The Low-Down on the Uptick Rule

Some say putting more constraints on short-selling will help stem market declines.

By + More

Today, Rep. Barney Frank, head of the House Financial Services Committee,  said he expects the SEC to bring back the "uptick" rule--which was eliminated in June 2007.

So what's this uptick rule? Here are the basics:

  • The rule essentially put constraints on short-selling (read more about how short-selling works here.) It calls for short-sellers to sell at a price higher than the previous trade.
  • The uptick rule was originally put in place following the Great Depression, to keep short-sellers from piling on and quickly driving the price of a stock up or down.
  • The SEC killed the rule in 2007 on grounds that it didn't prevent market manipulation.
  • Some think the rule's elimination fueled the market's plunge by pushing battered stocks down even further. One critic went so far as to say it was an "aphrodisiac for volatility."
  • The idea is that reinstating the uptick rule will help calm the markets.