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September 2, 2019 TSXtrad3r

What is the short sale restriction (SSR)

meaning of Short sale restriction

If you’ve been trading stocks for a while, you’ve probably heard the term “Short Sale Restriction” which is often referred to as the Uptick Rule.

SSR stands for Short Sale Rule/Short Sale Restriction. This is a rule the SEC implemented in 2010 (after previously enforcing a similar short sell restriction in 1937, that was then lifted in 2007), the function being to prevent bears from pushing the market down at will (hitting the bid). 

The SSR is triggered when a stock falls 10% from its previous close, so this means at any point in the day (including Pre-Market), this Uptick Rule preventing traders to hit the bid can be activated.

Keep in mind, SSR does not prevent you from shorting the stock, it just prevents you from filling you short position by taking liquidity from the bid.

To get filled one would have to put their order on the ask and wait for someone to hit the order. 

Pros and Cons of Short Selling Restriction

Also, for those wondering “So do I have to calculate if a stock has SSR on myself?”, the answer is no, typically your broker will display if a stock is SSR on the Level 2 window. 

The Short Sale Restriction has many cons as you might imagine, whether not being able to get a fill on one of your short trades, or getting horrible fills trying to catch a move lower, but there are a few pros that arise from the rule. Knowing a stock has SSR triggered could imply that to catch a move to the short side traders might chase the stock and get filled at prices so low that they would all panic if it reclaimed a key resistance level, in this fact alone we know opportunity can exist on the long side if the right factors align for a setup to squeeze out shorts and use their covers, in addition to new buyers, as fuel for a big trade. 

Conclusion

Therefore, keep an open-mind and open-bias, stocks can still go down with SSR, and they can still go up as well. Whatever hindrances SSR provides, can also bring opportunity.

As traders we must play the cards we are dealt (if we decide to play at all), so always manage risk, and be flexible. Whether SSR works for you or against you, it will ultimately be up to you and the system you trade. Opportunity in the market is in surplus to those who can find it and take advantage of great risk/reward, and high-probabilistic setups. 


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