Hey Merc.....i am not sure what part is confusing but i will try to explain. Let's say i have an account at Merrill Lynch and i sell short 100 sh's of home depot. then merrill lynch would take 100 sh's of home depot(certificate) from another client (these are share's that are held in street name). they would then deliver those shares(certificate) to the buyer of my short sale. Now the buyer is Long 100 sh's of home depot and has his shares (certificates.....delivered within 3 days). i am still short 100 sh's and the person that had the stock borrowed from them, (at Merrill Lynch) is still long. when i decide to cover my short i go out into the market and buy 100 sh's and then Merrill re-assigns those shares back to the owner of the stock and holds it in street name again.
Look under using "Using Different Colors, Sizes and Fonts". Unless you were just kidding. http://elitetrader.com/vb/misc.php?s=&action=bbcode
No, it does not mean covering your position. Your broker can put up the stock from within or locate the stock to deliver.
In short, I don't think the "deliver in 3 days" rule will have any effect on individual traders - it simply changes how your broker has to handle the trade afterwards. The exception is that, for some brokers, who are not already clean about this, it may reduce the size of their shortable stock list. What's with the mention of ARCA and Island having less stringent short rules? That got "fixed" a long time ago. If anything, Island (as well as INCA) is more restrictive now by not allowing short sales below the previous NYSE closing price during after-hours and pre-market (in listed stocks anyway).