What is SSR in Stocks? | Everything You Must Know
SSR stands for “short sale restriction” in the stock market. It is also known as the “uptick rule.” Continue reading to learn more about SSR and what it means.
Key Takeaways
SSR stands for "Short Sale Restriction" and refers to a regulation that restricts short selling in certain stocks that have experienced significant price declines. It is also known as the short sale rule.
The SSR was put in place by the SEC (Securities and Exchange Commission) in response to concerns that short selling could exacerbate price declines and destabilize the market.
Under the SSR, if a stock experiences a 10% or more decline in price from the previous day's close, short selling is only allowed if the sale is at a price above the national best bid and is marked as "short exempt."
The SSR is intended to provide a "cooling-off period" for stocks that are experiencing significant price declines, and to help prevent market manipulation by short sellers.
What is Short Selling a Stock?
Short selling a stock is a way for traders to bet that the price of a stock will go down. It involves borrowing shares of stock from someone else, selling those on the market, and then buying the shares back later to return them to the original owner.
If the stock price has gone down between the time the trader borrowed the shares and the time the trader buys them back, the trader will make a profit. However, if the stock price has gone up, the trader will lose money.
What is SSR (Short Sale Restriction) in Stocks?
SSR aims to limit short sellers from manipulating stock prices. The rule began in 2010 following the global financial crisis.
The rule doesn’t allow traders to short a stock that drops more than 10% in a day. The rule is to prevent short sellers from lowering stock prices drastically in a volatile event.
Rules of SSR
The rule is triggered if a stock drops 10% lower than the previous day's closing price.
The SSR restriction will remain in effect until the end of the day and potentially the next day.
How to Short Stocks Placed in the SSR
You cannot short a stock that is under SSR.
What Triggers SSR?
SSR is generally triggered by significant or black swan news events that cause panic and many people to sell stocks.
When an event like this occurs, SSR prevents stocks from being shorted heavily by large institutions to take advantage of the mass selling.
Is SSR a Good Thing for Traders?
Generally speaking, SSR is a good thing since it prevents traders from creating massive crashes in the stock market.
FAQ
What is the SEC short sale rule?
The SEC short sale rule or SSR is a trading regulation that restricts short sales of stock from being placed on a downtick in the market price of the shares. The rule is also known as the alternative uptick rule or SEC rule 201. The rule is triggered when the market price of a stock declines by 10% or more in one trading day, and remains in effect until the end of the next trading day.
Is SSR good for stocks?
There is no definitive answer as to whether or not SSR is good for stocks. Some traders believe that SSR is a reliable predictor of future price movements, while others believe that it is nothing more than a random occurrence.
However, some traders argue that SSR is a relatively good feature for traders because it helps prevent flash crashes and discourages inexperienced traders from shorting a stock that is falling without doing any research.
How do you tell if a stock has a SSR?
You can tell if a stock has a SSR by looking at its ticker symbol on your trading platform. If the stock has a SSR, you will see an indicator such as “SSR” or “S” next to its symbol. Alternatively, you can check the list of securities subject to SSR on the FINRA website.
How long does SSR stay on?
SSR stays on for the rest of the trading day and the following trading session after it is triggered. For example, if a stock triggers SSR on Monday at 10:00 am, the rule will remain in effect until Tuesday at 4:00 pm.
Why does a stock get short sale restricted?
A stock gets short sale restricted when its market price drops by 10% or more from the previous day’s closing price. This is done to limit market volatility and prevent flash crashes caused by excessive short selling.
How long can you hold a short sale stock?
You can hold a short sale stock as long as you want, as long as you have enough margin in your account to cover the borrowed shares and any interest or fees. However, you should be aware of the risks involved in holding a short position, such as unlimited losses, margin calls, dividends, buy-ins, and hard-to-borrow fees.
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