GameStop (NYSE:GME) and many of its Reddit stocks peers have been on a volatile ride today. GME stock opened at $269.43 and rallied 40% to an intraday high of $348.50. The r/WallStreetBets momentum only lasted so long… with GameStop shares dropping to an intraday low of $172 and ultimately bouncing back to the $250 range. The wild swings have investors researching short-sale restrictions and SSR stocks. So what is the SSR stocks rule?
To start, investors should know that the U.S. Securities and Exchange Commission approved the alternative uptick rule, also known as a short-sale restriction, in 2010. According to the SEC, this rule is all about market stability and investor confidence.
So what does the SSR rule mean for stocks? If a stock experiences a decline of at least 10% from the previous closing price in one day, the alternative uptick rule comes into effect automatically. Then, investors can only short sell that stock if it is on an uptick. Put another way, once the SSR rule has been triggered, you cannot short shares while they are falling.
This rule remains in effect for the rest of the trading day and carries over into the next trading day.
Because of the wild trading in GME stock today, GameStop is now under short-sale restrictions. So what else should investors know about the SSR stocks rule today? And is the SSR good or bad for stocks?
What to Know About the SSR Stocks Rule and GME Stock
Investors should know that this is not the first time that the alternative uptick or short-sale restriction rule has affected GME stock. And it is also not the first time that it has caught the attention of the r/WallStreetBets retail crowd. One poster explained that the short-sale restrictions are a way to prevent “short attacks” on popular stocks. The SEC would instead say that these restrictions are a way to limit volatility and flash crashes. This rule simply makes it harder for short-sellers.
One other thing to know is that this may not be the end of restrictions. Because GameStop and its r/WallStreetBets peers have been so volatile, regulators are paying attention. The SEC has said it is considering toughening the requirements for brokers that offer options trading. Additionally, the SEC is looking into tougher requirements for short-sellers.
Keep this story on your radar.
On the date of publication, Sarah Smith did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Sarah Smith is a Web Content Producer with InvestorPlace.com.