SunGard is launching a series of indexes aimed at estimating short-interest trading levels on a daily basis for the major equity markets, including the New York Stock Exchange and Nasdaq. Those markets release their official short-sale data monthly.
SunGard claims its SunGard Securities Borrow Indices (SBI) can serve as proxies for the official short-sale ratio data reported by the NYSE and Nasdaq each month. SunGard backtested the data for three years to check its forecasts against what the exchanges reported, and it began publishing the data for clients in July. In addition, the SIBs will also cover short interest ratios on the Standard & Poor's 500, 400 and 600 indices, and their value and growth style components. SunGard is also making the data on 11 aggregate indices available to the news media as of Wednesday's announcement.
"We've done three years of back testing and real-time forecasting of short interest for the New York and the Nasdaq, and our correlations between our data and the official data are quite strong," says Charles Comer, managing director, research project manager at SunGard Institutional Brokerage Inc. Comer says the correlation with the NYSE total short position is .86 and the correlation with Nasdaq is .88.
If the data's on target, traders who subscribe to the new SunGard service, published by the research arm of SunGard Institutional Brokerage Inc., will see the changes and directional trends in the short-sale ratio on a daily or intra-day basis. "The data that people have been using to analyze short interest is once a month and usually stale," says Jay Indovino, president of SunGard Institutional Brokerage, Inc. Indovino says the NYSE compiles the data on the 15th of each month, based on trade data it receives from brokers from the 12th, and then it publishes the data four days later. "You can use our data to predict where that number is going to be virtually in real time," he says.
SunGard derives the data internally from a subsidiary called SunGard Securities Finance and its Loanet business, an integrated accounting service that the majority of lenders and borrowers -- mainly banks, brokerage firms and custodian banks -- use on Wall Street to borrow stock, a necessary step in short trades.
"If you've got a statistic based on 50 percent market share, that is going to be a good statistic. Given the dearth of information about short interest, a daily number will be in demand," says Jamie Selway, managing director of Whitecap Trading, an institutional brokerage firm. "Higher frequency sort of sampling of the data should be a good thing," adds Selway, who notes that day traders and high frequency trading hedge funds are big consumers of this kind of information.
However, the data from Loanet is the stock-borrowing data, and while selling short is the biggest reason to borrow stock, it's not the only one. "That does not equate exactly to sold short," admits Comer. "We know that our data is not exact. We put in place a number of complex algorithms that basically try to adjust that raw data that would get it closer to short selling."
Aggregating the data in Loanet was a huge undertaking. SunGard worked with Data Symmetry LLC as a consultant to help with the data mining, development and programming. SunGard has been publishing a 20-page report weekly in hard copy, which it provides to subscribers on Monday morning, based on Friday night's closing figures. But it also gives clients a heads-up on the phone from their sales and trading desk, says Comer. Besides the short-sale data for the 11 aggregate indices, the report drills down to more granular levels such as what's going on in the semiconductor and oil and gas industries, he adds.
"The amount of development and programming that it has taken us to get to this step has been extreme. Now that we have confidence in this data, and it shows it's a proxy for short interest, the second step will be an electronic buy of the product," says Indovino. The vision is that clients will get an electronic database, where they can look at the index by sector or their portfolios. "We don't have their capability yet, but clearly that's our next stage," he says. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio