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Short Sale Restrictions

Sept. 6, 2011

A short sale is the sale of a stock that a seller does not own or a sale which is consummated by the delivery of a stock borrowed by, or for the account of, the seller.  Short sales are normally settled by the delivery of a security borrowed by or on behalf of the seller.  The short seller later closes out the position by returning the borrowed security to the stock lender, typically by purchasing securities on the open market. Short sellers typically hope to profit from a downward price movement or seek to hedge the risk of a long position in the same or a related security.

In February 2010 the Commission adopted a new short sale price test restriction, which is commonly referred to as the “alternative uptick rule.”  The alternative uptick rule is designed to restrict short selling from further driving down the price of a stock that has dropped more than 10 percent in one day compared to the closing price on the previous day.

For further information on short sales generally, please read Key Points About Regulation SHO, and for further information about the alternative uptick rule, please read SEC Approves Short Selling Restrictions.

The Office of Investor Education and Advocacy has provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions conce
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