Options are another matter (derivatives). Don't confuse options with short selling.
Remember, you, the short seller, are selling shares that have to be borrowed because you don't own any. The buyer (the other side of your transaction) is suppose to receive the shares you borrowed and sold to him. The broker must have or obtain those shares to lend you (and transfer to the buyer). If they don't, they have to buy real shares by the settlement date. If they never buy the real shares, then they have essentially counterfeited shares for you to borrow (and the buyer to buy). This is called failure-to-deliver. Since January there is a list of some delivery failures as a result of SEC regulation SHO. Keep reading the material on:
http://www.ncans.net/ and
http://www.ncans.net/links.htm
The bottom line is: some hedge funds and some institutional brokers are raping investors by selling nonexistent stocks (never delivering those stocks). How long would you get away with selling cars that you never deliver? This is only possible because the industry and SEC do not disclose the computer entries showing the whole failure-to-deliver problem. (And regulation SHO is not being enforced either).