Affirmative Determination (Short Stock Locates)

SageTrader has obligations under SEC Regulation SHO and Rule 204 and 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.

SageTrader maintains fully disclosed clearing arrangements with Merrill Lynch Professional Clearing Corp. 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. Third party locates are not acceptable.

Types of Locates:

Locates, including pre-borrows, must always be obtained from the clearing firm where the trade will settle. There are several methods to obtain a locate:

Easy to Borrow List

Our clearing firm generates a daily Easy to Borrow List that is an indication that they have pre-confirmed a limited availability of shares. The Easy to Borrow List is not for an unlimited number of shares but generally for 5,000 to 10,000 shares. For this reason it is sometimes referred to as a "day trading list."

When using an Easy to Borrow List, each SageTrader customer must use only the List produced 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 usually is uploaded daily into 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 you are going to short is greater than the maximum quantity on the Easy to Borrow List, then you must get a specific locate. The specific locates must be with the Stock Loan Desk of the clearing firm where your trades settle. Call the clearing firm Stock Loan Desk and ask for an affirmative determination or locate as a SageTrader customer and confirm the following: stock (symbol), number of shares, name of the clerk and whether a locate or pre-borrow. Then, provide your email address and ask the clerk on the Stock Loan Desk to send you confirmation of the locate or preborrow. However, please note that the clerk is often too busy to send the requested email.

When the Stock Loan Desk provides email confirmations of your specific locates not on an Easy to Borrow List, forward these emails daily to Locates@sagetrader.com. If the Stock Loan Desk does not provide an email confirmation, write down or otherwise retain the locate information as defined above and email this information daily to Locates@sagetrader.com

The Stock Loan Desk will determine if you will be provided a locate or pre-borrow 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 still need to get a short stock locates for any shares that are short intraday. These locates should be for greater than or equal to the largest net open intraday short positions in the customer's account.

SageTrader Central Locates File

All customers must send daily information for all their locates by email promptly to: Locates@sagetrader.com.

Your emails can simply forward locate emails and spreadsheets received from the Stock Loan Desk of the clearing firm where your trades settle and/or your emails can forward specific locate information that you wrote down as obtained from your clearing firm.

At a minimum, your email should include the following details:

If you have issues or problems in sending your daily locate information, please call SageTrader's Operations Desk at 415-293-3901.

E-Locate from MLX

SageTrader's customers can also access the MLX stock loan Securities Lending Link from Merrill Lynch Professional Clearing at https://www-s.baml.ml.com/StockLoan/Net/StockLoanMain.aspx. Customers will need to request a MLX login and certificate to gain entry into the online Securities Lending link from SageTrader's Operations Desk through Andy Capote at 415-293-3901.

The Securities Lending link provided by MLX online can be used by SageTrader's customers clearing at Merrill Lynch Pro. Customers are able to e-locate symbols from the hard to borrow list and keep a record of what was located on the system. It enables traders to see the availability of the symbols and establish a recorded locate. SageTrader's traders can then send an email to Locates@sagetrader.com using the reference number and information provided to them by MLX online.

Clearing Firm Stock Loan Locate Desks

SageTrader Documentation/Retention of Locates

SageTrader's clearing firm retain their daily Easy to Borrow Lists and SageTrader also maintains a copy of the Merrill List in its proprietary Sage Data System. If a List for a prior day is needed for review, please check your clearing firm's web site or contact the Stock Loan Desk for access to a copy.

The Sage Data System produces a daily Customers Not Easy to Borrow Short Sale Report that is sent to the Locates Monitor on the Operations Desk for review. This Report is also archived and retrievable for prior days.

The results of the daily review by the Locates Monitor indicating 100% compliance or noting issues are then sent by email to the Chief Compliance Officer and others at the Firm and include the daily Report.

SageTrader Corrections of Missing Locates

In the event SageTrader's Operations Desk finds missing locates through its daily review and/or by clearing firm notice, the Operations Desk will attempt to contact the customer and will obtain locates from the applicable clearing firms. If a required locate is not immediately available, the Operations Desk may close out the trade and inform the customer by email of its corrective actions.

Trader Sanctions for Missing Locates or Locates Information

When a customer whose trades do not qualify for a locate exemption is found not obtaining required locates for short sales of stocks and/or not sending daily locate information to the Central Locates File, the Firm will consider and decide whether or not to impose the following sanctions for multiple and/or significant violations: