In the OTC the market makers ARE the shorts. They manipulate prices to maintain market liquidity and create profits for themselves. Naked shorting involves "selling" stocks you don't have in posession and "rebuying" them when pps falls.
From Investopedia:
The basic form of short selling is selling stock that you borrow from an owner and do not own yourself. In essence, you deliver borrowed shares. Another form is to sell stock that you do not own and are not borrowing from someone. Here you owe the shorted shares to the buyer but "fail to deliver." This form is called naked short selling.
Naked shorting is the illegal practice of short selling shares that have not been affirmatively determined to exist. Ordinarily, traders must borrow a stock, or determine that it can be borrowed before they sell it short. Due to various loopholes in the rules, and discrepancies between paper and electronic trading systems, naked shorting continues to happen.
These short sales are almost always done only by options market makers because they allegedly need to do so in order to maintain liquidity in the options markets. However, these options market makers are often brokers or large hedge funds who abuse the options market maker exemption.
Shorting Without Failing to Deliver
There is another form of short selling, which I describe as synthetic short selling. This involves selling calls and/or buying puts. Selling calls makes you have negative deltas (a negative stock equivalent position) and so does buying puts. Neither of these positions requires borrowing stock or "failing to deliver" stock.
A collar is nothing more than a simultaneous sale of an out-of-the-money call and a purchase of an out-of-the-money put with the same expiration date. Another way to short sell is to sell a single stock future, which is equivalent to naked short selling. No shares are borrowed, however, and no shares are failed to deliver.
Prepaid forwards and swaps are sometimes used to carry out short sales. However, these are done directly between the customer and some bank or insurance company, many of which have become suspect in terms of their ability to guarantee the other side.
Holding any one of the above positions alone or in combination with another essentially gives you a negative delta position whereby you will profit if the stock goes down.
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