May 20, 2015

Six banks have agreed to pay extra taxes as a regulatory extortion payment:

Six of the world’s biggest banks will pay $5.8 billion and five of them agreed to plead guilty to charges tied to a currency-rigging probe as they seek to wind down almost half a decade of enforcement actions.

Citicorp, JPMorgan Chase & Co., Barclays Plc and Royal Bank of Scotland Plc agreed to plead guilty to conspiring to manipulate the price of U.S. dollars and euros in settlements with the Justice Department announced in Washington Wednesday. The main banking unit of UBS Group AG agreed to plead guilty to charges related to interest-rate manipulation. The Swiss bank, the first to cooperate with antitrust investigators, was granted immunity in the currency probe.

The four banks that agreed to plead guilty to currency charges are among the world’s biggest foreign-exchange traders. They were accused of colluding to influence benchmark rates by aligning positions and pushing transactions through at the same time. Traders who described themselves as members of “The Cartel” used online chat rooms to discuss their positions in the minutes before the rates were set, the Justice Department said.

As discussed on June 12, 2013, I don’t understand the fuss about this. The dealers were simply positioning themselves to meet the forward obligations they had incurred in writing the clients a very short-term forward contract. Big deal. The only people who could possibly be hurt by any amount of manipulation of the fix are moronic portfolio managers who seek to “avoid risk” by entering a Market-On-Close order and the idiots who hire them. No sympathy here!

Cloud computing is getting some serious attention:

It sounds like the mother of all spreadsheets: 1 million rows, 1 million columns — 1 trillion entries in all.

Fortunately, Braxton McKee isn’t using Excel. Instead, he’s tapping into the cloud to crunch all that market data on the cheap with software he built that learns as it goes.

The cost of that cosmic power: $10.

Five years ago, the sort of programming involved in McKee’s 1-trillion-point dense matrix would have taken months of coding and $1 million-plus of hardware. Now McKee simply logs onto Amazon Web Services to name his price for computing capacity and sets his code loose. Out of a loft in the Flatiron District in Manhattan, he works on what he calls “coffee time.” His goal is to make every model — no matter how much data are involved – – compute in the time it takes him to putter to his office kitchen, brew a Nespresso Caramelito, and walk back to his desk.

There’s a slim chance that the banks’ hegemony on Canadian finance will be eroded:

Earlier in May, reports came out that stock-market operator Chi-X Global Holdings, which operates a trading venue in Canada, is exploring a sale. At the time, numerous prospective bidders were mentioned, so it’s hard to tell who would eventually win any auction, but the mere mention of Nasdaq as a potential suitor is catching Canadians’ attention.

To be clear, Nasdaq would acquire Chi-X globally, so this wouldn’t be a Canada-only deal. But the acquisition would have particularly serious implications here. Chi-X’s Canadian trading platforms have roughly a 17-per-cent market share – the official figure pegs that share closer to 20 per cent, but this volume is arguably inflated – and its venues are widely viewed as being competitive with the much bigger TMX.

What Chi-X lacks, though, is a listing business. That’s something TMX still has a near monopoly on, although Aequitas is trying to erode it. Not only does Aequitas offer a trading platform, it also features a new listing option for Canadian companies. Still, pretty much everyone agrees that building this business will take time.

It would be nice to see a big global outfit come in to undo some of the damage done by the unholy Canadian regulatory alliance, as discussed on July 4, 2012.

It would be very cool to have my 4am pizza delivered by quadropter. It would be even cooler, not to mention faster, to have it delivered by a ten engine tiltrotor:

Imagine a battery-powered plane that has 10 engines and can take off like a helicopter and fly efficiently like an aircraft. That is a concept being developed by NASA researchers called Greased Lightning or GL-10.

The team, at NASA’s Langley Research Center in Hampton, Virginia, is looking at the idea initially as a potential unmanned aerial vehicle (UAV). “We have a couple of options that this concept could be good for,” said Bill Fredericks, aerospace engineer. “It could be used for small package delivery or vertical take off and landing, long endurance surveillance for agriculture, mapping and other applications. A scaled up version — much larger than what we are testing now — would make also a great one to four person size personal air vehicle.””

During a recent spring day the engineers took the GL-10 to test its wings at a military base about two hours away from NASA Langley. The remotely piloted plane has a 10-foot wingspan (3.05 meters), eight electric motors on the wings, two electric motors on the tail and weighs a maximum of 62 pounds (28.1 kilograms) at take off.

It had already passed hover tests — flying like a helicopter — with flying colors. But now was the big hurdle — the transition from vertical to forward “wing-borne” flight. As engineers who have designed full-scale vertical take off and landing tiltrotors such as the V-22 Osprey will tell you — that is no easy task because of the challenging flight aerodynamics.

“During the flight tests we successfully transitioned from hover to wing-borne flight like a conventional airplane then back to hover again. So far we have done this on five flights,” said Fredericks. “We were ecstatic. Now we’re working on our second goal — to demonstrate that this concept is four times more aerodynamically efficient in cruise than a helicopter.”

NASATiltrotor
Click for Big

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 10bp, FixedResets down 16bp and DeemedRetractibles gaining 6bp. The performance highlights table is long compared to the overall move, with ENB FixedResets prominent on the bad side. Volume was below average.

PerpetualDiscounts now yield 5.07%, equivalent to 6.59% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 3.95%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 265bp, a widening from the 255bp reported May 14.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

impVol_TRP_150520
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.00 to be $0.98 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $0.72 cheap at its bid price of 24.97.

impVol_MFC_150520
Click for Big

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Most expensive is MFC.PR.M, resetting at +236 on 2019-12-19, bid at 24.55 to be $0.59 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 25.10 to be $0.63 cheap.

impVol_BAM_150520
Click for Big

The cheapest issue relative to its peers is BAM.PF.B, resetting at +263bp on 2019-3-31, bid at 22.77 to be $0.56 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.95 and appears to be $0.54 rich.

impVol_FTS_150520
Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 16.05, looks $0.96 cheap and resets 2015-6-1. FTS.PR.M, with a spread of +248bp and resetting 2019-12-1, is bid at 24.75 and is $0.77 rich.

pairs_FR_150520
Click for Big

Investment-grade pairs predict an average over the next five-odd years of about 0.30%, including the TRP.PR.A / TRP.PR.F at -0.50% and the BNS.PR.Y / BNS.PR.D pair at +0.63%. On the junk side, the FFH.PR.E / FFH.PR.F pair is at -1.21%, while BRF.PR.A / BRF.PR.B is at -1.17%.

pairs_FF_150520
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 0.0472 % 2,315.3
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.0472 % 4,048.2
Floater 3.14 % 3.28 % 54,296 19.00 4 0.0472 % 2,461.3
OpRet 4.44 % -10.60 % 34,303 0.12 2 0.3170 % 2,782.9
SplitShare 4.61 % 4.72 % 61,950 3.36 3 -0.7746 % 3,234.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.3170 % 2,544.7
Perpetual-Premium 5.47 % 2.17 % 65,273 0.08 18 0.0131 % 2,516.8
Perpetual-Discount 5.07 % 5.07 % 119,643 15.35 15 -0.0951 % 2,776.0
FixedReset 4.40 % 3.82 % 263,785 16.16 86 -0.1628 % 2,417.6
Deemed-Retractible 4.94 % 3.51 % 112,721 0.92 35 0.0562 % 2,635.4
FloatingReset 2.56 % 2.92 % 61,156 6.17 7 0.0974 % 2,334.0
Performance Highlights
Issue Index Change Notes
TRP.PR.D FixedReset -2.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-20
Maturity Price : 22.36
Evaluated at bid price : 23.03
Bid-YTW : 3.86 %
SLF.PR.G FixedReset -2.11 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.63
Bid-YTW : 6.78 %
BAM.PR.X FixedReset -1.86 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-20
Maturity Price : 18.44
Evaluated at bid price : 18.44
Bid-YTW : 4.24 %
ENB.PF.C FixedReset -1.55 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-20
Maturity Price : 21.33
Evaluated at bid price : 21.62
Bid-YTW : 4.50 %
FTS.PR.K FixedReset -1.53 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-20
Maturity Price : 21.30
Evaluated at bid price : 21.30
Bid-YTW : 3.89 %
ENB.PF.A FixedReset -1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-20
Maturity Price : 21.35
Evaluated at bid price : 21.65
Bid-YTW : 4.50 %
FTS.PR.G FixedReset -1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-20
Maturity Price : 21.36
Evaluated at bid price : 21.36
Bid-YTW : 3.91 %
ENB.PF.E FixedReset -1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-20
Maturity Price : 21.35
Evaluated at bid price : 21.63
Bid-YTW : 4.53 %
ENB.PR.N FixedReset -1.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-20
Maturity Price : 20.34
Evaluated at bid price : 20.34
Bid-YTW : 4.67 %
ENB.PR.T FixedReset -1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-20
Maturity Price : 19.73
Evaluated at bid price : 19.73
Bid-YTW : 4.68 %
ENB.PR.D FixedReset -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-20
Maturity Price : 19.32
Evaluated at bid price : 19.32
Bid-YTW : 4.60 %
TRP.PR.A FixedReset 1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-20
Maturity Price : 20.96
Evaluated at bid price : 20.96
Bid-YTW : 3.71 %
MFC.PR.L FixedReset 1.13 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.36
Bid-YTW : 4.36 %
PWF.PR.P FixedReset 1.55 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-20
Maturity Price : 19.02
Evaluated at bid price : 19.02
Bid-YTW : 3.66 %
PWF.PR.A Floater 1.75 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-20
Maturity Price : 18.01
Evaluated at bid price : 18.01
Bid-YTW : 2.78 %
MFC.PR.M FixedReset 2.29 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.55
Bid-YTW : 3.88 %
TD.PF.B FixedReset 2.83 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-20
Maturity Price : 22.99
Evaluated at bid price : 24.37
Bid-YTW : 3.46 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.Q FixedReset 222,139 Desjardins crossed 15,100 at 25.00; RBC crossed blocks of 50,000 shares, 49,700 and 49,400 at the same price. Raymond James bought 13,200 from TD at 25.08.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-20
Maturity Price : 23.15
Evaluated at bid price : 25.01
Bid-YTW : 3.73 %
ENB.PR.D FixedReset 79,741 Nesbitt crossed 70,000 at 19.35.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-20
Maturity Price : 19.32
Evaluated at bid price : 19.32
Bid-YTW : 4.60 %
BNS.PR.Y FixedReset 56,300 TD crossed 50,000 at 23.28.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.25
Bid-YTW : 3.07 %
RY.PR.H FixedReset 53,150 RBC crossed 50,000 at 24.50.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-20
Maturity Price : 22.99
Evaluated at bid price : 24.38
Bid-YTW : 3.45 %
HSE.PR.A FixedReset 50,090 TD crossed 25,000 at 17.20.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-20
Maturity Price : 17.17
Evaluated at bid price : 17.17
Bid-YTW : 4.27 %
BNS.PR.N Deemed-Retractible 42,363 TD crossed 39,600 at 25.70.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-06-19
Maturity Price : 25.50
Evaluated at bid price : 25.65
Bid-YTW : 1.41 %
There were 24 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TRP.PR.D FixedReset Quote: 23.03 – 23.49
Spot Rate : 0.4600
Average : 0.2916

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-20
Maturity Price : 22.36
Evaluated at bid price : 23.03
Bid-YTW : 3.86 %

MFC.PR.F FixedReset Quote: 18.92 – 19.35
Spot Rate : 0.4300
Average : 0.3048

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.92
Bid-YTW : 6.02 %

MFC.PR.K FixedReset Quote: 23.50 – 23.81
Spot Rate : 0.3100
Average : 0.1953

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.50
Bid-YTW : 4.23 %

SLF.PR.B Deemed-Retractible Quote: 24.39 – 24.70
Spot Rate : 0.3100
Average : 0.2052

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.39
Bid-YTW : 5.24 %

POW.PR.G Perpetual-Premium Quote: 26.07 – 26.38
Spot Rate : 0.3100
Average : 0.2103

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-15
Maturity Price : 25.00
Evaluated at bid price : 26.07
Bid-YTW : 4.89 %

PWF.PR.R Perpetual-Premium Quote: 25.99 – 26.35
Spot Rate : 0.3600
Average : 0.2668

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-30
Maturity Price : 25.00
Evaluated at bid price : 25.99
Bid-YTW : 4.81 %

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