Standard & Poor's has launched a public index series designed to measure and track the average cost of securities lending rates for US equities.

The S&P Securities Lending Index Series will reflect the average securities lending rate for the constituents of the S&P 500, S&P MidCap 400 and S&P SmallCap 600 benchmark indices. It is believed to be the first index series of its kind.

S&P said the indexes will measure the securities lending rates for loans at the intermediary level, typically between custodians and prime brokers. These are over-the-counter transactions that take place before loans are made to end-borrowers like hedge funds.

"The S&P Securities Lending Index Series will provide investors and securities lending participants with additional transparency on the aggregate rebate rates charged for domestic equities, while serving as a relative benchmark for the securities lending industry," said Craig Feldman, director of Index Services at Standard & Poor's.

A public index tracking securities lending rates could lead to better pricing for end-borrowers, said Josh Galper, managing principal at Finadium, a research and consulting company based in Concord, Massachusetts. "This increased transparency should add comfort to borrowers who currently feel strained by the lack of disclosure coming from their lenders," he said.

The indexes also provide a standardised method for transaction cost analysis and create a third party calculated price for hedging financing costs.

Greater transparency in the securities lending market could ultimately lead to increased confidence in long/short investing in general, said Galper. "End-borrowers could see greater interest from investors who may be turned off today by the murkiness of parts of the securities lending business if they are more comfortable with the overall financing process and pricing."

Finadium acted as a consultant for Standard & Poor's during the development of the indices. The company will continue to act as an external advisor on data and business development to both S&P and its index clients.