It would be true to say that people did increase their short positions in HBOS last Wednesday (11th June) when the bank's share price slipped below the Right's Issue price of 275p. These shorts are covered by new borrows at the close of business (T + 3 settlement in the UK), hence the spike in the data for the most recent dataset (Tuesday).
However, the Rights Issues do not start trading until June 27th. The shorts outlined above are opportunistic in that the bank was in real trouble, not a manipulation of a Rights Issue, because it is not trading.
Between June 2nd and the present day, the long-only traders were selling shares and short sellers were increasing borrowing in HBOS, which could explain the price falling. Institutions who held 989m shares sold 60m by June 16th. Hedge Funds, Prop desks and retail spread betters sold 90M shares from 130m to 220m.
"Short sellers have no more influence over share prices than any other traders. If selling pressure caused a share price to fall below what other investors judged to be its fair value, they would buy and the share price would be correct," said two commentators on ISLA today.
You heard it here!