First, naked shorting is not legal. Therefore, reporting it to FINRA would result in either a huge fine, or substantial legal trouble for the MM who reports naked shorting.
Naked Shorting by definition 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. But due to various loopholes in the rules and discrepancies between paper and electronic trading systems, naked shorting continues to happen.
While no exact system of measurement exists, most point to the level of trades that fail to deliver from the seller to the buyer within the mandatory three-day stock settlement period as evidence of naked shorting. Naked shorts may represent a major portion of these failed trades.
The bi-weekly report is a report of the legitimately shorted "interest", not the illegal shorted stock.
On the OTC, MMs are not required to cover in 3 days.
Mainly because naked shorting does exist on the OTC and MMs would never report their interest to FINRA, however, it's in their best interest to cover any "short" positions before the bi-weekly report so they aren't in FTD.