Derivatives data firm Hanweck moves into sec lending market

Derivatives data firm Hanweck moves into sec lending market

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A US tech firm is mining data from the equity options market in a bid to bring more transparency to securities lending rates.

Derivatives analytics firm Hanweck announced its foray into the stock loan space this week with the launch of its ‘Borrow Intensity Indicator’.

The firm, backed by Nasdaq and New York-based private equity house Argentum, has spent over a decade providing real-time analytics on equity derivatives to banks and hedge funds.

It does this by collecting data from the all the major options exchanges.

Now the firm says it has developed a system to derive stock borrow rates and term curves in real time.

“Securities lending market participants frequently look at standard indicators such as loan outstanding and the delayed short interest indicators,” Bob Levy, Hanweck’s head of business development, told Global Investor.

“By providing real-time information in this somewhat opaque market segment, we have created an actionable trading indicator that will add value for firms that are active in the securities lending space.”

Specifically, Hanweck’s system will gather real time implied borrow data across thousands of equity options series.

These statistics are transformed with machine learning to generate maturity weighted views of stock borrow fees and term curves available throughout the trading day.

The system also automatically alerts users to rising or easing borrow conditions and detects major movers intraday.

As Levy pointed out in a recent blog post, SNAP was one of the most in demand securities last year.

Unlike the term markets, the overnight market persisted in hard-to-borrow levels of -50% to -60% for SNAP anticipating difficult conditions until the lock-up period on stock freed up more collateral at the end of July.

In this example, the Hanweck Borrow Intensity Indicators showed change in momentum of borrow levels, and for stock borrowers planning on staying short a longer period of time.

The data also reflected potential opportunities to borrow stock on term, either directly or synthetically using methods based upon option arbitrage strategies such as reverse-conversions.

Speaking to Global Investor, Levy, who previously headed up the Portfolio Risk Analytics division at Merrill Lynch in New York, said Hanweck’s offering will complement what existing data providers are providing in the market.

“Asset owners with lending portfolios are naturally interested in where additional income may be available from. On the other side of the trade, our technology will inform hedge funds of borrowing interests and potentially offer value for trading strategies.

“Securities lending traders can have a good sense of their trading costs prior to hitting the buy or sell order, and can compare historical rates for fairness across multiple brokers. This is valuable for short term trading activity, hence the growth of the finance data space.”

Levy, who also helped found fixed income trading platform MarketAxess, added that the securities finance desks of prime brokers, most of which are familiar synthetic options trading, will be able to integrate the system easily to complement their existing offering.

 

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