Optimize Your Inventory

Prime Broker’s Inventory Problem

Prime Brokers play an important role in the Securities Lending market - they are the primary channel through which Hedge Funds access liquidity. This is partly due to counterparty risk considerations by the lenders, but also because Hedge Funds often prefer to focus on trading strategy and not worry about the legwork that goes into arranging a stock loan.

Prime brokers can also command better prices from their lenders due to economies of scale - as they aggregate demand (and collateral) from their Hedge Fund clients.

Prime Brokers face a complex inventory problem: Source the inventory requested by clients at the best rate possible (either internally or externally) while minimizing collateral costs and balance sheet capital. These three functions - Inventory Sourcing, Collateral Use and Balance Sheet management are typically done in silos, leading to suboptimal results for the firm. Enigmatch’s matching engine can simultaneously account for all sources inventory (internal and external) and their associated costs, all uses of inventory and expected returns, balance sheet costs for each source-use combination to produce a globally optimal trading strategy.