Insurers are always interested in accurate vehicle values. Could this new exchange provide more granular insights into asset values and allow asset owners to trade used values like digital assets, bonds or stocks? Here’s the word.
Fintech startup Exponential Exchange today announced the publication of a first-of-its-kind tradable index for the used vehicle market designed to offer a more accurate and efficient representation of wholesale price changes for pre-owned cars than currently exists.
Combined with the company’s soon-to-launch derivatives products, the Exponential Used Vehicle Index (Bloomberg ticker: AUTO) will allow insurance companies and owners of large auto fleets to protect themselves against price fluctuations in their portfolio value by transferring their exposure to speculators or other market participants. This ability is particularly critical given increasingly hard-to-predict depreciation patterns driven by unwinding pandemic supply chain issues, volatile fuel prices, economic uncertainty, and the accelerating adoption of electric vehicles.
In addition to this new method of risk mitigation, Exponential’s index will also create a new tradable asset class – used vehicle volatility – which will serve as the basis for the first futures market in the auto space and create a new channel of opportunity for hedge funds and proprietary trading firms.
“Efficient derivatives markets have long been a primary means of risk mitigation for asset owners across a wide range of industries – from energy to agriculture to manufacturing,” said Ryan Naughton, CEO of Exponential Exchange. “Thanks to industry-leading spot market data and modern data science algorithms, we can now offer a scaleable, cost-effective solution to fleet owners and auto market participants via an index that minimizes basis risk between the benchmark and the physical asset and is structured to ensure sufficient liquidity in the marketplace.”
Using contemporary data science methodologies, the Exponential Used Vehicle Index is more responsive to price changes in the market, offers higher correlations with rental, lease, and fleet portfolios, and requires less data than other indices used within the automotive ecosystem. The result is a new and compelling method of risk mitigation for natural hedgers, and a new asset class for speculators, hedge funds, proprietary trading firms and a wide range of other market participants.
“There are other used vehicle indices in the market but the Exponential Used Vehicle Index is the only benchmark where every aspect of the index calculation and administration were designed with tradability in mind,” said Murali Kanakabasai, COO of Exponential Exchange. “We are introducing this benchmark to the market prior to the launch of our derivative products so it can be properly tested and analyzed by market participants on both sides of the trade.”
The Exponential Used Vehicle Index can be accessed on the Bloomberg Terminal and other financial and analytics platforms, on the Exponential Exchange website, and on the website of Exponential’s calculation agent, Solactive.
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