There are heaps of examples of this playing out but the poster-boy is Lake Resources (LKE).
It was basically a massive promotional scam and got super frothy in the huge lithium run. It got added to the ASX 200 at the June 2022 rebalance, and once institutions were forced to own shares, the short interest mooned because everyone with a brain was clamouring to short it (shown in the chart below). The stock subsequently sold off as the lithium market turned, the CEO/MD quit and sold all his shares, the project kept delaying their DFS studies, and retail released they were being taken for a ride. Then the stock fell out of the 200 at the September 2023 rebalance, which was announced on 1 September but became effective at 18 September. You can see what happened in the chart: short closed out in a big chunk (they were forced to) and whilst some non-index hugging instos remained on the register (and thus could continue lending their shares out), gradually they all exited and the stock was left almost solely in the hands of retail investors who cannot lend out their shares. Short interest today is 0.6%.
To be clear: not comparing PNV to LKE in any way (Polynovo is a genuine business with a brilliant product), just providing evidence of what I wrote above. Cheers
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