rules for shortingHope this helps.
In the United States, the Federal Reserve establishes the criteria under which stocks can be shorted. They actually publish a list of stocks which are approved for shorting. Under their rules, most low-priced and Non-NASDAQ OTC stocks are ineligible. Therefore, individuals are not allowed to short many stocks traded in the US. Additionally, for an individual to short a stock they have to borrow it first. Stock can only be borrowed which has already been hypothicated (i.e., is in a margin account). So, although a stock may be approved for shorting, there may actually be none available to be shorted at any given time. Stock that is not on the Federal Reserve list cannot be in a margin account, and stock not in a margin account cannot be loaned and therefore cannot be shorted against, regardless of what people on internet message boards say. One of the many misconceptions/lies that are popular in cyberspace.
In Canada, the rules are a little different. There, the Exchanges determine which stocks are allowed to be shorted. The rules are a little lengthy, but in a nutshell they are generally determined by price. They allow shorting in most every stock, but the amount of collateral (i.e., margin necessary to be pledged against your short position) varies by price. Under $2, the amount increases quickly to the point where shorting a penny stock may require so much margin (200 or more percent) that it is hardly worth it to do so.