What/who determines how many shares of a stock can be shorted? Market makers? Who tells them what to do?

Question

What/who determines how many shares of a stock can be shorted? Market makers? Who tells them what to do?

Answer 1

The SEC requires that a broker identify the shares to be delivered before sending a short order to the exchange.

Customers generally sign a hypothication agreement as part of the standard margin account agreement.  This allows the broker to loan shares held long for one margin customer to another customer.  My broker handles my shorts this way for no additional charge beyond the commission.  If no shares are available this way I have to call them and arrange for them to borrow from outside.  This may be from a university endowment fund looking for extra income.  The broker might have to pay 6 - 10% rental fee to the outside lender, for which I would have to reimburse my broker.  The difference in fee depends on the demand for shares of this company to short.

Answer 2

Market Makers and/or specialist have nothing to do with what can be or can not be shorted.

The market basically determines how many shares can be shorted.  

In order to short, the brokerage firm must be able to borrow the stock, if the stock can not be borrowed then the brokerage firm can not give permission to short the stock

So it all depends on how many shares are available to be lent to borrowers.  This is determined by each brokerage firm who has customer who have signed a loan agreement or who have margin accounts.  None of this information is available to the public nor is it requested by regulators.

Brokerage firms are governed by the rules & regulatons of the SEC, FINRA, & the Exchanges which all address short selling.