Wall Street’s Latest Craze Meets Small Short In Derivatives

‘Legitimate Need’

LendingClub chief executive officer Renaud Laplanche said he’s aware of the interest to bet against the market. Derivatives that give investors the ability to protect against losses on the loans the company arranges is just smart risk-management, he said.

Spokeswomen for Prosper and Social Finance declined to comment.

SLMX is still working on documentation for the derivatives, which are likely to take the form of credit-linked notes with total-return swaps, rather than the credit-default swaps some blame for worsening the financial crisis. The firm has teamed up with a broker-dealer, AK Capital LLC, to execute trades and hopes to make its first transaction as early as this year.

Rotman said another firm, PeerIQ, has discussed with him the possibility of creating contracts that would essentially zero in on loans arranged by LendingClub, the industry leader, which has facilitated $7.6 billion of loans since 2006. PeerIQ - - whose financial backers include John Mack, the former CEO of Morgan Stanley and Vikram Pandit, the former CEO of Citigroup Inc. -- hasn’t publicly disclosed any plans; a spokesman for the firm declined to comment. Those men recently led a $6 million investment round for the company’s analytics business.

LendingClub’s chief executive officer Laplanche called PeerIQ a third-party partner, no different than other companies seeking to utilize the company’s public data.

“It is a perfectly legitimate need from many of our investors, especially large ones,” Laplanche said.