Locates and Easy-to-Borrow Lists
Before you can sell a stock short in the US, your broker has to be able to actually deliver it — the locate requirement and the easy-to-borrow list are how that gets checked, most of the time invisibly.
Prerequisites: How Short Selling Works
US rules require a broker to have "reasonable grounds to believe" that a stock can be borrowed and delivered before it accepts a short sale order — this is the locate requirement under Regulation SHO, and it exists to prevent naked shorting, where a trader sells shares that were never actually borrowed and may never be delivered. In practice, almost no trader experiences this as a manual step, because of how brokers handle the overwhelming majority of names.
For large, liquid stocks where borrowable supply is abundant, brokers maintain an easy-to-borrow (ETB) list, refreshed at least daily, of names that are pre-approved — a short sale in one of these names doesn't require an individual locate call, the broker has already satisfied the requirement in bulk for the whole list. For anything not on the ETB list, the trader or the broker's desk must obtain an affirmative, individual locate before the order can go out, confirming a specific lender has agreed to make shares available.
Worked example
A trader wants to short two stocks the same morning:
| Stock | Borrow situation | Process |
|---|---|---|
| Large liquid index constituent | On ETB list | Order routes immediately, no separate locate call needed |
| Small-cap, high short interest | Not on ETB list | Desk must call around to lenders, confirm availability, obtain an explicit locate before the order can be placed |
The first trade executes in the same instant as any other order. The second may take minutes to hours, and if no lender will commit shares, the short simply cannot be placed that day regardless of how convinced the trader is of the thesis — the locate requirement is a hard gate, not a formality.
The easy-to-borrow list is a bulk pre-clearance mechanism, not an exemption from the locate rule — brokers are still satisfying Regulation SHO's requirement, just for many names at once instead of one order at a time.
A locate confirms availability at the moment it's granted, but it doesn't guarantee the shares will still be there when the trade actually settles days later, which is one reason hard-to-borrow names can still be recalled or bought in even after a short is legitimately opened.
A locate is not a reservation that lasts indefinitely — it typically covers only the specific order it was obtained for, on that trading day. A trader who wants to add to a short position the next day, even in the same stock, generally needs a fresh locate, and there's no guarantee the same lender (or any lender) will have supply available a second time.
Retail brokers usually handle all of this behind the scenes, showing the customer nothing more than whether a stock is currently shortable, but institutional desks trading in size routinely see the mechanics directly, since a large order in a name with thin lendable supply can require the desk to piece together a locate from multiple lenders before the full size can be executed.
Further reading
- SEC, Regulation SHO Rule 203(b)