The Federal Reserve bank presidents have written a comment letter on MMF reform:
As support for the Council’s proposed determination and to set the context for identifying the essential elements of reform, we briefly discuss some of the risks associated with MMFs’ activities and practices in Section I. Section II focuses on issues that should be addressed as part of any prime MMF reform proposal – most notably, suggestions for the enhancement of the accuracy of market-based net asset values (“NAVs” and each, a “NAV”), particularly in the context of Alternative 1, the Floating NAV. Section III then presents observations concerning each of the three reform alternatives included in the Proposal. Section IV briefly discusses standby liquidity fees and redemption gates and explains why these mechanisms, as proposed by some industry participants, do not meet reform requirements. Finally, we conclude by concurring with the Council’s view that more than one MMF reform alternative could address the financial stability concerns posed by MMFs, in which case fund complexes could be permitted to choose from among multiple alternatives. For example, a complex could offer both a floating NAV fund and separately a stable NAV fund with a capital buffer (and possibly coupled with a Minimum Balance at Risk (“MBR”)), from which investors could choose.
I don’t like the “Minimum Balance at Risk” proposal (discussed on August 14, 2012), but the capital buffer idea is long overdue. I am not terribly enthusiastic about their idea that a floating NAV obviates the need for a capital buffer: MMFs are banks and should be regulated that way, as I have often argued in the past.
It was a mildly positive day for the Canadian preferred share market, with PerpetualPremiums gaining 4bp, FixedResets winning 8bp and DeemedRetractibles up 7bp. Volatility was minimal. Volume was average.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.4820 % | 2,586.2 |
| FixedFloater | 4.19 % | 3.51 % | 24,750 | 18.30 | 1 | 0.1324 % | 3,882.7 |
| Floater | 2.57 % | 2.89 % | 70,708 | 19.96 | 5 | 0.4820 % | 2,792.4 |
| OpRet | 4.77 % | 1.86 % | 38,768 | 0.30 | 5 | -0.2082 % | 2,607.6 |
| SplitShare | 4.55 % | 4.23 % | 36,389 | 4.26 | 2 | -0.0593 % | 2,928.6 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.2082 % | 2,384.4 |
| Perpetual-Premium | 5.24 % | -0.77 % | 84,722 | 0.12 | 29 | 0.0423 % | 2,357.0 |
| Perpetual-Discount | 4.85 % | 4.89 % | 138,848 | 15.63 | 4 | -0.0304 % | 2,648.2 |
| FixedReset | 4.89 % | 2.66 % | 273,218 | 3.36 | 78 | 0.0826 % | 2,497.0 |
| Deemed-Retractible | 4.87 % | 2.10 % | 148,006 | 0.28 | 45 | 0.0681 % | 2,435.7 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| TRI.PR.B | Floater | 1.89 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-02-12 Maturity Price : 24.05 Evaluated at bid price : 24.30 Bid-YTW : 2.15 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| GWO.PR.N | FixedReset | 82,978 | National crossed blocks of 50,000 and 25,000 at 24.60. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.56 Bid-YTW : 3.33 % |
| BNS.PR.M | Deemed-Retractible | 80,606 | Desjardins crossed 55,000 at 25.87; TD crossed 19,700 at 25.89. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-27 Maturity Price : 25.50 Evaluated at bid price : 25.90 Bid-YTW : 3.43 % |
| BNS.PR.J | Deemed-Retractible | 63,190 | Desjardins crossed 54,000 at 25.63. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-10-29 Maturity Price : 25.00 Evaluated at bid price : 25.60 Bid-YTW : 2.10 % |
| RY.PR.X | FixedReset | 54,695 | RBC crossed blocks of 25,400 and 25,000, both at 26.51. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-24 Maturity Price : 25.00 Evaluated at bid price : 26.52 Bid-YTW : 2.09 % |
| FTS.PR.J | Perpetual-Premium | 53,147 | Nesbitt crossed two blocks of 17,000 each, both at 25.88. YTW SCENARIO Maturity Type : Call Maturity Date : 2021-12-01 Maturity Price : 25.00 Evaluated at bid price : 25.83 Bid-YTW : 4.29 % |
| SLF.PR.I | FixedReset | 47,335 | Desjardins crossed blocks of 20,200 and 15,000, both at 26.18. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-12-31 Maturity Price : 25.00 Evaluated at bid price : 26.25 Bid-YTW : 3.03 % |
| There were 35 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| BNS.PR.O | Deemed-Retractible | Quote: 26.52 – 26.80 Spot Rate : 0.2800 Average : 0.2052 YTW SCENARIO |
| CU.PR.D | Perpetual-Premium | Quote: 26.40 – 26.60 Spot Rate : 0.2000 Average : 0.1281 YTW SCENARIO |
| CIU.PR.C | FixedReset | Quote: 24.75 – 25.00 Spot Rate : 0.2500 Average : 0.1814 YTW SCENARIO |
| ENB.PR.A | Perpetual-Premium | Quote: 26.15 – 26.40 Spot Rate : 0.2500 Average : 0.1839 YTW SCENARIO |
| HSB.PR.C | Deemed-Retractible | Quote: 25.63 – 25.86 Spot Rate : 0.2300 Average : 0.1665 YTW SCENARIO |
| MFC.PR.J | FixedReset | Quote: 26.17 – 26.38 Spot Rate : 0.2100 Average : 0.1474 YTW SCENARIO |