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Trading and Investment Terms

Uptick Rule

The Uptick Rule ( otherwise referred to as the "plus tick rule") is a rule set up by the Securities and Exchange Commission (SEC) that necessitates short sales to be conducted at a higher price than the past exchange.

Investors take part in short sales when they expect a stock price to decline.

The strategy includes purchasing high and selling low.

While short selling has the ability improve market liquidity and pricing efficiency, it can likewise be put in use inappropriately to drive down the price of a stock or act as a catalyst for a market decline.

The Uptick Rule keeps sellers from speeding up the descending momentum of a stock’s price, already in sharp decline.

By entering a short sale order with a price above the present bid, a short seller makes sure that an order is filled on an uptick.

The first rule was presented by the Securities Exchange Act of 1934 as Rule 10a-1 and actualized in the year 1938.

The Securities and Exchange Commission wiped out the initial rule in the year 2007, but affirmed an alternative rule in the year 2010.

The rule necessitates trading centers to  build up and uphold methods that forestall the execution or show of a prohibited short sale.

The 2010 alternative uptick rule (Rule 201) enables investors to exit long positions prior to short selling. The rule is activated when a security price declines at least 10% in a day.

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