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Definition of an Uptick

An uptick is when a asset's price is higher than the previous transaction price. So, if a stock traded at $100, and then the next trade posts at $100.10, then the stock has had an uptick. An uptick was required in order to initiate a short position for over 70 years, but effective July 6, 2007, the uptick rule was removed. The uptick rule was put in place to prevent traders from shorting falling markets.

What Does Uptick Rule Mean?

A former rule established by the SEC that requires that every short sale transaction be entered at a price that is higher than the price of the previous trade. This rule was introduced in the Securities Exchange Act of 1934 as Rule 10a-1. The uptick rule prevents short sellers from adding to the downward momentum when the price of an asset is already experiencing sharp declines. The SEC eliminated the rule on July 6, 2007.

The uptick rule was also be known as the "plus tick rule".

Uptick Rule Example:

For example, if you want to sell a stock short at $40, the previous trade must have been at $40 or higher, such as $40.20. The uptick rule comes from Rule 10a-1 of the Securities Exchange Act. The New York Stock Exchange (NYSE) also has a similar rule, Rule 440B, that applies to its member brokerage firms and to its specialists.

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