Short-Sale Rule

See: Short Sale. See: Short Selling.

Shorting a stock involves betting that its price will go down. It's considered a perfectly legimate way to make money on Wall Street. Still, there's always been kind of stigma too it. If you're a short seller, people treat you like you're a professional grave robber, or someone who forecloses on orphanages as a hobby.

Part of this stigma included the short-sale rule. It was a long-standing regulation that stated that a short sale could not be placed on a downtick. So, if a stock's price most recently ticked lower, the short seller had to wait; they had to hold out for a time when the stock had just ticked higher.

The rule was meant to avoid piling on. A stock that was falling could be pushed lower by a bunch of short-sellers jumping onto it. The rule was originally put in place in the 1930s, as part of the post-stock market crash, post-Depression wave of Wall Street reform.

By the 2000s, the rule had become recognized as stale and kind of pointless. It was eventually removed in 2007.