no, it's not like a secondary offering, you don't create more shares when you short
when you short a security your brokerage firm has to "borrow" those shares from someone else's long position... there are only so many shares available... also, a person who owns the stock can specify that his shares are not to be lent out for shorting
"naked" shorting is pure manipulation... this occurs when shares that were never borrowed are sold illicitly in the market. The seller collects money for the sale but no shares are delivered, since, the current rules do not require delivery to be made... there are new proposals to include a rule that requires the delivery of the shares by the settlement date... the naked shorting problem is mostly confined to very thinly traded stocks, these thinly traded stocks can be easily manipulated, that's why it shouldn't be allowed
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