How TradeZero’s Single Use Locates Help You Stay Compliant and Cost-Effective
September 12, 2024
Now available at TradeZero: Single Use Locates For Short-Selling
Single Use (SU) Locates, are newly introduced Locates for Regulation SHO threshold securities. Offering a more affordable alternative to Pre-Borrows (PB), they are ideal for traders looking to minimize costs while staying fully compliant with SEC regulations.
While Pre-Borrows are reusable throughout the day, Single Use Locates are designed for single use, which means they’re typically cheaper. It’s the perfect solution for those one-time trades with Regulation SHO threshold securities.
Using Single Use Locates is simple—request a locate as you normally would, Single Use Locates will be automatically prioritized by our system, accept the Single Use Locate, and proceed with your short sale. It’s quick, cost-efficient, and SEC-compliant.
Remember, Single Use Locates are one-time use and cannot be reused. However, if not used, they can be credited back. You can use both Single Use and Pre-Borrow Locates on the same stock, but the system will automatically serve the Single Use Locates first. If Single Use Locates are unavailable, you will then be offered Pre-Borrow Locates. While regular Locates (L) can be credited back if they are not used, once Pre-Borrow and Single Use Locates are issued, they cannot be credited back, so make sure you need the full amount before requesting these Locates.
Here are some use-case examples:
Example 1: Single Use Locates
Scenario: You locate 100 shares of a Regulation SHO threshold security using an Single Use (SU) Locate and short all 100 shares.
Outcome: After shorting the 100 shares, the Single Use Locate is fully utilized and cannot be reused. Any attempt to short additional shares without a new locate will be rejected.
Example 2: Switching from Single Use to Pre-Borrow Locate
Scenario: You locate 100 shares of a Regulation SHO threshold security using a Single Use Locate, short all 100 shares, and then request a Pre-Borrow Locate to short additional shares.
Outcome: After using up the Single Use Locate, the system allows you to request a Pre-Borrow Locate. You can continue shorting with a Pre-Borrow Locate, maintaining your trading strategy.
Example 3: Partial Short with Single Use Locate
Scenario: You locate 100 shares of a Regulation SHO threshold security using a Single Use Locate, short 50 shares, and later decide to short the remaining 50 shares.
Outcome: You can short the remaining 50 shares later in the day, but once all 100 shares are shorted, the Single Use Locate is exhausted and cannot be reused.
Example 4: Attempting Additional Shorting After Single Use Locate is Used
Scenario: You locate 100 shares of a Regulation SHO threshold security with an Single Use Locate, short all 100 shares, and try to short more shares without a new locate.
Outcome: The system rejects the additional short attempt, informing you that Single Use Locates can only be used once. You must request a new locate to short more shares.
Here are some FAQs that may be of further help
- What is a Reg SHO threshold security?
Regulation SHO is a regulation established by the U.S. Securities and Exchange Commission (SEC) to address issues related to short selling, specifically to prevent abusive practices such as "naked short selling," where traders short a stock without first ensuring that the shares can be borrowed.
Regulation SHO Threshold Securities are stocks that have a significant number of unsettled trades —known as "fails to deliver"— over a consecutive five-day period. These securities are placed on the SEC’s threshold list and are subject to stricter SEC regulations to prevent market manipulation and ensure proper borrowing practices.
- Can I use both Single Use and Pre-Borrow Locates on the same Regulation SHO threshold security?
Yes, but the system will automatically serve the Single Use (SU) Locate first. If Single Use Locates are unavailable, you will then be offered Pre-Borrow Locates.
- Can I manually choose between Single Use and Pre-Borrow Locates if both are available?
No, the system automatically selects the Single Use Locate first. Pre-Borrow Locates are only offered if Single Use Locates are unavailable.
- What if I want to cancel a Single Use Locate?
While regular Locates (L) can be credited back if they are not used, once Pre-Borrow and Single Use Locates are issued, they cannot be credited back, so make sure you need the full amount before requesting these Locates.
- Is there any change in how regular Locates or Pre-Borrow Locates are used?
No, both regular Locates and Pre-Borrow Locates will continue to work as before, allowing multiple shorting opportunities throughout the day, making them suitable for non-threshold and threshold stocks, respectively.
Single Use Locates will be available on TradeZero's platforms in late October/early November. Be ready to leverage this new tool to enhance your trading strategy and stay compliant with industry regulations.
Disclaimer
TradeZero makes no representations or warranties with respect to the accuracy of this content or information available through any referenced or linked third party sites. This content has been made available for informational and educational purposes only and should not be considered trading or investment advice or a recommendation as to any securities.
Trading securities can involve high risk and potential loss of funds. Furthermore, trading on margin is for experienced investors and traders only as the amount you may lose can be greater than your initial investment. Likewise, short selling as a securities trading strategy is extremely risky and can lead to potentially unlimited losses. Additionally, stop orders tend to suffer greater slippage in volatile markets. Options trading is not suitable for all investors as it can involve risk that may expose investors to significant losses. Please read the Characteristics and Risk of Standardized Options, also known as the options disclosure document (ODD) at https://www.theocc.com/Company-Information/Documents-and-Archives/Options-Disclosure-Document before deciding to engage in options trading.
TradeZero provides self-directed brokerage accounts to customers through its operating affiliates: TradeZero America, Inc., a United States broker dealer, registered with the Securities and Exchange Commission (SEC) and member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC); TradeZero, Inc., a Bahamian broker dealer, registered with the Securities Commission of the Bahamas; and TradeZero Canada Securities ULC, a Canadian broker dealer, member Firm of Canadian Industry Regulatory Organization (CIRO) and a Member of Canadian Investor Protection Fund (CIPF).