September 17, 2009
The problem isn't shorting. Shorting creates an equilibrium in the market, counterbalancing buyer exuberance.
Why modify that balance?
If the concern is when a stock gets knocked down over X% (where X can be negotiated) and people continue to short the stock pushing it down lower, then set a rule ONLY for those cases where a stock is knocked down X% over a day or week. It's very easy to implement the stock's "Short Restriction Code", as I'll call it, where "Y"="Short Restrictions in Place" and "N"="No Short Restrictions in Place", can be sent right along with the stock quote feed by exchanges.
Don't limit the shorting counterbalance against exuberant long buyers who can send a stock up so high that you've actually created bubble scenarios by restricting the ease of shorting that currently exists.