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There is nothing to be gleaned from the Daily Reg SHO reports, without the Regulatory Non Tape Transaction reports one cannot determine what is Riskless principle transactions or short for that matter. You have to read SEC Rule 200, which made it a requirement to mark any trade in which the Broker Dealer did not own or expect delivery of shares before settlement as “short”. Doesn’t matter if the party that they traded for is long in the transaction or not:

B. Order-Marking Requirements — Rule 200(g)
We are adopting the new order-marking requirements proposed in Rule 201(c) and incorporating them into Rule 200(g). Since the new marking requirements apply to all equity securities, not just exchange-listed securities, we are removing them from current Rule 10a-1. The new order-marking requirements differentiate between "long," "short," and "short exempt" orders for all exchange-listed and over-the-counter equity securities.
Under the former marking requirements in Rule 10a-1(d), a broker-dealer could only mark an order to sell a security "long" if the security was carried in the account for which the sale is to be effected, or the broker-dealer is informed that the seller owns the security to be sold, and will deliver the security to the account for which the sale is effected as soon as possible without undue inconvenience or expense.35 We had proposed changing the marking requirement so that a sale could only be marked "long" if the seller owns the security being sold and either the security to be delivered is in the physical possession or control of the broker-dealer, or will be in the physical possession or control of the broker-dealer prior to settlement of the transaction.
As adopted, an order can be marked "long" when the seller owns the security being sold and the security either is in the physical possession or control of the broker-dealer, or it is reasonably expected that the security will be in the physical possession or control of the broker or dealer no later than settlement. We added the language "reasonably expected" because we acknowledge that it may be difficult for a person to know with certainty at the time of sale that a security will be in the possession or control of the broker-dealer prior to settlement. However, if a person owns the security sold and does not reasonably believe that the security will be in the possession or control of the broker-dealer prior to settlement, the sale should be marked "short." The sale could be marked "short exempt" if the seller is entitled to rely on an exception from the tick test of Rule 10a-1, or the price test of an exchange or national securities association.36 Short sales of pilot securities effected during any pilot period should be marked "short exempt."
The new marking requirements will eliminate the prior discrepancy between how Rule 3b-3 defined a short sale and the marking provisions previously found in Rule 10a-1. In addition, the new marking requirements should facilitate the surveillance and monitoring of compliance with Rule 10a-1. The change to the marking requirements will provide information that shows when exceptions from Rule 10a-1 are used.

Converted shares create all kinds of different problems on their own, but you are correct such conversions are often sold short and then reconciled with a large trade less discount on for commission in a single trade. In some cases shares are sold before the conversion has actually taken place, based upon the TA confirming to the broker the shares are in the process of conversion. This sometimes creates Fails To Deliver and results in Reg SHO Flags after so many days of carrying a continuous failure. You often hear that these are “Naked Shorts”, turns out that is quite false, PIPE finances often cause these and if you look under SEC Rule 203 it explains that the position maybe left open up to 35 days before being closed:

c. Additional Exception from the Locate Requirement — Rule 203(b)(2)(ii)
Pursuant to the suggestions of other commenters, we are including an additional exception from the uniform locate requirement of Rule 203(b)(1) for situations where a broker-dealer effects a sale on behalf of a customer that is deemed to own the security pursuant to Rule 200, although, through no fault of the customer or the broker-dealer, it is not reasonably expected that the security will be in the physical possession or control of the broker-dealer by settlement date, and is thus a "short" sale under the marking requirements of Rule 200(g) as adopted.70 Such circumstances could include the situation where a convertible security, option, or warrant has been tendered for conversion or exchange, but the underlying security is not reasonably expected to be received by settlement date.71 Rule 203(b)(2)(ii) as adopted provides that in all situations, delivery should be made on the sale as soon as all restrictions on delivery have been removed, and in any event no later than 35 days after trade date, at which time the broker-dealer that sold on behalf of the person must either borrow securities or close out the open position by purchasing securities of like kind and quantity.72

Most of what you see on the OTC is DWAC certs that are being sold into the market sometimes before the shares are even in the account of the shareholder. That is of course DTC Eligible securities, but MMs are already making a market based upon these shares and have no need to actually Naked Short a sale when such positions are carried by financiers and dilutive entities. There is no need to when there are an abundance of new shares trying to be sold into the market.