What happens when a stock is shorted? The one shorting borrows money to secure the shares so he now is obligated to pay back the shares to the bank who bought the shares to lend to the borrower using the shares as collateral for the loan.
The shares are then removed from the treasury because the bank owns them and the company now has the capital to issue more shares and should they be trading less then book value the company will hold until a forward stock split is performed and the shares are then sold.
Now lets not forget the shorted stock that was never marked as treasury stock and value was determined at the time when the stock was borrowed not to mention that when repurchased and returned they are can be cancelled or held as share holders credit on the books or capital surplus not yet paid out or put into circulation but held in trust at the bank until the bank can dispose of the stock to remove the debt from its own books.
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