the parent poster means simply betting against their customers. Not explicitly shorting a security without a locate. Just a lingo thing. In any case, this sounds a lotvlike a Contract-for-Difference type of arrangement. The broker functions as the liquidity provider, taking the contra side to all customer bets. Broker collects the bid-ask spread and hopes that it overcomes losses. One big downside is counterparty risk: if the broker goes bankrupt, the winning customers may not get paid!

I've read sensible arguments about why shorting is ok. I've yet to read any sensible argument about why naked short selling is ok. Mind elaborating or giving a few references?