Uptick RuleSSR
The uptick rule limits short selling in a falling stock. Under the current US version, Rule 201, once a stock drops 10% or more from the prior close, short sales are allowed only above the national best bid for the rest of that day and the next.
Short sellers profit when prices fall, so regulators worry they could pile on and accelerate a crash. The uptick rule is the brake. The original 1938 version was removed in 2007; after the financial crisis, the SEC adopted a narrower "alternative uptick rule" that only kicks in after a sharp one-day fall. This entry explains how Rule 201 works and what it means for traders.
- Category
- Market Structure
- Reading time
- 4 min
- Also called
- Alternative uptick rule, Rule 201, Short sale circuit breaker
- Updated
The uptick rule in plain words
Rule 201 restricts short selling only after a stock triggers a circuit breaker by falling at least 10% from the prior day's close.1
Once triggered, short sales are allowed only at a price above the current national best bid, for the rest of that day and the following day.1
In a short sale, an investor sells borrowed shares and profits if the price falls but loses if it rises.2
How Rule 201 works, step by step
Track the prior close
The reference price for the day.
Watch for a 10% drop
Measured from the previous closing price.
Circuit breaker triggers
The short sale restriction (SSR) switches on. See Circuit Breaker and Trading Halt.
Price test applies
Short sales must be above the national best bid. See National Best Bid and Offer.
Long sellers go first
Holders can still sell at the bid.
Restriction ends
After the close of the following trading day.
Worked examples
Example 1 — Triggering the rule
SSR activeA stock closed at $50 yesterday. Today it trades at $44.80.
| Trigger level | $50 × 90% = $45 |
| Current price | $44.80 — below $45 |
| Status | Short sale restriction on |
The circuit breaker triggers on any day the price falls 10% or more from the prior close.1
Example 2 — Where shorts can sell
Shorts must offer above bidSSR is active. The national best bid is $44.70 and the best ask is $44.80.
| Short sale at $44.70 (the bid) | Not allowed |
| Short sale at $44.71 or higher | Allowed |
Under the price test, short sales are permitted only above the current national best bid.1
Example 3 — A short seller's trade
+$20 a shareBefore the drop, a trader shorted at $60 and covers at $40.
| Profit per share | $60 − $40 = $20 |
A short seller profits from the difference when the price falls, minus costs.2 See Short Selling.
Original uptick rule vs Rule 201
| Aspect | Original (1938–2007) | Rule 201 (2010–) |
|---|---|---|
| When it applies | Always | Only after a 10% one-day drop |
| Test | Price above last different trade | Price above national best bid |
| Duration | Permanent | Rest of day plus next day |
| Goal | Limit short pressure | Let long sellers exit first |
Why traders watch the uptick rule
Short sellers
Plan entries around SSR days. See Short Selling.
Day traders
SSR changes the order flow on big drops. See Day Trading.
Short squeezes
Restricted shorting can fuel rebounds. See Short Squeeze.
Risk managers
Know when hedges can't be added easily.
Advantages and disadvantages
Advantages
- Slows short selling in sharp declines.
- Lets long holders sell first.
- Only applies in stressed conditions.
Disadvantages
- Can reduce liquidity on falling days.
- Benefits debated by researchers.
- Adds complexity for traders.
Going deeper
Read as far as you need. Each level builds on the one before it.
Why it exists
Beginner
The alternative uptick rule aims to stop short selling from pushing down a stock that has already fallen more than 10% in a day, promoting stability and investor confidence.1
Which stocks
Intermediate
The rule generally covers all exchange-listed equity securities, whether traded on an exchange or over the counter.1
Common mistakes
Thinking shorting is banned
It is allowed above the best bid.
Forgetting the next day
SSR lasts into the following session.
Measuring from the open
The 10% drop uses the prior close.
Applying US rules abroad
Other markets have their own rules.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Rule 201 is the current US uptick rule.
- It triggers after a 10% drop from the prior close.
- Short sales must then be above the national best bid.
- It lasts for the rest of the day and the next day.
- It aims to let long sellers exit first.
Frequently asked questions
Is the uptick rule still in effect?
What does SSR mean on a trading platform?
Does the uptick rule apply to crypto?
Further learning
- Short Selling
How short selling works.
- Circuit Breaker and Trading Halt
Market-wide trading halts.
- National Best Bid and Offer
The price the rule uses.
- Short Squeeze
What happens when shorts rush to cover.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- U.S. SEC. SEC Approves Short Selling Restrictions (Rule 201) (opens in a new tab) Checked .
- Investor.gov (SEC). Investor Bulletin: An Introduction to Short Sales (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.