Locate requirement
The locate requirement is an rule requiring a to have a reasonable basis to believe shares can actually be borrowed before allowing a client to sell a short. Before executing a short sale, the has to confirm the shares are available somewhere, either on its own list of shares that are easy to borrow, or by directly arranging to borrow them from another lender, so that the trade can genuinely be settled on time rather than simply being promised on paper.
This requirement exists specifically to prevent , where a trader sells shares short without ever actually borrowing them, leaving a real risk that the shares cannot be delivered when the trade needs to settle. By forcing the locate to happen before the sale, rather than after, the rule aims to keep tied to a real, identifiable supply of borrowable shares rather than an unlimited or fictional one.
In practice, maintain lists of that are easy to borrow, letting most short sale orders in liquid names go through instantly because the already has a standing arrangement covering that supply. For a that is , the has to perform an individual locate for that specific order, which can take longer or fail entirely if no shares are actually available, in which case the short sale simply cannot go through no matter how much the client is willing to pay in borrow fees.