The uptick rule does the following, in my understanding:
- It prohibits market makers from executing 'short sales' that mark down the price actively,
- 'short sales' are sell orders by traders who have a short position in TSLA,
- 'mark down actively' are orders that consume active liquidity on the bid: market/stop/vwap sell orders and sell limit orders with a low bid price.
- Iceberg and other dark liquidity orders and secondary markets are affected too.
- In practice it's all automated: shorts, when they try to execute such orders, get an order rejection from the exchange.
- Short sellers are still allowed to sell short, by putting their SELL LIMIT order at least $0.01 higher than the current bid price. They are also allowed to buy to cover, of course.
I.e. shorts can "slow down" the rise of the price, like regular bearish investors selling some of their shares would, but they are not allowed to use the aggressive price manipulation tools they normally have: market, stop and limit orders that actively reduce the current price. (Which few bearish investors who sell would use, as it would mark down the price.)
That shorts are actively using these tools to create spikes down is all too evident from the price action, on almost every TSLA trading day: on bullish days they stop rallies and hunt stops on the way down, on bearish days they break through key resistance levels, on panic selling days they significantly magnify waves of selling. I've made several posts about the "spike seller" who was particularly aggressive about marking down TSLA on certain trading days.
Note how on Friday most of the drop was in the opening tick - the downside volatility was much lower during the day, largely due to the uptick rule preventing most short-seller shenanigans, IMO. There was still a lot of bearish selling because the SEC lawsuit was genuinely concerning news to many investors, but there were no artificial panic breakdowns in the price, manufactured by shorts.
We saw something very similar after the recent NYT drop as well, which activated the uptick rule for two days as well.
Maybe
@Papafox could chime in as well?
Monday could demonstrate how price rallies in a world without short price manipulation would look like.
