The Bank of Canada has announced the release of the Bank of Canada Review of Winter 2008-2009.
Of most interest – to me! – was a paper on the value of information in the FX market, The Role of Dealers in Providing Interday Liquidity in the Canadian-Dollar Market by Chris D’Souza, which concluded:
Overall, results suggest that the relationship between the positions of commercial clients and market-makers, and the role played by dealers in interday liquidity provision, has been understated. There is considerable evidence that not all customer trades are equal. In particular, market-makers are quick to provide liquidity to [Foreign Domiciled] customers, possibly in an attempt to capture any fundamental information contained in these trades. Over time, dealers will off-load their positions to commercial clients as the information becomes stale, or as
the risks associated with holding these undesired balances becomes too costly.
Other papers were:
- Merchants’ Costs of Accepting Means of Payment: Is Cash the Least Costly?
- The Market Impact of Forward-Looking Policy Statements: Transparency vs. Predictability
- Conference Summary: International Experience with the Conduct of Monetary Policy under Inflation Targeting
James,
Since I am familiar with the FX market I found the article very interesting. As a FX client if you trade above certain levels, order book and some limited flow information is available from your dealer.
I believe some of the same flow information is being used in the Pref market to set pricing even though volume information is available.
Short interest in pref shares appears to be the only information that is not readily available!
I believe some of the same flow information is being used in the Pref market to set pricing even though volume information is available.
Definitely. This will often happen when a trader is working an order … if a client wants to sell 100,000 shares ‘sometime this week’ and there are no takers you’ll often see the market get taken down in stages until the dealer can find a buyer.
Short interest in pref shares appears to be the only information that is not readily available!
Shorting prefs is expensive since the dividend effects are large. Shorts exist, to be sure, but to nowhere near the same extent as in the equity and bond markets.
Since we’re on the subject of shorting preferred shares, I’d like to know if other brokers are as restrictive as mine on that matter. Since about the beginning of October 2008, it’s been impossible for me to short any preferred share at all. This unavailability of prefs for shorting doesn’t apply only to my own account, but to all customers’ accounts at my broker.
For instance, of the roughly 4,700 stocks listed on the TSX, only 61 were shortable today at my broker’s. None of them are preferreds (they were all common stocks).
As I mentioned above, I’d be curious to find out if shorting preferred shares is still feasable at other brokers in Canada these days.
Many thanks.
Cowboylutrell Says:
As I mentioned above, I’d be curious to find out if shorting preferred shares is still feasable at other brokers in Canada these days.
RBC Direct indicated they would be willing to short prefs if they held shares to short.
jiHymas Says:
Shorting prefs is expensive since the dividend effects are large.
Should the dividend charge only be applicable if you run passed the next ex-date?
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