The whole point of capital markets is that companies can raise cash by creating shares, and then use that cash to make money for shareholders. Naked short selli

The whole point of capital markets is that companies can raise cash by creating shares, and then use that cash to make money for shareholders. Naked short selling subverts this by letting someone else issue shares of the company and use the cash their own way. Companies have to have a near monopoly on creating their own shares, or the whole system falls down. If naked short selling is restricted to short term trades in special circumstances (as it is now), the system still functions and market makers have a little more freedom to create liquidity (whether the liquidity is worth the other issues is a question I won't try to answer here). Allow unrestricted naked shorting though, and the next time you buy shares in msft, it could turn out that your investment depends on msft dividends paid by a hedge fund betting on cattle futures more than it depends on microsoft's financial performance.