Fintech startup Exponential Exchange has published a tradable index for the used-vehicle market, billed by the company as the first of its kind, 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 derivative products, the Exponential Used Vehicle Index is designed to 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.

Exponential Exchange said that 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, Exponential said, the 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 automotive 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,” Exponential Exchange CEO Ryan Naughton said. “Thanks to industry-leading spot market data and modern data science algorithms, we can now offer a scalable, 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.” 

The Exponential Used Vehicle Index uses contemporary data science methodologies to be more responsive to price changes in the market, offer higher correlations with rental, lease, and fleet portfolios, and it requires less data than other indices used in the automotive ecosystem.

The result, the company said, 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,” Exponential Exchange chief operating officer Murali Kanakabasai said.

“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, as well as at indices.exponentialexchange.com or www.solactive.com.