Minus Tick

Minus tick refers to the price of a trade that occurs at a lower price than the immediately preceding trade. Also referred to as "downtick." Minus tick (along with "zero minus tick") was relevant under Rule 10a-1 of the Securities Exchange Act of 1934 (the "Act") as a prohibiting factor for short selling, but the rule was abolished in 2007. (The rule was first adopted under the Act in 1938.)

Until 2007, brokerage firms required that short sell orders follow the "tick test," which meant that if a stock traded at a minus tick price (lower than the previous sale), a short sale would not be allowed. Short sales were only allowed to occur on an uptick. Rule 10a-1 was designed to prevent traders from destabilizing a stock's price by short selling on minus ticks, which was viewed as having a "piling on" or downward momentum effect. For example, suppose a stock traded at, successively, $101.50, $101.40, $101.25, $101.35, $101.30. Under the previous rule, short sales could not occur at $101.40 and $101.30 because they represented prices below prices immediately preceding them. A short sale, however, could be executed at $101.35 because it was greater than $101.25. 

In short, the SEC came to the conclusion that the rule was no longer necessary. Then-Chairman Christopher Cox stated in 2006 that "the core provisions of Rule 10a-1 have remained virtually unchanged since the 1930s. But a great deal else has changed in the marketplace over that very long time. Over the years, decimalization and changes in trading strategies have undermined the effectiveness of the price test. And at the same time, increased transparency and better means of surveillance appear to have lessened the need for the price test..."

However, acknowledging that some sort of rule was still beneficial to market order, the SEC introduced a modified uptick rule in 2010.