The new uptick rule (also known as the short sale restriction or SSR)

After the SEC reinstated a new version of the uptick rule following the 2008 financial crisis, there has been very little information available online. If you search for “uptick rule” most of the info you will find is on the old uptick rule. The current version isn’t really an uptick rule at all, but rather an upbid rule. This new version was first put into effect in November 2010.

Simply put, shares of a stock cannot be sold short at or below the best bid when the rule is in effect. The short seller must sell on the offer and wait for a buyer to fill his offer. The rule goes into effect when a stock’s price decreases by 10% or more from its previous day’s close. Once a stock has dropped 10% from its previous day’s close (even if just briefly dropping that far) the rule will then be in effect for the rest of the day and the next trading day. The rule can only be triggered during regular trading hours although if it is triggered it remains in force during after-hours and pre-market trading.

For those who use Interactive Brokers’ TWS platform, a little red circle will appear to the right of the stock description when the uptick rule is in effect. If you mouse over the red circle it will say “Short sale restriction is in effect from [date] to [date].”

In the screenshot below, IB TWS indicates that the uptick rule is in effect for PRGN with a little red circle to the right of the ticker.

ssr

There are some exemptions to the upbid rule but they do not apply to small traders. See this broker’s description of the exceptions.

The complete uptick rule can be found in this March 10th 2011 amendment to Regulation SHO (pdf).

I encourage reading the NYSE’s statement (pdf) about how it will enforce the uptick rule.

Disclaimer: No positions in any stock mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

My thoughts on various brokers

See the video for my thoughts on the various brokers I use. See also my first impressions of Speedtrader and my review of SogoElite. [Edit 6/21/2011 — Subsequent to me posting this video Sogotrade has changed hands (Genesis Securities sold it to Wang) and the borrows for shorts are not good there anymore. I recommend against using Sogotrade.]

Full resolution video

More posts on brokers:

How to borrow shares to short
An introduction to short selling at Interactive Brokers
Interactive Brokers brings the stock loan marketplace to the independent trader

HOD list: How to find stocks breaking out to new highs
My Interactive Brokers Traders Workstation configuration / workspace
How to scan for pre-market gainers using Interactive Brokers

Disclosure: Short 2,000 ANTS and 5,000 HAUP. No positions in any other stocks mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Help a reader: Best sources for stock news

It is time for you the blog reader to do some work! I received the following question from a reader and it is a question that you, my readers could probably answer better than I.

I like to read the news (ie earnings, annual reports) releases during the day as news is released, but also at the end of the day. Here in Australia it is quite simply because all stock news releases are via once central website (ie
http://www.asx.com.au/asx/statistics/prevBusDayAnns.do)

I am wondering how I would go about finding the news releases for stocks on the NYSE/NASDAQ/AMEX/OTC? Is there a central website which lists all news releases, or do you need to look through the individual exchange websites? Is it possible to see all tickers news, or do you need to search individual tickers? What website do you use?

My response is that I do not trade based off news so I don’t care about having a general news ticker. To get news on stocks I’m watching I will either go to Yahoo! Finance or look it up in the ThinkorSwim or Interactive Brokers’ TWS software.

Please leave your advice in the comments below.

Disclosure: No positions in any stock mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Q&A: Saturday morning mailbag

Questions I answer:

1. Why did you choose SogoElite rather than Sogotrade? (I don’t actually answer this; rather, I berate the questioner for not looking up the obvious differences between the two. Actually, there is one important difference that is not obvious: SogoElite allows for shorting stocks under $3, while SogoTrade does not.)
2. What kind of returns (percentage-wise) can a trader expect to make trading like me or Tim Sykes?
3. Do you have a Stockfetcher scan for the potential pumps you buy? Answer: No.
4. What does the decreasing volume in pump & dump AENY mean? Does that mean it will go lower?

Video #2:

1. What do you mean by ‘fluffy’ news?
2. Isn’t fading volume correlated with positive price action on ‘real’ stocks that have run up a bunch? Answer: I really have no clue; because of this I do not address it in the video. I am not convinced that fading volume is necessarily a sign that a stock will do anything, unless it is a true pump & dump.

Disclosure: No positions in any stock mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Q&A: Trading OTC stocks premarket, screening for stocks intraday, & huge runners

Video #1:
1. How can one get a fill on an stock in the pre-market, particularly with Interactive Brokers?
2. What do you think of Equityfeed (versus other methods of screening for stocks intraday such as the HOD list or IB’s market screener)?

Video #2:
1. What do you think about stocks that run huge in one day such as ZANE (up 600% on March 4, 2010). Do you buy them?

Disclosure: Long 8,000 shares of STTN and short 3,000 ZANE. No positions in any other stock mentioned. This blog has aterms of usethat is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Q&A: What is an over-extended stock and what do the new SEC short selling rules mean for traders?

Two questions this week:

1. What do you mean when you say a stock is over-extended?
2. What do the new SEC short selling rules mean for traders, particularly short-biased penny-stock traders? I give my opinion of what it means to me. Check out this WSJ blog post explaining the rule and this more-detailed Bloomberg article.

Disclosure: Long 8,000 STTN. No positions in any other stock mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Saturday Q&A: How to find pump & dumps and how long does it take to learn to trade

1. Do you pay attention to the overall market and does that affect the stocks you trade?
2. How does the amount of shares a stock pumper is compensated relate to and affect the volume in a pumped stock?

Video #2:

1. How do you find pumped stocks and stock promoters?
2. What is the general learning curve for trading stocks as you do?

Disclosure: No positions in any stock mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

If I’m Tim Sykes’ best student, why is my profit margin so much worse than his?

A reader asked me this question in an email. I suggest checking out Tim Sykes’ trades, the CXO Advisory Group’s post on Tim Sykes and my trading profit page to see details of what I discuss in the video. For comparison to the returns discussed in the video, at this point my weighted average profit margin in 2010 is 1.81% for my Sykes-type trades and 1.80% for my Sykes-type trades where I follow a TimAlert.

Disclosure: No positions in any stock mentioned. I am a TimAlerts lifetime subscriber and have other relationships with Tim Sykes, which are discussed in my terms of use; you can find all my disclaimers and disclosures there as well; my full terms of use is incorporated by reference into this post.