The SEC has released statements regarding the Dark Pool debate discussed yesterday.
Transparency is a cornerstone of the U.S. securities market. That is why I asked the staff earlier this year to begin a comprehensive review of dark pools, as well as other types of dark liquidity.
We should never underestimate or take for granted the wide spectrum of benefits that come from transparency. In particular, transparency plays a vital role in promoting public confidence in the honesty and integrity of financial markets.
Although dark liquidity always has existed in one form or another in the equity markets, the Commission must assure that the public markets and non-public trading venues operate within a balanced regulatory framework. This means that as markets evolve, the Commission must continually seek to preserve the essential role of the public markets in promoting efficient price discovery and investor confidence.
With this responsibility in mind, I turn to the proposals before us today. As our proposing release notes, some dark pools share order information selectively with certain market participants. This concerns me, because it may create two-tiered access to information that is neither fair nor transparent. That’s why, today, I support proposing rules to require that actionable indications of interest be publicly displayed as quotations and to lower the volume threshold that triggers an ATS’s order display and execution access obligations.
I also, however, recognize the interest of large institutional investors, such as the pension funds and mutual funds that represent many individual investors, to be able to trade large blocks of securities without tipping their hand and allowing other traders to take advantage of them. For that reason, I support the staff’s proposal to balance this interest with the general goal of improved price discovery by providing a limited exception to display requirements for orders of substantial size, i.e., those orders of $200,000 or more.
Markets are complex systems comprised of numerous components and features that must work together to ensure a well-functioning “whole.” I am concerned that by taking steps now to regulate particular aspects of market structure, the Commission will frustrate its ability to undertake a more constructive comprehensive review of market structure. I am concerned that considering particular features of dark pools in isolation increases the risk of unintended adverse consequences and will not yield the best results for our markets. The release acknowledges that, in the relatively near term, the Commission is expected to consider a concept release covering numerous aspects of market structure. As an initial step in considering reforms that may be warranted, perhaps the dark pool issues before the Commission today should be deferred and instead addressed in the concept release.
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The demand for non-displayed liquidity presumably will continue, despite any regulatory changes that may be adopted. If the regulatory regime significantly impinges dark pools, what type of trading activity might replace current dark pool trading? Where might current non-displayed trading interest go? To foreign markets? As I already suggested, it may not be correct to presume that it becomes displayed.
I suggest that the most likely sink for non-displayed trading interest will be private equity. We have certainly seen how, for instance, a decline in dealer trading profits due to TRACE has led to increased private issuance and the explosion of the CDS market … why shouldn’t the same mechanism apply to equities?
Canadian bond investors will appreciate that the beloved regulators have protected them to such an extent that on-line offerings of corporate bonds to retail are … somewhat skimpy.
Back to the usual grind today, with PerpetualDiscounts down 5bp and FixedResets losing 9bp. PerpetualDiscounts now yield 6.05%, equivalent to 8.47% interest at the standard equivalency factor of 1.4x. Long Corporates are now yielding a little under 6.0%, so the pre-tax interest-equivalent spread is now about 250bp, a continued widening from the 240bp reported on October 14.
Volume was quite strong today, with 52 index-included issues trading 10,000 shares while still falling short of the volume highlights table, while the six top issues were all FixedResets trading more than 50,000 shares. On the other hand, the market showed its thinness with blocks of HSB.PR.E and CM.PR.M changing hands at well below the closing bid. Market impact costs will always kill the cowboys in the end!
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
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| 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 | 0.3844 % | 1,465.2 |
| FixedFloater | 6.20 % | 4.31 % | 46,046 | 18.45 | 1 | -1.1268 % | 2,514.3 |
| Floater | 2.66 % | 3.11 % | 99,500 | 19.46 | 3 | 0.3844 % | 1,830.4 |
| OpRet | 4.89 % | -6.79 % | 117,222 | 0.09 | 15 | 0.1260 % | 2,283.9 |
| SplitShare | 6.44 % | 6.48 % | 521,857 | 3.95 | 2 | 0.0222 % | 2,054.8 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1260 % | 2,088.4 |
| Perpetual-Premium | 5.92 % | 5.95 % | 143,575 | 13.90 | 11 | -0.0294 % | 1,845.8 |
| Perpetual-Discount | 5.97 % | 6.05 % | 216,762 | 13.85 | 63 | -0.0507 % | 1,734.4 |
| FixedReset | 5.52 % | 4.26 % | 470,345 | 4.02 | 41 | -0.0872 % | 2,105.5 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| RY.PR.Y | FixedReset | -1.52 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-12-24 Maturity Price : 25.00 Evaluated at bid price : 27.23 Bid-YTW : 4.43 % |
| RY.PR.E | Perpetual-Discount | -1.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-10-21 Maturity Price : 19.60 Evaluated at bid price : 19.60 Bid-YTW : 5.85 % |
| BAM.PR.G | FixedFloater | -1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-10-21 Maturity Price : 25.00 Evaluated at bid price : 17.55 Bid-YTW : 4.31 % |
| BAM.PR.N | Perpetual-Discount | -1.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-10-21 Maturity Price : 17.35 Evaluated at bid price : 17.35 Bid-YTW : 6.93 % |
| BAM.PR.B | Floater | 1.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-10-21 Maturity Price : 12.75 Evaluated at bid price : 12.75 Bid-YTW : 3.11 % |
| TD.PR.O | Perpetual-Discount | 1.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-10-21 Maturity Price : 21.24 Evaluated at bid price : 21.24 Bid-YTW : 5.74 % |
| BAM.PR.J | OpRet | 1.25 % | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2018-03-30 Maturity Price : 25.00 Evaluated at bid price : 25.06 Bid-YTW : 5.45 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| TRP.PR.A | FixedReset | 92,256 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-01-30 Maturity Price : 25.00 Evaluated at bid price : 25.22 Bid-YTW : 4.49 % |
| TD.PR.K | FixedReset | 66,210 | RBC crossed 35,000 at 27.25. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-30 Maturity Price : 25.00 Evaluated at bid price : 27.25 Bid-YTW : 4.21 % |
| RY.PR.T | FixedReset | 59,103 | Nesbitt crossed 17,000 at 27.55; RBC crossed 15,600 at 27.56. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-09-23 Maturity Price : 25.00 Evaluated at bid price : 27.53 Bid-YTW : 4.23 % |
| CM.PR.L | FixedReset | 58,710 | Scotia bought 10,000 from RBC at 27.50; then another 20,000 from Nesbitt at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 27.35 Bid-YTW : 4.26 % |
| HSB.PR.E | FixedReset | 57,396 | Desjardins bought 30,000 from Scotia at 27.15. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-30 Maturity Price : 25.00 Evaluated at bid price : 27.35 Bid-YTW : 4.56 % |
| CM.PR.M | FixedReset | 51,640 | RBC bought two blocks from Scotia: 15,000 at 27.40 and 12,500 at 27.15. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-30 Maturity Price : 25.00 Evaluated at bid price : 27.35 Bid-YTW : 4.35 % |
| There were 52 other index-included issues trading in excess of 10,000 shares. | |||