SSR is an acronym for short sale restriction when it is used in the context of trading stocks. It’s a rule that came out in 2010 and it’s also referred to as the alternate uptick rule or SEC rule 201, that states that a trader can only short sell a stock on an uptick in price. It’s purpose is to stop the effectiveness of bear raids on a stock by restricting the ability for short sellers to pile onto a stock that is falling by shorting it as it is in the process of going lower in price.
The SSR rule is meant to prevent short sellers from increasing bearish positions on a stock after the shares have dropped by 10% or more from the previous day’s close. Once the SSR has been triggered and is in place the stock can’t be sold short on a down tick in price. Once the SSR is signaled, it remains in place until the end of the next trading day. This rule applies to all stocks traded on an exchange or on the over-the-counter market.
Once the circuit breaker for the SSR is tripped, any short-sale orders coming into the market can only be executed at a price that is higher than the current best bid in the spread. Traders can’t hit the bid on a short-sale order while a stock is under the short sale restriction. Short sellers must wait for the price to go up to the ask price for new short sells order to execute on the exchange.
The SEC created the first uptick rule in 1938 with the intent to protect investors in the stock market. The original uptick rule required every short-sale position to be entered at a price execution higher than the previous traded price in the market. Short sellers could only sell short on an uptick in price not as it was going lower. This original version of the rule was in place in the stock market for almost 70 years until it was repealed in 2007. The short sale restriction (SSR) was put in place in 2010 after the 2008 stock market crash to try to limit the speed and velocity of future market drops.
“The rule is designed to preserve investor confidence and promote market efficiency, recognizing short selling can potentially have both a beneficial and a harmful impact on the market.” – SEC press release