Locate (finance)

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In finance, a locate refers to an approval from a broker that needs to be obtained prior to effecting a short sale in any equity security, i.e. to "locate" securities available for borrowing.

This activity was introduced by Regulation SHO rule announced by the SEC in July 2004. The rule includes a uniform "locate" requirement for short sales in all equity securities and a requirement for the firms to document what they have done to locate the securities. Regardless of whether the seller’s short position may be closed out by purchasing securities the same day, firms will need to document that they have borrowed or arranged to borrow the stock, or they have reasonable grounds to believe they can borrow the stock and deliver on delivery date.
Market makers effecting short sales in connection with bona fide market making are exempt from this requirement. In addition broker-dealers can rely on "easy-to-borrow" lists to satisfy the "reasonable grounds" requirement, provided the information used to generate such lists is less than 24 hours old and the securities included on the list are so readily available that it is unlikely the seller will fail to deliver securities on settlement date, but may not rely on the fact that a security is not on a “hard-to-borrow” list to satisfy the test.

Each short sale must be matched to a corresponding locate. However, it is not necessary to secure a locate in the same broker - if a short sale purchaser can prove a secured locate at any broker that is sufficient to provide validity of a short sales transaction.