Yeah, that's where you're wrong. It's naked short selling ANYTIME the borrow is not located before the short sale occurs: "Naked short selling, or naked shorting, is the practice of short-selling a tradable asset of any kind without first borrowing the security or ensuring that the security can be borrowed, as is conventionally done in a short sale." The short selling exception is exploited by market makers who know they will either: buy back at a artificially lower price within 3 days (meaning they NEVER have to locate regardless of volume), or they blanket ASSUME they will be able to locate shares without regard to market conditions so again excuse themselves from the problem of locating shares Ask yourself why bear raids (sudden slumps in the SP) almost never last longer than 3 days. It's because market makers have to either cover or report unlocated shares. They choose to cover since they've already driven the SP down and can take tangible profits. As for why a market maker would do this, I am frankly surprised you don't know: GREED. As I've said above, the market maker KNOWS they can short and then buy back at a much lower price. There is almost no risk to them in doing this, and it is guaranteed free money. The SEC cleared the way for market makers to do this when they cancelled the uptick rule on July 6, 2007 with Rule 201 Regulation SHO. This change in policy did not occur in a vacuum. Let's see which market makers lobbied for the new policy. Yet you appear to want to give market makers the benefit of the doubt. In fact, the reporting rules for short sales now are configured so that it's nearly impossible to find out how much naked short selling occurs by market makers (c.f: Ihor's dilemma). Allowing naked shorting by market makers is like turning the lights off at night in the prison, but not locking the cages.