Quite simple. The supposed naked shorting is simply a classification required by SHO rules. Shares are commonly marked short until physically delivered but that's not abuse. Violation of those rules and/or requirements would amount to abuse but if you check the monthly SHO reports for MRIB no such abuse exists and there has never been any FTD reports in MRIB records.
A MM may execute a trade without physical possession of the securities but must still have an SHO locate and reasonable expectation of availability and delivery within three days. At the time of the trade the trade must be, by regulation, marked short regardless of the locate until physical delivery of said securities. If not delivered the regular rules apply for a short sale for the seller/member's account and standard margin requirements must be met.
This is not possible in the case of MRIB as it is prohibitively expensive. The regulation requires a margin of $2.50 cash per share or $5.00 per share in marginable securities or a combination thereof. So, in the absurd example of a 50 million share short sale and carried short interest, the seller would have to come up with $125 million in cash or $250 million in marginable securities regardless of the MRIB PPS. This makes MRIB short proof so to speak. Who in their right mind would tie up that kind of cash to make a paltry $25K or .02% max return not to mention whatever extended period of time the money is tied up waiting for a zero sum result? As I said, absurd.
So, no. There is no short abuse with MRIB. Just some member firm housekeeping technicalities in the way shares are marked for SHO requirements. And keep in mind, naked shorting is and has always been illegal. Not that it hasn't or doesn't take place and SHO was put in place as a more strict set of regulations. But it surely is not relevant with regard to MRIB.
