Affirmative Determination (Short Stock Locate)
SageTrader, LLC (“SAGE”) has obligations under SEC Regulation SHO and Rule 204 as well as under FINRA regulation and enforcement for the affirmative determination of the availability of stock to borrow to cover a short sale by its customers when their trades do not qualify for a locate exemption. All short sales, whether part of a day-trading strategy, a hedge strategy or a short strategy require a "locate" affirming the availability of stock to be borrowed prior to entering the trade.
Specific to Broker Dealer clients; pursuant to Rule 203(b)(2)(i) of Regulation SHO, registered Broker Dealer subscribers are responsible for complying with the locate requirements of Rule 203(b)(1) of Regulation SHO. Sage does not borrow or “locate” securities with respect to Broker Dealer client orders.
SageTrader maintains fully disclosed clearing arrangements with several clearing agents. The short sale locate requirement must meet the availability standards particular to each clearing firm. This means establishing a locate (including a pre-borrow) with the clearing firm where your account is cleared or from an approved third party locate acceptable to the firm where your account is cleared.
Orders which do not affirm an appropriate locate may be rejected by the Firm’s systems.
Types of Locates:
There are several methods to obtain a locate:
Easy to Borrow List
In general clearing firms generate a daily Easy to Borrow List which indicates the clearing firm has pre-confirmed shares to borrow. The Easy to Borrow List is generally for a limited number of shares at the clearing firm’s discretion.
When using an Easy to Borrow List, SageTrader customer must use only the List authorized by the clearing firm where their trades settle. The Easy to Borrow List can only be used for the maximum share amount authorized by the clearing firm for that day.
The daily Easy to Borrow List is generally uploaded to the trading platform used by each SageTrader customer to automate the checking of stocks and quantities on the list before transmitting an order to sell short. However, this process only covers stocks on the list and does not include stocks that are not Easy to Borrow and therefore not on the list.
Specific Stock and Share Locates Including Pre-Borrows
If a stock is not on the Easy to Borrow List provided by the clearing firm where your trades settle or the quantity of shares being requested is greater than the maximum quantity on the Easy to Borrow List, then a specific locate is required. The specific locates must be with the Stock Loan Desk of the clearing firm (or their authorized designee) where your trades settle.
The Stock Loan Desk of the carrying clearing firm will determine if a locate or pre-borrow is required, depending on your request and the stock loan conditions at that time.
Day Trading
SageTrader customers that essentially day trade and are flat at the end of each day are still required to get a short stock locates for any orders that will bring a position below zero (i.e. create a short) These locates should be for greater than or equal to the largest net open intraday short positions in the customer's account in addition to outstanding short sale orders pending.
SageTrader Locates Support
Please call SageTrader's Operations Desk at 855-809-5941 or your SageTrader service representative for any specific locate issues or questions
SageTrader Documentation/Retention of Locates
SageTrader's clearing firms retain their daily Easy to Borrow Lists, and SageTrader also receives daily information on specific stock and share locates by customers from clearing firms and approved third parties. If a list for a prior day is needed for review, please check your clearing firm's web site or contact SageTrader's Operations Desk.
Trader Sanctions for Failures to Locate
When a customer whose trades are required to establish a locate is found not obtaining required locates for short sales and/or not sending daily locate information to the Firm’s or the clearing agent’s systems the Firm will consider imposing the actions or sanctions listed below for multiple and/or significant violations.
Where applicable, potential violations are documented, and the client is contacted by the Firm for an explanation to the validity of the exception(s). Where applicable, the "reason" for and details of an exception are reviewed for validity. Exceptions deemed as violative will be recorded with all pertinent information inclusive of but not limited to the Firm’s response to the client and imposed sanction if any.
Actions or sanctions which SageTrader may impose at its sole discretion, for each consecutive violation are listed below. Violations within a rolling 6-month period are considered multiple violations.
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Client must “Buy In” the shares when notified the shares cannot be located.
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Issuance of a letter of warning including Stock Locate Disclosure which the customer must review and sign acknowledging they understand the requirements and actions SageTrader will take on violations going forward.
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Issuance of second letter of warning issued followed by interview with Principal of the firm discussing clients understanding of stock locate requirements.
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Client may be restricted to sell short only securities on the "Easy to Borrow" list for 30 days or more.
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Client sales may be restricted to long only for 30 days and only re-enabled for short selling after approval from SAGE Management.
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Client may be restricted to position closing only trades until client is flat in which the cash will be wired to his bank and the account closed.
September 2019