Short Sale Restriction- What is SSR in Stocks?
You may have heard the familiar trading term “SSR” which stands for short sell restriction. In this post, we will explore the short sell restriction (also referred to as the SSR) and how this affects the stocks that you trade.
The short sale restriction is a rule that the SEC implemented to prevent short sellers from shorting a stock at the bid price when it has dropped more than 10% from the previous day’s open.
The SEC implemented the idea of preventing short sellers from further driving down shares of already sharply declining stocks during the great depression.
To be clear, you can still short the stock, but you can’t short at the bid price which would effectively make the stock go lower. To prevent stocks from getting hit too hard, after a stock has dropped 10% short sellers have to short it on the ask/offer price which means they can only get short if a buyer fills their order (this is also known as the “uptick rule” since short sellers can only get a position if the stock has an “uptick” to fill their short order.
I believe the SEC introduced this to prevent stocks from getting hammered down hard during bad news events from market orders hitting the bid and driving the prices too low too quickly.
The short sell restriction is “triggered” on a stock after it has fallen 10% from its previous close price and remains in effect for that day and until the end of the following trading day as well.
For example, XYZ closed at $3.00 per share, the following day at lunch the stock had dropped to $2.70 (30 cents and 10% lower than the previous close price). Immediately after reaching that 10% threshold, you can no longer short the stock with a market order into the bid price. If you attempt to short at the bid price, your order will automatically be routed to the offer/ask price until a buyer fills your short order.
How do you know if a stock that you are trading is an SSR stock? Typically your brokerage platform will display this information in the level 2 montage window. Also, you can search the stock ticker on the NASDAQ website to see if it appears on the SSR list. Simply any stock that is down 10% or more from its previous day’s close will have the SSR on.
The SSR does not affect how long side traders can buy or sell the stock. They can still buy from the ask/offer or sit on the bid to buy shares from sellers. Only short sellers are restricted by not being able to short into the bid (which would effectively drive shares lower), but they can still cover/exit their positions from both the bid and the ask as per normal.
In some cases, the short sale restriction can make it easier for bigger traders to manipulate a stock. For example, when the SSR is in effect, the ONLY way a stock price can go lower is from longs selling the stock at the market, but since shorts cant short at the market there may only be half as many people driving the price down, but everyone can buy or cover at the ask price, so when shorts need to exit and longs want to get it, there can be more buying than selling at market on these stocks.
It may be wise to be aware of this when shorting stocks that have the SSR on, as it can make it a bit more difficult to get the target prices you are looking for since the only way it can effectively go down is from longs selling — you are getting no help from shorts at market to drive the price lower.
Whether the short sale restriction works for you or against you, its always best practice to use proper risk management tools and trade planning when executing trades. Thank you for reading, and good luck with your trading.
