The introduction of new public databases on equity derivatives offers a large source of information to the general public. This may make the meme stock discussions on public chat rooms of 2021 look like phase 1 of a broad new democratization of who knows what about market activity.
Global financial markets have been rocked in the last two years by organized retail traders selecting securities for coordinated buying. These meme stocks have been chosen in part for the volume of short selling and put options against them by large hedge funds, some who wound up on the wrong side of a losing trade. Retail investors were able to conduct their business through a combination of market intelligence, apparently drawn from professional traders, and coordination on social media platforms like Reddit.
New datasets are enabling the modeling of short exposures across physical and synthetic transactions including securities loans and derivatives. This view of market activity has the potential to deliver improved market transparency for traders, service providers and regulators, and could disrupt concentrated short-side investment strategies more systematically than any meme stock coordination on chat boards.
This Finadium report provides methodologies for assessing short side exposure in equities using datasets in the public domain as well as data from private market aggregators. No dataset provides the full set of information, but a combination of various repositories, including some reference data and sleuthing, reveals that deep level transparency is possible now and that more – much more – could arrive as soon as January 2023.
The implications for more transparency suggest that leverage may decrease at first but could also result in a diversification of strategies and directional trading that benefits the market in the long run. This report assesses the responses of market participants towards the database elements that could change their business models.
This report should be read by trading desks, data analysts and developers of trading algorithms. Both institutional and retail data enthusiasts are likely to seize on this information as the latest source of directional signaling for market movements. An early look at the pros and cons of these newly arriving market elements can help forecast likely next steps in how investors will react to each slice of upcoming data releases.
A direct link for Finadium subscribers to this report is https://finadium.com/finadium-report-desc/modeling-short-equity-market-exposures-with-new-datasets/
For non-subscribers, more information is available here.