Locates
Locates are documented checks that a broker-dealer has reasonable grounds to believe shares can be borrowed and delivered before a short sale.
Locates are documented checks used before a stock Short Sale to determine whether shares can reasonably be borrowed and delivered by the required settlement date. In U.S. equity markets, the locate requirement is part of SEC Regulation SHO.
A locate is not the same as owning the shares, completing a borrow, or ensuring that shares will remain available later. It is an evidence step that helps reduce delivery failures and keeps the short-sale order tied to a borrow source, broker process, and compliance record. This page is educational and is not legal, compliance, or trading advice.
Key Takeaways
- A locate is a pre-trade borrow-availability check for a short sale.
- SEC Regulation SHO generally requires a broker-dealer to have reasonable grounds to believe the equity security can be borrowed and delivered before effecting a short-sale order.
- A locate should be documented; it is not just a trader’s market opinion.
- A locate does not eliminate Borrow Fee, recall, buy-in, margin, or settlement risk.
- Locate evidence matters most for hard-to-borrow securities, crowded shorts, thinly traded stocks, and short sales near settlement or corporate-action events.
How A Locate Works
The exact workflow depends on the broker, security, account, and market, but the finance logic is consistent: the order needs evidence that delivery is reasonably supportable.
| Step | What happens | Evidence to review |
|---|---|---|
| Short-sale request | A trader or system identifies an order as a short sale | Order ticket, account status, and long/short marking |
| Borrow-source check | The broker checks internal inventory, lending sources, or approved availability systems | Locate ID, source type, quantity, timestamp, and security identifier |
| Locate decision | The broker has reasonable grounds to believe shares can be borrowed and delivered | Approval, exception code, manual note, or automated locate record |
| Execution | The short sale is routed or executed if order, margin, and rule checks pass | Execution report, route, price, and filled quantity |
| Settlement review | The position must still deliver or be closed out under applicable rules | Borrow status, fail-to-deliver record, buy-in notice, or close-out action |
Locate vs Borrow vs Short Position
| Concept | What it means | Why the distinction matters |
|---|---|---|
| Locate | Pre-trade evidence that shares can reasonably be borrowed and delivered | Supports order entry and compliance evidence |
| Borrow | Actual securities-lending arrangement or source used to deliver shares | Affects borrow fee, recall risk, and settlement |
| Short Position | Open exposure after the short sale or equivalent trade | Creates price, margin, borrow, and covering risk |
| Fail to deliver | Delivery does not occur when required | May trigger close-out or other rule-driven consequences |
Simple Example
A trader wants to sell short 2,000 shares of a stock. Before the order is effected, the broker’s system checks approved borrow sources and records a locate for 2,000 shares with a timestamp and security identifier. The order can then proceed if other checks, such as account margin and order routing, also pass.
If the stock later becomes hard to borrow, the earlier locate does not by itself solve the problem. The position may face higher borrow costs, recall pressure, forced buy-in risk, or a need to Cover sooner than planned.
Common Mistakes
- Treating a locate as a promise that borrow will remain available for the full holding period.
- Confusing a locate with a completed securities borrow.
- Ignoring the timestamp, quantity, security identifier, and source behind the locate.
- Assuming an easy-to-borrow status applies to every account, broker, or trade size.
- Treating locate compliance as the only short-selling risk while ignoring margin, liquidity, and price movement.
- Describing Naked Short Selling too broadly without checking the locate, delivery, market-maker, and close-out facts.
How To Evaluate Locate Evidence
Locate evidence should be specific enough to tie the short-sale order to the security, quantity, time, and borrow source used by the broker.
| Question | Why it matters |
|---|---|
| Which security and identifier were checked? | Similar tickers, share classes, or corporate actions can create evidence errors |
| What quantity was located? | A partial locate may not support the full order size |
| When was the locate recorded? | Borrow availability can change quickly |
| Was the security easy or hard to borrow? | Hard-to-borrow status raises fee, recall, and buy-in risk |
| Did the order fill match the locate evidence? | Overfills or later fills may need separate review |
| What happened at settlement? | Locate evidence does not replace delivery, close-out, or fail-to-deliver review |
Public Source Checks
These public sources explain the U.S. short-sale locate and short-position context at a high level. They do not determine whether a specific order, locate record, broker exception, settlement issue, or compliance conclusion is correct.
Related Terms
- Short Selling: Selling borrowed securities to create downside exposure.
- Short Sale: The transaction that sells borrowed securities.
- Regulation SHO: SEC short-sale rule framework covering locate, marking, price-test, and close-out requirements.
- Naked Short Selling: Short-sale activity without arranging borrow in time for delivery.
- Borrow Fee: The cost of borrowing securities for a short sale.
- Market Maker: Dealer that may have special market-making obligations and rule context.