Can someone please explain to me the rules on shorting NASDAQ stocks? For example can you hit the bids, if the last trade was a buy on the offer, or do you always have to place your order above the best bid? Thanks.
The official rules are interesting (i.e., can't short on an up-bid, etc.) but alot of it varies according to your broker's software, and how you route your order. For instance Datek, ignoring common sense, will not let you even place a short order (of any kind) in the evening if the stock closed the regular trading session with a downtick. Huh?. CyberTrader will only accept your order is the up-pointing green arrow is displayed. If, instead, it's the down-pointing red arrow they'll reject your order forcing you to try and try again. I think some IB subscribers here mentioned that IB will accept your order, even at the bid, regardless of whether it's an up-bid or down-bid, and sit on it until the price drops at least a penny, then try to fill it (which would require the necessary up-bid). If your broker lets it thru their filter, ARCA will accept orders below the bid, sitting on it until the bid drops below your price and then tries to fill it. You'd think this would all be universal, black 'n white, but it's far from it. Good luck reading the official Nasdaq rules and trying to make sense of them.
Here's a recent thread discussing your topic, in particular how it works from a practical standpoint. http://www.elitetrader.com/vb/showthread.php?s=&threadid=2787
The rules allow shorting on an uptick bid from within a brokerage or MM firm. As a customer of a brokerage, you put the legal responsibility in their hands when placing the order and marking it "short" so it is in their (brokers) hands.