A Locate Requirement is a regulatory prerequisite demanding that a seller confirm the availability of securities for borrowing prior to executing a short sale. This rule aims to prevent unsettled short positions.
Mechanism
In crypto institutional short selling, this analogue requires verifying that a sufficient quantity of the target digital asset can be borrowed and delivered for settlement. This involves checking with lending desks, decentralized finance (DeFi) lending protocols, or prime brokers, often through automated systems that confirm availability and reserve assets for the short position.
Methodology
This requirement acts as a control to prevent “naked” short selling, thereby preserving market integrity and reducing settlement failures. For institutional crypto trading, it integrates into pre-trade compliance frameworks, ensuring that short positions are adequately collateralized and that necessary assets are secured for delivery, managing counterparty risk and operational best practices.
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