Tick tests was the name given to a method that was once employed in order to determine when circumstances were right for the execution of a short sale. To a great extent, this type of testing method was focused mainly on the use within those markets that were based in the United States. During the decade of the 1930’s the tick test approach was first developed and employed , but is now considered obsolete.

Two conditions under which tick test provides for a short sale

Essentially, there were two conditions under which tick test provides for a short sale.

First Condition

First was that, the sale could take place in an uptick situation. That is, a short sale would be allowed when the current price of a given stock was higher than the last trading prices for the same stock.

Second Condition

Second condition was that, the tick test allowed for what is referred to as a zero-plus tick or a zero uptick. In this situation, there was no change in the latest trade price. However, a short sale was possible if that current trade price was higher than the trade price that had immediately preceded it.

Main function of the tick test

To monitor the trading curb and make sure transactions were above board was considered to be the main function of the tick test. Simultaneously, the test made it more difficult for a group of investors to manufacture what is known as a bear attack on a given stock, and thus they throw the market out of sync before that anyone knew what was happening.

Since the 1930’s, methods for monitoring trading activity have become increasingly comprehensive, and it was easy to detect this type of activity early in the process. As a result of this, the necessity for the tick test eventually became obsolete. Recognizing this, the Securities and Exchange Commission opt to rescind Rule 10a-1 on 6 July 2007.

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