The government sometimes taps into neo-populist sentiments. Anti-Wall Street and anti-speculation appeals are in that vein. The latest is this anti-naked short selling appeal. If a company doesn't want its shares sold short without first having been borrowed or enough companies want that, they can either devise a restriction on that stock or they can find an exchange that makes that a facet of listing. The companies and exchanges have a right to do such things. The SEC has no such right. It hasn't any right to regulate who can start up exchanges either, and the whole system would work better if the SEC were eliminated. The accounting might actually improve. As it stands, it's under the SEC's umbrella.

In any event, the SEC cannot stop short selling except by even more drastic measures that include controlling the options markets. Furthermore there are always the overseas markets. Then there are ETFs that contain stocks one may wish to short. A short sale can be effected by alternative means. A stock purchase is equivalent to writing a put, buying a call, and lending. A short sale is equivalent to buying a put, writing a call, and borrowing.

The whole thing is a joke, strictly for appearances. The amount of outright sales dwarfs short selling, and no short selling can drive down the price in and of itself unless the buyers don't step up to the plate, and they refrain from that when they too perceive that bad news lies ahead. Even without short selling, the prices will fall if the cash flows are expected to deline. In fact, short selling, if anything, dampens volatility because it prevents prices from getting too high. And after they fall, the covering of those short sales provides a floor to the price.