WW,
My simplistic understanding is the naked shorting doesn't happen at the broker (Etrade) and customer (retail investor) end. These shares obtained for sale, at this level, are digital "receivable" shares obtained from the DTCC (Warehouse of all shares) (or first through their middleman Broker-Dealer / Market Maker).
It is on this back end, at the DTCC Warehouse, that the alleged naked short shares are made available. In the warehouse, all sales and purchases should settle and net out to zero. But because the Broker-Dealer/MM/DTCC are primarily all one-and-the same entities and because lending shares can make up maybe half of their revenues (recall reading somewhere), then the DTCC would allegedly lend these digital shares, that don't exist, to generate this major lending revenue. The DTCC warehouse and accounting is a black box that allows them to operate as such.
So back to the point, at the retail level, the broker and retail investor are financially covered. Basically retail has a receivable from Etrade, and Etrade has a receivable from the DTCC. Any day of reckoning (requiring 100% buy back, settling all shares) and Etrade will be paid up by the DTCC, without doubt.
On the shares identification numbers question, the company has one set of numbers for shares. The DTCC uses another set of numbers for their system. But at the retail level, in a net settle batch process, there is only a generic receivable of shares. It takes 2 days to settle, where the shares batch and is recorded into the DTCC warehouse for settling theoretically. But in a world of continual, non-stop, transactions, there is not a specific point in time a count is settled, except in buyout or similar. There is always an ongoing netting of "receivable" and "payable" to cover any shortfall. And in the world of complex financial securities, what is counted as a receivable may be contorted.
Unfortunately my understanding is only at a superficial level from reading various articles. And I welcome others to correct my description. Hope this helps as much as it can.
