Intraday securities lending data speeds up the rerating conversation by a substantial factor, forcing both agent lenders to recognize when the market is perceived to move for or against themselves and their clients. In a way, intraday securities lending data is like a fax machine: the more people that have them, the more useful they are. But unlike fax machines, even if only most people have the data, the data still has critical mass.
In addition, while there is no agreement that intraday lending data always has the right price, at least there are benchmark references for the market. The introduction of more securities lending data also breaks down the historical strength of the securities lending traders; relationship still matter, but having access to the most current data matters more.
Intraday securities lending data also affects important metrics that agent lenders use to evaluate prime brokers and vice versa. Agents are now equally concerned about the quality of borrowers and the quantity of securities that a borrower may request. For example, if a borrower is utilizing large quantities of securities that otherwise may not be lent, this adds value to the agent’s program. If these metrics are measured using intraday data as opposed to data that’s updated only once a day, the agent lender/prime broker relationship becomes much more sensitive to intraday rate movements.
As agent letters and prime brokers engage more with intraday securities lending data, they are also inadvertently speeding up the pace of transparency. The more that transactions pump into securities lending data vendors, the more that all participants in the market can be aware of rate and volume changes. Regulators also benefit from this increased transparency, and we suspect they will mandate that all participants subscribe to intraday securities lending data feeds as a way of tracking the market.
For more on the agent lender/prime broker relationship, see Finadium’s December 2011 report, “Borrowing Stock in 2011: Agent Lenders on Prime Brokers in Equity Securities Lending.”