Uptick rule

The Uptick rule is a former financial regulations rule, relating to the trading of securities in the United States. The rule was eliminated by the SEC, effective July 6, 2007.

'Uptick' is the name generally given to Rule 10a-1, under the Securities Exchange Act of 1934, which states that short selling is only permitted following a trade where the traded price was higher than the previously traded price (uptick).

On the New York Stock Exchange a short sale may only be done on an uptick or a zero plus tick (which occurs when the price is the same price as the last trade, but higher than the previous different trade).

On the NASDAQ, shorting is only allowed on the bid side when the current inside bid is not lower than the previous inside bid (i.e. a downtick).

On the March 20, 2008 episode of Mad Money, Jim Cramer launched his campaign to reinstate the Uptick Rule. Citing the wild swings of the market since its elimination, Cramer pointed out that the SEC eliminated the rule during a bull market, when liquidity was not a problem. Cramer believes that, without the Uptick Rule in place, short sellers are devaluing perfectly solid stocks. As a former hedge fund manager, Cramer admitted to making millions short selling with the Uptick Rule in place. Without an impediment such as the Uptick Rule to slow down the pace of short sellers, Cramer believes it puts the market at risk for the very problems that lead to the Great Depression.