You guys, I am not trying to fear-monger or deceive. Draxter, the article from investopedia is how things should be for simplicity's sake. However, in practice, this is not what occurs. Naked shorting has become very widespread and has become very hard to police. I posted this article a while ago and if you guys are really interested in understanding what all this talk is about, give it a read--especially the pages that I highlight. It is laid out in painful black and white.
I am talking about high-frequency trading and traders keeping one step ahead of regulators through the clearing process. It is akin to theft of credit and it also undermines proxy votes. It is how companies below the border see their entire float traded in spans of a couple days. It is difficult to shine a light on but the Overstock.com legal scrap really did.