No, snow, market makers are not traders. They don't 'buy when the market comes back'. They buy when someone sells at a price within their spread. That is the law. And no, there is no naked shorting, which means selling shares you don't have and can't get. Every transaction by any MM is logged as to who sold, who bought, which MM(s) were involved, what the prices were, what the spread was at that time, and the time. MM's can short, but they are supposed to cover the same day. You see that at the close, often. If they are not closed, the short report, which is updated every 2 weeks, identifies who has not close out a short. That is only mm's because, regardless of what people say, you cannot short penny stocks, even if you wanted to, and could afford the margin. Why would anyone put up $2.50 to short a share of stock worth less than a penny? The most they could make would be a few percent of that sub penny stock, but they could lose the $2.50 if the stock goes up instead of down. It makes no financial sense, and brokerages simple won't process those orders. Etrade won't permit shorting any stock that is below $5. It is a WASTE of their time to futz with that.
The whole OTC is managed by automatic computer processing. There are no 'live' people handling transactions. If there were, the trading of 10,000+ public OTC companies shares would take forever, and there would have to be an army of MMs. The OTC trades BILLIONS of shares DAILY. There were 265000 OTC trades just yesterday, worth 1.9 BILLION dollars. And every single transaction is recorded automatically for future auditing.
