Business Glossary

selling short stock actually owned by the seller but held in safekeeping, called the box in Wall Street jargon. The motive for the practice, which assumes that the securities needed to cover are borrowed as with any short sale, may be simply inaccessibility of the box or that the seller does not wish to disclose ownership. The main motive is to protect a capital gain in the shares that are owned, while deferring a long-term gain into another tax year. This technique was curtailed as a way to defer taxes by the taxpayer relief act of 1997. Under the law, shorting against the box after June 8, 1997 is considered a "constructive sale," resulting in capital gains liability.

Commodities: contract in which a trader has agreed to sell a commodity at a future date for a specific price.
Stocks: stock shares that an individual has sold short (by delivery of borrowed certificates) and has not covered as of a particular date. See also cover; selling short.

Securities and Exchange Commission rule requiring that short sales be made only in a rising market; also called plus tick rule. A short sale can be transacted only under these conditions: (1) if the last sale was at a higher price than the sale preceding it (called an uptick or plus tick); (2) if the last sale price is unchanged but higher than the last preceding different sale (called a zero-plus tick). The so-called "tick test" is referenced to either the last transaction price reported pursuant to an effective transaction reporting plan or on a particular exchange. Both the New York and American stock exchanges have elected to use the prices of trades on their own floors for the tick test. Since the advent of decimal trading in mid-2000, the Securities and Exchange Commission has been reviewing its short-sale rule. Decimal pricing may result in exchanges setting the minimum price variation-the smallest amount by which the price of a security can change-which today is ($.0625 = 1/16) for most equity securities, at one cent or potentially even lower. The short sale rule was designed to prevent abuses perpetuated by so-called pool operators, who would drive down the price of a stock by heavy short selling, then pick up the shares for a large profit. Regulation SHO, effective January 3, 2005, updated several key provisions of the shortsale rule. It established a one-year pilot program temporarily suspending the tick test in a list of designated companies starting May 2, 2005, with the purpose of determining if the short sale regulation should be permanently removed.