> that extra 40% will fail to deliver, because those shares don't exist.
That's only true if you force all shorts to be covered at once without a chain of trades. That's not how it happens.
Person A covers their short by buying a share from Person B and returning to Person C. Person D then buys that share from Person C and returns to Person E to cover their short. That's 2 short shares covered with a single underlying share and no failure to deliver.
Yes, the SEC does track failure to deliver, but >100% short interest does not mean there is naked shorting nor does it imply there will be failure to deliver.
That's only true if you force all shorts to be covered at once without a chain of trades. That's not how it happens.
Person A covers their short by buying a share from Person B and returning to Person C. Person D then buys that share from Person C and returns to Person E to cover their short. That's 2 short shares covered with a single underlying share and no failure to deliver.
Yes, the SEC does track failure to deliver, but >100% short interest does not mean there is naked shorting nor does it imply there will be failure to deliver.