There have been a number of changes in the prime brokerage markets driven in a large part by the 2008 global financial crisis. The mechanics of shorting is a two step process where you first borrow and then sell borrowed shares. However, this was not always the case. A practice used to exist called naked shorting, which involved hedge funds placing an order to sell shares without having borrowed shares in advance. They would attempt to take advantage of the then three day period that existed between a trade date when the details of the trade are agreed and settlement dates the exchange of cash and securities take place. Under a naked short, the hedge fund would only worry about sourcing the shares required to settle the trade in the three days after the trade had been entered into. This resulted in the risk of failure to deliver if they were unable to source the shares needed before the settlement date. This can be disruptive to a market if these failures are allowed to exist. To remove this aggressive shorting practice from the markets the USA banned naked shorting in 2008. These days, the ban would be somewhat moot as markets have evolved in settlement practices as well. What was once a market that operated on a T plus three giving you three business days between a trade and settlement moved to T plus two in 2017 and to T plus one most recently in 2024. This in itself is another important evolution of prime brokerage requirements. Another repercussion of the 2008 crisis was the realization that hedge funds needed to take the risk management of their prime broker counterparties seriously, this was mainly achieved by most hedge funds, moving from having a single prime broker to having a diversified group of prime brokers. A number of hedge funds struggled operationally in 2008 when Lehman Brothers went bankrupt. Since Lehman were the hedge fund's only prime broker, meaning Lehman, were unable to fulfill their obligations of returning borrowed shares to their clients.

Changing from a single prime to multiple prime brokers adds operational complexity for the back office of a hedge fund, but provides them meaningful risk benefits. This includes better awareness of the pricing of borrow fees across many prime brokers, but also has benefits for security lenders as well, as a security lender, you have counterparty risk with the prime broker that is borrowing your securities and subsequently lending them out to another hedge fund to short sell. Your counterparty risk lies with the first leg of that chain with your prime broker. If you have more prime brokers that you hold your securities at that are being lent out, that helps spread counterparty risk in case a single one of those prime brokers has difficulties recalling your lent securities and meeting their obligations to you. Total return swaps are another historical market dynamic that had a very large impact on the operations of prime brokerages when they were regulated away. These instruments allowed clients of a prime brokerage to gain synthetic exposure to an asset without direct legal ownership. A prime brokerage would set up a total return swap agreement with the client and then go and purchase the asset for the client, but not transfer its legal ownership to the client. The prime brokerage would leave the asset on their own books and their exposure of the asset would be removed by creating a total return swap agreement to the client saying the client gets all the profits or loss associated with that asset. In essence, it's total return is attributable by way of contract to the client. There were many regulatory, operational, and taxation benefits for the existence of these contracts. Rather than the clients legally owning these assets directly, these synthetic arrangements could be taken further to artificially expand the effect of supply for shorting in a way that led to low borrowing fees. But new regulations such as requirements for banks to hold capital against off balance sheet exposures like total return swaps started to worsen the efficiency of these trades.