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Key Takeaways
- Rule 201 triggers after a covered stock’s qualifying 10% decline from its prior official close.
- The active price test governs short-sale display and execution against the national best bid.
- Coverage runs through the next trading day, including the extended-hours periods when the national best bid is published.
- The $50 prior close produces a $45 trigger; the example’s $44.90 print is a 10.2% decline.
- Option orders follow exchange rules; short stock sold to hedge them follows Rule 201.
What is a short-sale restriction (SSR)?
A short-sale restriction (SSR) is the Rule 201 price-test state for a covered stock. A 10% decline from the prior official close turns it on: the listing market declares the trigger and the consolidated feed broadcasts it. While the restriction is active, the standard test requires short-sale display and execution above the current national best bid, and the rule defines short-exempt treatment.
Traders also call it the alternative uptick rule or the short sale circuit breaker.
Formula
Trigger price = prior official close × 0.90. Standard active price test: short-sale display or execution price > current national best bid.- The listing market watches eligible regular-session trades and declares the trigger when one prints at or below the trigger price.
- The plan processor broadcasts the restriction on the consolidated feed, which is where brokers and trading platforms pick up the SSR flag.
- Orders that qualify for one of the rule’s exemptions, such as riskless principal or odd-lot offset trades, are marked short exempt and skip the price test.
- For a displayed order using a $0.01 increment, $44.86 is the first price above a $44.85 bid.
SSR example: the $45 trigger and a $44.86 short limit
XYZ closes Monday at $50.00 on its listing market. On Tuesday morning a wave of selling drives the consolidated tape to $44.90 at 11:02 a.m. Eastern Time.
- Prior official close: $50.00
- Trigger: $50 × 0.90 = $45.00
- Qualifying $44.90 trade: ($50 − $44.90) / $50 = 10.2% decline
- At a $44.85 bid, a displayed short limit using one-cent increments can be priced at $44.86
- A Tuesday trigger covers the remainder of Tuesday and the next trading day, Wednesday
Once the restriction is disseminated, the standard price test places the displayed short limit above the national best bid. With the bid held at $44.85, the example uses $44.86. If Wednesday produces another qualifying 10% decline from Tuesday’s official close, coverage extends through Thursday.
XYZ’s $50 prior close creates a $45 trigger. Tuesday’s $44.90 qualifying trade is a 10.2% decline.
At a $44.85 national best bid, a displayed short limit using one-cent increments can be placed at $44.86. The trigger comes from the prior close; the price test runs against the live bid.
The test also applies at execution. A marketable short sale that fills above the bid meets it, and one that would hit the bid is repriced or rejected, depending on the venue’s handling.
How long does SSR last?
Coverage runs through the next trading day and the extended-hours periods when the national best bid is calculated and disseminated. A new qualifying 10% decline on a covered day extends the restriction again.
Rule 201 became effective May 10, 2010, with compliance required February 28, 2011. Its scope and timing are separate from limit up-limit down trading pauses.
How SSR affects options traders
Listed options follow their own exchange rules. Short sales of the underlying used to hedge an option position follow Rule 201 when the stock is covered.
Limitations of the short-sale restriction
- Short above the bid. While SSR is active, short sales still display and execute above the national best bid, and qualifying orders use the rule’s short-exempt treatment.
- Read SSR as a limit on short sales, not a floor under price. Long sellers can still sell at the bid, so a decline continues while they keep selling.
- The trigger is mechanical. An eligible regular-session trade 10% or more below the prior official close activates it, whatever caused the drop.
- Trading continues under SSR. Limit up-limit down pauses follow their own scope and timing.
- Plan the stock hedge around SSR. Listed options follow their own exchange rules, so the restriction reaches an options position only through short sales of the underlying stock.
Bottom line
A short-sale restriction is Rule 201's response to a 10% decline: for the rest of the trigger day and the next trading day, non-exempt short sales must be priced above the national best bid. Check the prior official close and the trigger price, price short orders above the current bid, and plan stock hedges for options positions with the restriction in mind.
Clear answers
Frequently Asked Questions
Sources and Further Reading
- SEC: Short Sale Price Test Restrictions, Small Entity Compliance Guide
- SEC Division of Trading and Markets: Responses to FAQs Concerning Rule 201 of Regulation SHO
- Cboe U.S. Equities: Short Sale Circuit Breaker Notices
- Fidelity: How to Short Stocks
How entries are sourced, calculated and updated: editorial methodology.