General Discussion, page-497

TLDR version:

• Investment funds will often lend shares to short traders as a way to generate income from their investment while it is tied up in a stock.
• Short traders can, and frequently do cause significant short term changes in the price of a stock.
• There are many tactics used by short traders at different stages of the campaign.
• Short term share price movements don't damage the fund's long term investment.
• If the company is sound, short trading has no effect on the company's operations.
• Short traders can create valuable opportunities for other traders who don't have access to short trading themselves.

The long story:
It's possible for an investment fund to still be involved in short trading as a lender. If the fund is confident in the underlying strength of the business, lending shares to short traders is a great way to manufacture some income from what is otherwise "sleeping money". The fund gets a deposit that they can use for financial benefit, and they get interest on the value of the shares on loan. There is very little downside risk for the lender. The only thing the lender loses is the right to vote on corporate resolutions requiring shareholder approval. So as long as the long term value of the shares will recover once the shares are returned, the fund is laughing.

Short traders will want to achieve the following:

1. The highest possible price when they sell the shares they have borrowed. This is important to cover the deposit paid and any further financial obligations to the lender.
2. The lowest possible price when they buy the shares back to return to the lender.
3. The shortest possible time between selling and buying back, to minimise the cost of the transaction.

Short traders can use any (or all) of the following tactics to achieve the best possible selling price:

1. Controlled selling to avoid pushing down the price before the short position is established.
2. Promoting the company positively through various channels to help offset the effect of their selling activity.
3. Spreading positive rumours about the company (illegal).

They can use these tactics to ensure the lowest possible price when buying the shares back:

1. Finishing with a bang. If the short trader can borrow enough shares, or if there are enough of them active in the market, they can drive the share price down through sheer volume. This will often cause enough concern amongst general traders to generate additional downward pressure.
2. Promote the company negatively through social media, forums, mailing lists, and mainstream media articles. If the trader has already created downward movement through selling activity, this will reinforce negative concerns amongst general traders.
3. Spread negative rumours about the company (illegal).
4. Controlled buying to avoid creating upward pressure.