What constitutes a short position that cannot be covered by a new issue?

A short position that cannot be covered by a new issue refers specifically to the timing of short sales in relation to an upcoming public offering. When a firm engages in short selling, it essentially borrows shares to sell them with the expectation of repurchasing them later at a lower price. However, certain restrictions apply around the time of a public offering to ensure market integrity and avoid manipulation.

Short sales within five business days prior to the pricing of a public offering are particularly significant because this window is critical for the pricing of the new issue. During this period, the market is responding to the anticipated issuance of new shares, and engaging in short sales can distort perceptions about supply and demand, potentially influencing the final pricing of the new offering. As a result, these short positions must be closed out with the borrowed shares, and the existence of such positions can lead to complications.

In contrast, other aspects like an undefined sale lacking ownership or general short sales during an offering don't directly tie to the immediate impact of the public offering's pricing process. Thus, the crucial factor is the timing of the short sale relative to the upcoming public offering, which clarifies why the correct response is centered around those sales made shortly before pricing.