In Ritter's case, the company sold less than a quarter of its total shares in its IPO, and its current stockholders didn't have extra shares to lend. More shares probably wouldn't be available before October, because U.S. securities law requires companies to wait six months after their IPO before selling more stock to the public. That's known as a lockup regulation. Short-selling investors complain that the shortage of shares to borrow is often greatest for newly public Internet and technology companies that have enjoyed hefty stock price increases. Asensio said he's frequently attempted to short high-flying tech firms, but either hasn't been able to borrow shares or hasn't been able to get as many as he wanted.
Shorts blame the share shortage on a couple of factors.
The first factor, as noted by Ritter, is that recently public companies usually only have a small fraction of total shares in public hands. Although lenders receive a fee of a few cents a share for stock they let short-sellers borrow, many institutional investors opt to passon the extra cash. Like most large institutional investors, its portfolio includes a number of recently public companies. Even when shares are available, many would-be shorts are scared off by the prospect of massive losses. To make matters worse, shorts are sometimes forced to give back shares they borrowed earlier than they anticipated, and frequently before a stock starts to decline.