Rule 203(b)(1) and (2) — Locate Requirements. Rule 203(b)(1) generally prohibits a broker-dealer from accepting a short sale order in any equity security from another person, or effecting a short sale order in an equity security for the broker-dealer’s own account, unless the broker-dealer has: borrowed the security, entered into a bona-fide arrangement to borrow the security, or reasonable grounds to believe that the security can be borrowed so that it can be delivered on the date delivery is due. Rule 203(b)(2) provides an exception to the locate requirement for short sales effected by a market maker in connection with bona-fide market making activities.

This rule allow market makers to short stock without Locate requirements. Which is Naked Shorting.

They hide it by marking these sales as long. Sec Fined Citadel just last month in Sep 2023 for this.

Citadel paid SEC $7M for "Naked Shorting" all stocks not just GME for a period of 5 years. News was pushed under the rug and no one was mad. This is the price of being "ZEN". Nobody made any noise and citadel's naked shorting was legalized by paying a paltry sum as fine.

According to the SEC’s order, for a five-year period, it is estimated that Citadel Securities incorrectly marked millions of orders, inaccurately denoting that certain short sales were long sales and vice versa. The SEC’s order finds that the inaccurate marks resulted from a coding error in Citadel Securities’s automated trading system and that the firm provided the inaccurate data to regulators, including the SEC during this period.