this amendment and the Uptick Rule is now back in effect.

Comparison Table

Rule Description
Uptick Rule Requires that a stock must be sold at a higher price than the price at which it was last sold before it can be bought.
Short Selling When an investor sells a stock they do not own in hopes of buying it back at a lower price.
Naked Short Selling When an investor sells a stock they do not own without first borrowing the stock from another investor.

Summary

The Uptick Rule is a regulation that was put in place by the Securities and Exchange Commission (SEC) in 1938. The rule requires that a stock must be sold at a higher price than the price at which it was last sold before it can be bought. This rule was put in place to prevent investors from taking advantage of a stock’s downward momentum and to protect investors from potential losses. The Uptick Rule was amended in 2007 to allow for “naked” short selling, but the SEC has since reversed this amendment and the Uptick Rule is now back in effect. For more information about the Uptick Rule, you can visit the SEC website or consult a financial advisor.

See Also

  • Short Selling
  • Naked Short Selling
  • Securities Exchange Act of 1934
  • SEC
  • Market Manipulation
  • Price Manipulation
  • Tick Test
  • Plus Tick Rule
  • Bear Raid
  • Short Squeeze

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