$RKT Naked Shortselling: a brief. Naked shortselling is illegal. The reason naked shortsellers must find actual shares to borrow within 3 days unlike normal shortselling has to do with the loophole used to allow MMs and others to 'legally' naked shortsell. Because there is a 3 day settlement period between purchase and delivery, before they actually deliver they have 3 days before they have to report or deliver. A naked shortseller can therefore close their position before delivery by covering or borrowing shares. In this way it was never 'provably ' naked. This is part of why fail to deliver is avoided. Frequent and substantial failure to deliver is evidence for, but not definitive proof of illegal and abusive naked shortselling.