October 14, 2016
Rules should be changed so that brokers must not allow a short sale if their customer has not borrowed enough stock to cover the short sale. If the short seller has not borrowed shares to cover sale it results in an increase in shares outstanding from the viewpoint of the market. More stock created by short sale pushes the price of the stock lower and is the definition of market manipulation. This puts illegal economic power in the hands of the short sellers which allows them to manipulate the price of the shares they are selling. The policy of allowing short sellers to cover later is a violation of the purpose of the Securities and Exchange Commission.
Also any entity acquiring 5% or more of the stock of a company must report it. We need legislation requiring any entity holding a short position of 5% or more of a stock also report it and explain their purpose as holders of 5% or more of a stock must do. The purpose of some short sellers is to deny the target company access to capital because the stock price is so low and the company is driven into bankruptcy.