Category: Market Action

I have often railed against the high cost of university education nowadays, blaming it largely on the huge increase in the number of university administrators, which results in mission creep (see March 6, 2014). I can’t find my post where I talked about the increase in administrative costs, but just so you know I’m not blowing smoke … Where all that money is going:

Shockingly, 20 cents is now spent on central administration for every dollar spent on instruction and non-sponsored research; back in 1987-88, 12 cents went to administration. At the average top 25 university, central administration (including external relations) now consumes $18 million that previously would have flowed to instruction. (For a G13 school, it’s $20 million; for the top 5, $39 million.)

… and Administrator Hiring Drove 28% Boom in Higher-Ed Work Force, Report Says:

The report, “Labor Intensive or Labor Expensive: Changing Staffing and Compensation Patterns in Higher Education,” says that new administrative positions—particularly in student services—drove a 28-percent expansion of the higher-ed work force from 2000 to 2012. The report was released by the Delta Cost Project, a nonprofit, nonpartisan social-science organization whose researchers analyze college finances.

What’s more, the report says, the number of full-time faculty and staff members per professional or managerial administrator has declined 40 percent, to around 2.5 to 1.

… and Administrators Ate My Tuition:

Between 1975 and 2005, total spending by American higher educational institutions, stated in constant dollars, tripled, to more than $325 billion per year. Over the same period, the faculty-to-student ratio has remained fairly constant, at approximately fifteen or sixteen students per instructor. One thing that has changed, dramatically, is the administrator-per-student ratio. In 1975, colleges employed one administrator for every eighty-four students and one professional staffer—admissions officers, information technology specialists, and the like—for every fifty students. By 2005, the administrator-to-student ratio had dropped to one administrator for every sixty-eight students while the ratio of professional staffers had dropped to one for every twenty-one students.

To be fair to the universities, mission creep isn’t entirely their own idea – it’s pushed by politicians:

A group of lawmakers is pressuring U.S. News & World Report to update its influential college ranking system to indicate which universities have come under fire for failing to adequately handle sexual assault cases on campus. The rankings are currently based on a range of academic indicators, like SAT scores and graduation rates.

I also understand – although I confess I can’t find the reference – that some of these policy changes come from a desire to appeal to parents of prospective students, who for some reason think they should have a say in the choice of school.

Anyway, the story that caught my attention was on Bloomberg, College Debt Leaves Generation X Grads Less Wealthy Than Parents:

While 82 percent of Generation X Americans with at least a bachelor’s degree earn more than their parents did, just 30 percent have greater wealth. A smaller share of workers without college education — 70 percent — have surpassed their parents’ incomes yet almost half had higher wealth, according to a Pew Charitable Trusts report released today.

Lackluster saving among the cohort, those born between 1965 and 1980, has come as student-loan balances persist into middle age. Generation X’s financial straits could come with economic aftershocks, making it difficult for parents to afford college for the next generation and forcing workers to hold onto jobs longer or lower their living standards as they age.
…
People between the ages of 30 and 39 held about $321 billion in total student debt at the end of 2012, up from about $124 billion at the start of 2005, according to data from the Federal Reserve Bank of New York. Those between 40 and 49 owed $168 billion, up from $53 billion.

This is all based on a study from the PEW Charitable Trusts titled A New Financial Reality:

•• Most Gen Xers have higher family incomes than their parents did at the same age, but only one-third have greater family wealth. Three-quarters of Gen Xers have higher family incomes than their parents did, earning a median of $43,000 annually, after adjusting for family size. However, just 36 percent of Gen Xers have exceeded their parents’ family wealth, and the typical Gen Xer has $5,000 less wealth than their parents did at the same age.

•• Gen Xers’ lower wealth is due in part to their debt totals, which are nearly six times higher than their
parents’ were at the same age. Nearly all Gen Xers report holding student loan, medical, credit card, or other debt, with a median of more than $7,000. In contrast, their parents held just over $1,000 in debt at the same point in their lives.

•• Generation X has experienced exceptional stickiness at the top and bottom of the income ladder. Among Gen Xers raised at the bottom of the income ladder, half remain stuck there and nearly three-quarters never reach the middle. There is similar stickiness at the top: Nearly 7 in 10 Gen Xers who are on the top income rung in their 30s were raised by parents who were also above the middle in their 30s.

•• The persistent stickiness at both ends of the income ladder for Gen Xers is linked to sharp demographic differences. Among Gen Xers stuck at the bottom of the income ladder, median wealth, excluding home equity, is less than $800, more than half are single, and only 2 percent have a college education. In contrast, of Gen Xers who were born in and remain at the top, 83 percent are part of a couple, 71 percent have a college education, and all have more than $69,000 in non-home-equity wealth.

•• Gen Xers whose family wealth exceeds that of their parents also far surpass their peers in wealth holdings. Gen Xers who are upwardly wealth-mobile—that is, they have more wealth than their parents did at the same age—have nearly nine times the non-home-equity wealth of their peers who have less wealth than their parents and more than three times that of the typical Gen Xer.

•• Among Gen Xers who have exceeded their parents’ income, those with college degrees are less likely to surpass their parents’ wealth, mostly due to student loan debt. Nearly 4 in 10 Gen Xers who have college degrees and have more income than their parents did hold student loan debt, with a median amount owed of $25,000.

OSFI has released its Public Disclosure Requirements related to Basel III Leverage Ratio:

4. Disclosure requirements for D-SIBs

The disclosure requirements set out in the BCBS LR Framework, require D-SIBs to publicly disclose:

• I. Summary comparison table – D-SIBs are required to report the reconciliation of their balance sheet assets from their financial statements with the leverage ratio exposure measure, using the attached Reporting Table 1 in the Annex I.
• ii. Common disclosure template – D-SIBs are required to provide a breakdown of the main leverage ratio regulatory elements, using the attached Reporting Table 2 in the Annex I.

  OSFI requires D-SIBs to report the LR using both the transitional measure of Tier 1 capital and the all-in measure of Tier 1 capital. Lines 1 to 22 of this template are based on the Basel transitional LR. Lines 23 to 26 should be used to report the all-in LR.

• iii. Reconciliation with public financial statements – D-SIBs are required to disclose the source of material differences between their total balance sheet assets (net of on-balance sheet derivative and securities financing transaction (SFT) assets) as reported in their financial statements and their on-balance sheet exposures in line 1 of the common disclosure template.
• iv. Other – D-SIBs are required to explain the key drivers of material changes in their Basel III leverage ratio observed from the end of the previous reporting period to the end of the current reporting period (whether the changes stem from changes in the numerator and/or from changes in the denominator).

The SEC has triumphantly declared a milestone in its assault on ethics:

The Securities and Exchange Commission today announced an expected award of more than $30 million to a whistleblower who provided key original information that led to a successful SEC enforcement action.

The award will be the largest made by the SEC’s whistleblower program to date and the fourth award to a whistleblower living in a foreign country, demonstrating the program’s international reach.

“This whistleblower came to us with information about an ongoing fraud that would have been very difficult to detect,” said Andrew Ceresney, Director of the SEC’s Division of Enforcement. “This record-breaking award sends a strong message about our commitment to whistleblowers and the value they bring to law enforcement.”

That’s right, folks! You, too, can obtain multi-generational wealth by sneaking up to your bedroom at midnight, drawing the blinds, taking your ‘phone under the bed and denouncing your colleagues to the authorities! Sadly, the SEC did not state whether or not each whistleblower receives a shiny new “Junior Secret Policeman” badge.

Many investors long for a return to the days when they could get a two or three percent real return from T-Bills. ‘Don’t hold your breath’, says Rhys R. Mendes in a Bank of Canada discussion paper titled The Neutral Rate of Interest in Canada:

A measure of the neutral policy interest rate can be used to gauge the stance of monetary policy. We define the neutral rate as the real policy rate consistent with output at its potential level and inflation equal to target after the effects of all cyclical shocks have dissipated. This is a medium- to longer-run concept of the neutral rate. Under this definition, the neutral rate in Canada is determined by the longer-run forces that influence savings and investment in both the Canadian and global economies. Structural forces have likely reduced the neutral rate by more than a percentage point since the mid-2000s. The Bank’s estimates of the real neutral policy rate currently stand in the 1 to 2 per cent range, or 3 to 4 per cent in nominal terms. The current gap between the policy rate and the neutral rate reflects policy stimulus in response to significant excess supply and in the face of continuing headwinds. As long as these headwinds persist, a policy rate below neutral will be required to maintain inflation sustainably at target.
…
We define the neutral rate as the real policy rate consistent with output at its potential level and inflation equal to the 2 per cent target after the effects of all cyclical shocks have dissipated. This is a medium- to long-run concept which varies over time with lower-frequency factors such as demographic change and shifts in trend productivity growth. The deviation of the actual policy rate from neutral – the interest rate gap – is a measure of the stance of monetary policy.

The Bank’s estimates of this concept of the neutral policy rate currently stand in the range of 1 to 2 per cent in real terms, or 3 to 4 per cent in nominal terms. This range reflects the range of estimates from the various approaches discussed in this paper. Thus, with the nominal policy rate currently at 1 per cent, monetary policy is stimulative in Canada.
…
The Bank’s estimates of the neutral rate have declined by more than 1 percentage point since the mid-2000s as a result of structural changes in the Canadian and global economies. This decline largely reflects a lower global neutral rate and reduced potential output growth in Canada.
…
The global savings rate began to increase in the early 2000s. This rise was interrupted by the crisis, but the International Monetary Fund (IMF) expects it to continue in the future (Figure 6). The IMF projects the global savings rate to average 26 per cent over the 2014–19 period, more than 3 percentage points above its 1999–2006 average.
…
The preceding analysis of savings and investment assumed that there is a single risk-free interest rate in the economy. In reality, households and firms do not generally have access to credit at the risk-free rate. When borrowing to finance investment or consumption, private economic agents pay a rate of interest equal to the risk-free rate plus a risk premium or credit spread. Since credit spreads influence private sector behaviour, they affect the level of the neutral rate….Figure 8 shows effective spreads for households and firms in Canada. The 2013 average level of effective spreads was about 20 bps higher for households and 45 bps higher for firms, relative to the 1999–2006 average. Were this increase in spreads to persist, it would imply a lower neutral rate.

Did everybody get that last bit? Since credit spreads have increased, households and firms will have to pay more to borrow, which means they will borrow less, which reduces growth, which means the policy rate will have to decrease in order to maintain the growth rate, which means households and firms will get paid less for their savings. Hurray for financial repression! Mr. Mendes says we can give thanks to our glorious leaders for keeping us safe!

Relative to the pre-crisis benchmark, changes in spreads are not uniform across economies. In particular, spreads have not increased universally. However, increased costs of financial intermediation, partly as a result of needed financial regulatory reform, may cause spreads to settle at higher levels than in the pre-crisis period. A joint analysis by the Financial Stability Board and the Basel Committee on Banking Supervision attempted to quantify this effect. It found that a 3-percentage-point increase in banks’ common equity Tier 1 capital ratio would raise lending spreads by around 45 to 50 basis points (BCBS and FSB 2010). The Bank’s estimates for Canada are of a similar magnitude (Bank of Canada 2010). This could be reinforced by changes in investors’ perceptions and pricing of risk in light of the experience of the crisis. As Caballero and Farhi (2014) show, an increase in the relative demand for safe assets can increase the spread between risky and risk-free assets and lead to a lower neutral rate.

Blackrock, the people who bring to you more ETFs than you can shake a stick at, has released a “Viewpoint” with the thesis Corporate Bond Market Structure: The Time For Reform Is Now:

We believe the secondary trading environment for corporate bonds today is broken, and the extent of the breakage is masked by the current environment of low interest rates and low volatility, coupled with the positive impact of QE on credit markets. The current environment also breeds complacency—for issuers and investors alike. When any of these factors change, the extent to which today’s fixed income markets are not “fit for purpose” will be exposed. Market regulators are right to call for change now, while the benign state still exists. In this paper we make four recommendations for reform. As we explain, these are not just regulatory changes, but much broader reforms—to fix corporate fixed income markets will require changes in behavior by all market participants—issuers, intermediaries and investors. And yes, by regulators, too.

Their problem is one I have harped on until you guys are all bored to death of the topic:

For the last several years, both retail and institutional investors have been concerned about deteriorating liquidity in the corporate bond market.

… and they propose four steps:

Market Changes to Improve Liquidity

There is no “silver bullet” that will cure the corporate bond liquidity challenge. However, there are four drivers which, together, have the potential to substantially improve liquidity in the corporate bond market.

• More “all to all” trading venues – not just “dealer-to-customer” or “dealer-to-dealer”;
• Adoption of multiple electronic trading (e-trading) protocols – not just request for quote (RFQ) or central limit order book (CLOB);
• Standardization of selected features of newly-issued corporate bonds; and
• Behavioral changes by market participants recognizing the fundamentally changed landscape.

The first idea is, essentially, exchange trading for bonds:

Increased development and acceptance of “all-to-all” trading venues, where multiple parties, from both the buy-side and the sell-side, could come together and communicate would provide opportunities to uncover latent liquidity. Greater use of “all-to-all” venues, including exchanges, clearinghouses, electronic communication networks (ECNs), and similar platforms would enhance liquidity by enabling greater market connectivity and centralization of liquidity than the current bi-lateral framework. Such venues already exist, but see limited trading activity. For example, the New York Stock Exchange (NYSE) operates NYSE Bonds which trades in a similar manner to the NYSE stock exchange; however, NYSE Bonds has limited volume of largely small-sized trades.

I can’t agree with this one. As I often bore you by reiterating (most recently on June 23, 2014) public exchanges lead to thin, brittle markets. Exchanges are OK for tiny little markets like equities, but the bond market deals with real money.

Their introduction to the explanation of their ‘multiple protocol’ idea amused me:

Currently, trading in the corporate bond market is primarily conducted via the request for quote (RFQ) method, where a trader from the buy-side will communicate an interest in buying or selling a particular bond to a dealer and ask the dealer for a price. The buy-side trader may ask several dealers for a price quote and will then select a dealer with whom to conduct the transaction.

Ha-ha! As I most recently noted on September 16, 2014, your average portfolio manager is far too lazy to get multiple quotes. The general rule, enthusiastically endorsed by our wise regulators, is for bozo-boy to call ‘his’ salesman at ‘his’ firm, exchange wise remarks about whatever was in the headlines of the Wall Street Journal that morning, and then take whatever price he’s given for whatever the salesman is selling. Then he calls his mummy and tells her what a big shot he is; having received a confidence-raising pat on the head, he then calls his clients and tells them what a hard-nosed skin-flint he is. That’s reality.

Anyway, they contrast the RFQ system, above, with the CLOB system:

In comparison, a central limit order book (CLOB), one of the primary protocols used in the equity markets, allows buy and sell orders for a particular stock that is listed on an exchange to be matched up, and facilitates efficient execution for these securities. Central limit order book protocols work best when the instruments being traded are highly liquid and standardized.

They want to form other protocols:

RFQ systems	All-to-all RFQ systems are all-to-all trading venues, where multiple parties from both the buy-side and the sell-side are connected and quotes can be requested from several different parties electronically. RFQ can be made anonymously or disclosed. Multiple requests could be made simultaneously via lists to multiple participants on the venue. This enables aggregating some of the fragmented liquidity and supports broader market participation.
Open trading protocols	Open trading systems that pool together sell-side inventory and orders with buy-side orders enhance liquidity by broadening the universe of potential matches. MarketAxess is an ECN that has been a thought leader in defining new protocols, and offers both open trading and list-based all-to-all RFQ protocols.
Session-based protocols	Session-based protocols aggregate liquidity in a given security at defined times of day by announcing a time when certain securities will be traded. Parties interested in buying and selling that particular security will do so at that time, which in turn addresses timing mismatches, where there is no buyer when a market participant wants to sell a security or vice versa.
Crossing systems	Enables anonymous matching of desired buy and sell orders using electronic systems, usually executed at a mid-market price.

Well, these things might be OK, or at least interesting, when raising or spending cash. But I can’t see any applicability for spread trading, which makes all this useless. Session-based protocols aren’t much good – corporate bonds trade by appointment, and a rational trader won’t even know he wants to trade something until after he’s shown a good price. So let’s just say on this that I retain an open mind, but I’m going to need a lot more explanation and justification!

My first thought when reading their recommendation for ‘standardization’ was that it was going to be a reprise on the idiotic covenant standardization idea mocked on March 10, 2014; fortunately, Blackrock isn’t that dumb. What they want is:

Standardization would reduce the number of individual bonds, via steps such as issuing similar amounts and maturities at regular intervals and re-opening benchmark issues to meet on-going financing needs. Standardized terms would improve the ability to quote and trade bonds, and would create a liquid curve for individual issuers.

They offer up a number of purported advantages of such a change, but don’t really address the question of how the poor old issuer is supposed to refund the monster issues when they come due. Governments can have a set schedule of issuance, there is always a good deep bid for governments … but for credit? I’m not so sure.

Their desired behavioral changes are a real grab-bag:

For investors, this behavioral change means a willingness to give up new issue gains and liquidity arbitrage strategies for lower transaction costs, access to deeper markets, and for institutional investors in particular, the ability to buy and sell in greater size. Investors must become price makers as well as price takers. Issuers must begin to assess the benefits of standardization (potentially lower issuance costs) against the cost (some compromises in flexibility) not only in today’s benign environment but also when interest rates rise and volatility increases. Bankers should provide leadership in product innovation and structure debt offerings to improve liquidity, as the status quo is not sustainable. Larger, more frequent issuers, particularly wholesale-funded banks that are also the leading debt underwriters, are natural parties to lead the market evolution. Trading venues need to develop new ways to trade beyond the standard protocols. And regulators, given concerns about transparency and market liquidity need to consider the benefits of standardization and how best, within their mandate, to promote it.

I continue to feel that the best path – and the one that makes most sense in terms of markets – is for large bond-holders to start making markets. Blackrock could take the lead here. How about a corporate bond fund that covenants not to approximate the index as closely as possible, but one that will invest in a universe defined by such-and-such an index, maintaining metrics such as duration, convexity, average coupon, issuer exposure, etc., to within a certain tolerance of the index (a multiple-dimension cell system would be ideal)? As I understand it, that is the objective, more or less, of the HPR: Horizons AlphaPro Preferred Share ETF:

“We’re very happy to be working with Natcan once again. Their fixed income team has done a great job in managing the recently launched Horizons AlphaPro Corporate Bond ETF, Canada’s largest actively managed ETF. We expect more of the same with the Preferred Share ETF based on our belief that an active strategy can overcome many of the limitations found in trying to replicate a preferred share index,” said Ken McCord, President of AlphaPro.

… but of course, that would involve Blackrock hiring actual traders and actual salesmen to run their fund … and those guys make a little bit more than the spreadsheet wretches they have on staff now … ‘You first!’ exhort the bold visionaries at Blackrock! Maybe Guggenheim, or one of the other players who have been buying US annuity books will step up. It would be a natural fit.

And … almost finally … there are questions swirling about the King Timmy merger:

The Treasury Department announced steps that will make it harder for U.S. companies to move their addresses outside the country to reduce taxes, clamping down on the practice known as inversions.
…
Among the eight pending inversions is Burger King Worldwide Inc. (BKW)’s planned merger with Tim Hortons Inc. (THI), which would put the combined company’s headquarters in Canada.
…
Under current law, U.S. companies that invert through a merger are still treated as domestic for tax purposes if the former U.S. company’s shareholders own more than 80 percent of the combined company. The administration wants to reduce that 80 percent to 50 percent; that requires legislation.

In the absence of legislation, the Treasury Department looked for ways to make it harder for companies to get around the 80 percent limit.

The rules announced today seek to limit so-called spin-versions, in which U.S. companies spin off units into a foreign company.

It also would restrict the use of a technique known as skinnying down, in which companies make special dividends to reduce their size before a merger to meet the current law’s requirements. U.S. companies would be less able to seek out so-called old and cold foreign companies with cash and other passive assets as merger partners to meet the rules.
…
Scott Bonikowsky, a spokesman for Tim Hortons, didn’t immediately respond to messages seeking comment. Burger King, based in Miami, declined to comment.

Power Corporation, proud issuer of POW.PR.A, POW.PR.B, POW.PR.C, POW.PR.D, POW.PR.F and POW.PR.G, has confirmed at Pfd-2(high) by DBRS:

DBRS has today confirmed the Senior Debt and preferred shares ratings of Power Corporation of Canada (POW or the Company) at A (high) and Pfd-2 (high), respectively. The trends on the ratings remain Stable. The credit strength of POW is directly tied to its roughly two-thirds equity interest in Power Financial Corporation (PWF), which represents a substantial majority of the Company’s earnings and cash flow, as well as the Company’s estimated net asset value. The Senior Debt rating of the Company is A (high), or one notch below the AA (low) rating on the Senior Debentures of PWF, reflecting the structural subordination of the holding company’s obligations.

Power Financial Corporation, proud issuer of PWF.PR.A, PWF.PR.E, PWF.PR.F, PWF.PR.G, PWF.PR.H, PWF.PR.I, PWF.PR.K, PWF.PR.L, PWF.PR.O, PWF.PR.P, PWF.PR.R, PWF.PR.S and PWF.PR.T, has been confirmed at Pfd-1(low) by DBRS:

DBRS has today confirmed both the Issuer Rating and Senior Debentures rating of Power Financial Corporation (PWF or the Company) at AA (low) and the Cumulative and Non-Cumulative First Preferred Shares at Pfd-1 (low). All trends remain Stable. The financial strength of PWF, and DBRS’s rating assessment, is largely derived from its controlling interests in two of Canada’s leading financial service providers: Great-West Lifeco Inc. (GWO; senior debt rated AA (low)), one of the three largest life insurance concerns in Canada, and IGM Financial Inc. (IGM; senior debt rated A (high)), one of the largest mutual fund complexes in Canada.
…
The Company’s financial leverage has been maintained at a reasonable level for the past ten years. The Company’s capitalization remains conservative and the fixed charge coverage ratios are similarly strong relative to both earnings and cash flow. Liquidity is not a source of concern, with about $800 million in cash and short-term securities at the holding company at June 30, 2014, in addition to stores of liquidity at both GWO and IGM.

It was a modestly positive day for the Canadian preferred share market, with PerpetualDiscounts up 4bp, FixedResets winning 8bp and DeemedRetractibles gaining 3bp. Volatility was average. Volume was below 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	-0.4848 %	2,637.8
FixedFloater	4.20 %	3.46 %	24,966	18.43	1	-0.7463 %	4,129.2
Floater	2.92 %	3.05 %	57,212	19.59	4	-0.4848 %	2,727.7
OpRet	4.05 %	1.57 %	98,820	0.08	1	0.0395 %	2,727.1
SplitShare	4.30 %	3.80 %	106,598	3.90	5	0.1177 %	3,150.7
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0395 %	2,493.7
Perpetual-Premium	5.48 %	3.51 %	81,667	0.08	20	0.0996 %	2,438.3
Perpetual-Discount	5.27 %	5.18 %	101,413	15.16	16	0.0439 %	2,589.7
FixedReset	4.24 %	3.76 %	184,423	6.48	74	0.0752 %	2,558.4
Deemed-Retractible	5.00 %	1.99 %	114,145	0.42	42	0.0314 %	2,564.3
FloatingReset	2.58 %	-2.37 %	76,046	0.08	6	-0.0913 %	2,537.5

Performance Highlights
Issue	Index	Change	Notes
MFC.PR.F	FixedReset	-1.24 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.37 Bid-YTW : 4.61 %
BAM.PF.D	Perpetual-Discount	-1.01 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-22 Maturity Price : 21.33 Evaluated at bid price : 21.63 Bid-YTW : 5.68 %
IAG.PR.G	FixedReset	1.00 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-30 Maturity Price : 25.00 Evaluated at bid price : 26.21 Bid-YTW : 2.46 %
POW.PR.G	Perpetual-Premium	1.03 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2021-04-15 Maturity Price : 25.00 Evaluated at bid price : 26.02 Bid-YTW : 4.83 %

Volume Highlights
Issue	Index	Shares Traded	Notes
PWF.PR.H	Perpetual-Premium	255,200	Nesbitt crossed blocks of 150,000 and 100,000, both at 25.43. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-22 Maturity Price : 25.00 Evaluated at bid price : 25.47 Bid-YTW : -6.76 %
FTS.PR.M	FixedReset	231,290	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-22 Maturity Price : 23.19 Evaluated at bid price : 25.11 Bid-YTW : 4.01 %
SLF.PR.H	FixedReset	121,700	Nesbitt crossed 117,800 at 25.20. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.23 Bid-YTW : 3.40 %
TD.PF.B	FixedReset	116,727	Scotia crossed 98,700 at 25.10. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.13 Bid-YTW : 3.61 %
CU.PR.C	FixedReset	66,004	RBC crossed blocks of 50,000 and 14,200, both at 25.52. YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-01 Maturity Price : 25.00 Evaluated at bid price : 25.44 Bid-YTW : 3.42 %
MFC.PR.M	FixedReset	58,180	TD crossed 21,500 at 25.31. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-12-19 Maturity Price : 25.00 Evaluated at bid price : 25.31 Bid-YTW : 3.74 %
There were 26 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
BAM.PR.K	Floater	Quote: 17.05 – 17.32 Spot Rate : 0.2700 Average : 0.1728 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-22 Maturity Price : 17.05 Evaluated at bid price : 17.05 Bid-YTW : 3.07 %
MFC.PR.B	Deemed-Retractible	Quote: 23.20 – 23.50 Spot Rate : 0.3000 Average : 0.2176 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.20 Bid-YTW : 5.61 %
PVS.PR.C	SplitShare	Quote: 25.89 – 26.90 Spot Rate : 1.0100 Average : 0.9287 YTW SCENARIO Maturity Type : Call Maturity Date : 2015-12-10 Maturity Price : 25.50 Evaluated at bid price : 25.89 Bid-YTW : 3.65 %
MFC.PR.C	Deemed-Retractible	Quote: 22.70 – 22.92 Spot Rate : 0.2200 Average : 0.1430 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.70 Bid-YTW : 5.73 %
GWO.PR.I	Deemed-Retractible	Quote: 22.54 – 22.80 Spot Rate : 0.2600 Average : 0.1831 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.54 Bid-YTW : 5.80 %
BAM.PF.D	Perpetual-Discount	Quote: 21.63 – 21.85 Spot Rate : 0.2200 Average : 0.1577 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-22 Maturity Price : 21.33 Evaluated at bid price : 21.63 Bid-YTW : 5.68 %

Interesting to see that having a down-payment for a house isn’t good enough any more:

The Bank of Mom and Dad is playing a growing role as lender of last resort for a housing recovery struggling to provide more traction for the U.S. economy.

Last year, 27 percent of those purchasing a home for the first time received a cash gift from relatives or friends to come up with a down payment, according to data from the National Association of Realtors. That’s up from 24 percent in 2012 and matches the highest share since the group began keeping records in 2009.

Those numbers will probably keep growing this year as younger Americans remain constrained by student debt, tough entry into the job market and stricter mortgage-lending rules that require more cash up front. At the same time, rising stock and property values give their baby boomer parents the ability to assist those wanting to lock in near record-low borrowing costs.
…
The increase in such cash gifts also has lenders on guard against unstable sources of down payment funds.

“The regulatory agencies are very, very specific about the paper trail requirements,” said Staci Titsworth, a regional loan officer in Pittsburgh who works in the mortgage division of PNC Financial Services Group Inc. “It truly needs to be a gift with no expectation to repay, because once expectation to repay comes into the equation, now you’ve got borrowed funds for down payment, which is unacceptable.”

PNC, as with other lenders such as Regions Financial Corp. and BB&T Corp., requires that the gift be from a relative by blood or marriage, with few exceptions. A “gift letter” with the mortgage application typically must include the amount of the gift, date the funds were transferred, donor’s basic identification and relationship to the buyer, and a statement that no repayment is expected, according to representatives of the three banks.

Financial institutions are careful about determining the source of funds because, while mortgages secured with the help of gifts from family are about as sound as those without any help, gifts linked to the seller were found to have increased default rates during the housing crisis, according to data from the Federal Housing Administration. Gifts from the seller are now banned by the agency.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 11bp, FixedResets off 2bp and DeemedRetractibles gaining 4bp. Volatility was muted. Volume was a little below 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	-0.0415 %	2,650.7
FixedFloater	4.17 %	3.43 %	24,419	18.50	1	-0.0877 %	4,160.2
Floater	2.91 %	3.04 %	53,403	19.62	4	-0.0415 %	2,741.0
OpRet	4.05 %	1.65 %	91,511	0.08	1	-0.0395 %	2,726.0
SplitShare	4.30 %	3.80 %	110,954	3.91	5	-0.1009 %	3,147.0
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0395 %	2,492.7
Perpetual-Premium	5.47 %	2.48 %	70,374	0.09	20	-0.0766 %	2,435.9
Perpetual-Discount	5.27 %	5.18 %	101,303	15.15	16	-0.1053 %	2,588.5
FixedReset	4.24 %	3.79 %	187,250	8.49	74	-0.0203 %	2,556.5
Deemed-Retractible	5.00 %	1.95 %	110,346	0.28	42	0.0419 %	2,563.5
FloatingReset	2.61 %	-0.95 %	75,689	0.08	6	0.0326 %	2,539.8

Performance Highlights
Issue	Index	Change	Notes
BAM.PF.B	FixedReset	-1.87 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-19 Maturity Price : 23.07 Evaluated at bid price : 24.63 Bid-YTW : 4.26 %
BAM.PR.X	FixedReset	1.10 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-19 Maturity Price : 21.81 Evaluated at bid price : 22.06 Bid-YTW : 4.13 %
TRP.PR.B	FixedReset	1.22 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-19 Maturity Price : 19.96 Evaluated at bid price : 19.96 Bid-YTW : 3.77 %

Volume Highlights
Issue	Index	Shares Traded	Notes
FTS.PR.M	FixedReset	1,507,011	New issue settled today. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-19 Maturity Price : 23.18 Evaluated at bid price : 25.10 Bid-YTW : 4.02 %
TRP.PR.E	FixedReset	375,056	RBC crossed 50,000 at 25.39; TD crossed 300,000 at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-19 Maturity Price : 23.27 Evaluated at bid price : 25.35 Bid-YTW : 3.94 %
TD.PR.Q	Deemed-Retractible	134,350	Scotia crossed 40,000 at 26.27; TD crossed blocks of 40,000 and 48,400 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-19 Maturity Price : 25.75 Evaluated at bid price : 26.20 Bid-YTW : -6.57 %
BAM.PR.P	FixedReset	108,512	Called for redemption September 30. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-30 Maturity Price : 25.00 Evaluated at bid price : 24.98 Bid-YTW : 5.91 %
ENB.PR.T	FixedReset	82,843	TD crossed 78,000 at 24.03. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-19 Maturity Price : 22.76 Evaluated at bid price : 23.92 Bid-YTW : 4.29 %
HSB.PR.C	Deemed-Retractible	68,540	TD crossed 62,700 at 25.33. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-19 Maturity Price : 25.00 Evaluated at bid price : 25.25 Bid-YTW : -8.70 %
There were 28 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
BAM.PF.B	FixedReset	Quote: 24.63 – 25.00 Spot Rate : 0.3700 Average : 0.2138 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-19 Maturity Price : 23.07 Evaluated at bid price : 24.63 Bid-YTW : 4.26 %
PWF.PR.O	Perpetual-Premium	Quote: 26.11 – 26.40 Spot Rate : 0.2900 Average : 0.2076 YTW SCENARIO Maturity Type : Call Maturity Date : 2017-10-31 Maturity Price : 25.25 Evaluated at bid price : 26.11 Bid-YTW : 4.85 %
ELF.PR.G	Perpetual-Discount	Quote: 22.13 – 22.47 Spot Rate : 0.3400 Average : 0.2581 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-19 Maturity Price : 21.79 Evaluated at bid price : 22.13 Bid-YTW : 5.44 %
W.PR.H	Perpetual-Premium	Quote: 25.10 – 25.45 Spot Rate : 0.3500 Average : 0.2757 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-19 Maturity Price : 24.88 Evaluated at bid price : 25.10 Bid-YTW : 5.57 %
RY.PR.Z	FixedReset	Quote: 25.30 – 25.55 Spot Rate : 0.2500 Average : 0.1758 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-19 Maturity Price : 23.28 Evaluated at bid price : 25.30 Bid-YTW : 3.76 %
CU.PR.E	Perpetual-Discount	Quote: 24.23 – 24.43 Spot Rate : 0.2000 Average : 0.1346 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-19 Maturity Price : 23.84 Evaluated at bid price : 24.23 Bid-YTW : 5.08 %

Nothing happened today.

It was a mixed day for the Canadian preferred share market, with PerptualDiscounts down 15bp, FixedResets up 10bp and DeemedRetractibles gaining 2bp. Volatility was minimal. Volume was low.

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	0.4171 %	2,651.8
FixedFloater	4.17 %	3.42 %	24,543	18.51	1	0.2198 %	4,163.9
Floater	2.91 %	3.04 %	55,250	19.64	4	0.4171 %	2,742.1
OpRet	4.05 %	1.03 %	89,746	0.08	1	-0.0395 %	2,727.1
SplitShare	4.30 %	3.76 %	109,801	3.91	5	0.0930 %	3,150.1
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0395 %	2,493.7
Perpetual-Premium	5.47 %	1.80 %	70,538	0.09	20	0.0138 %	2,437.7
Perpetual-Discount	5.27 %	5.19 %	100,980	15.15	16	-0.1483 %	2,591.3
FixedReset	4.26 %	3.80 %	186,561	6.57	74	0.1011 %	2,557.0
Deemed-Retractible	5.01 %	1.76 %	109,953	0.28	42	0.0200 %	2,562.5
FloatingReset	2.61 %	0.00 %	70,068	0.08	6	0.3534 %	2,539.0

Performance Highlights
Issue	Index	Change	Notes
BAM.PF.E	FixedReset	1.02 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-18 Maturity Price : 23.06 Evaluated at bid price : 24.81 Bid-YTW : 4.22 %
MFC.PR.M	FixedReset	1.59 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2019-12-19 Maturity Price : 25.00 Evaluated at bid price : 25.53 Bid-YTW : 3.55 %

Volume Highlights
Issue	Index	Shares Traded	Notes
NA.PR.S	FixedReset	378,400	Scotia crossed 368,200 at 25.60. Nice ticket! YTW SCENARIO Maturity Type : Call Maturity Date : 2019-05-15 Maturity Price : 25.00 Evaluated at bid price : 25.61 Bid-YTW : 3.63 %
NA.PR.Q	FixedReset	104,238	Scotia crossed 100,000 at 25.77. YTW SCENARIO Maturity Type : Call Maturity Date : 2017-11-15 Maturity Price : 25.00 Evaluated at bid price : 25.85 Bid-YTW : 2.80 %
TRP.PR.E	FixedReset	97,670	RBC crossed 50,000 at 25.39; Scotia crossed 40,000 at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-18 Maturity Price : 23.28 Evaluated at bid price : 25.39 Bid-YTW : 3.93 %
BMO.PR.W	FixedReset	91,875	RBC crosse 50,000 at 25.08. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-18 Maturity Price : 23.18 Evaluated at bid price : 25.08 Bid-YTW : 3.78 %
FTS.PR.G	FixedReset	73,870	Nesbitt crossed 62,300at 24.80. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-18 Maturity Price : 23.15 Evaluated at bid price : 24.70 Bid-YTW : 3.79 %
GWO.PR.N	FixedReset	55,160	Nesbitt crossed 50,000 at 21.84. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.80 Bid-YTW : 4.67 %
There were 21 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
BAM.PF.A	FixedReset	Quote: 25.32 – 25.74 Spot Rate : 0.4200 Average : 0.2394 YTW SCENARIO Maturity Type : Call Maturity Date : 2018-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.32 Bid-YTW : 4.14 %
PVS.PR.C	SplitShare	Quote: 25.92 – 26.90 Spot Rate : 0.9800 Average : 0.8722 YTW SCENARIO Maturity Type : Call Maturity Date : 2015-12-10 Maturity Price : 25.50 Evaluated at bid price : 25.92 Bid-YTW : 3.52 %
MFC.PR.K	FixedReset	Quote: 24.70 – 25.05 Spot Rate : 0.3500 Average : 0.2436 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.70 Bid-YTW : 4.02 %
BAM.PR.R	FixedReset	Quote: 25.33 – 25.59 Spot Rate : 0.2600 Average : 0.1712 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-18 Maturity Price : 23.76 Evaluated at bid price : 25.33 Bid-YTW : 3.96 %
MFC.PR.F	FixedReset	Quote: 22.70 – 23.00 Spot Rate : 0.3000 Average : 0.2244 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.70 Bid-YTW : 4.44 %
TRP.PR.A	FixedReset	Quote: 22.41 – 22.60 Spot Rate : 0.1900 Average : 0.1304 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-18 Maturity Price : 21.91 Evaluated at bid price : 22.41 Bid-YTW : 4.02 %

The big news of the day was the Fed’s announcement of policy normalization principles and plans:

All FOMC participants but one agreed on the following key elements of the approach they intend to implement when it becomes appropriate to begin normalizing the stance of monetary policy:

• • The Committee will determine the timing and pace of policy normalization–meaning steps to raise the federal funds rate and other short-term interest rates to more normal levels and to reduce the Federal Reserve’s securities holdings–so as to promote its statutory mandate of maximum employment and price stability.
  • ◦ When economic conditions and the economic outlook warrant a less accommodative monetary policy, the Committee will raise its target range for the federal funds rate.
  • ◦ During normalization, the Federal Reserve intends to move the federal funds rate into the target range set by the FOMC primarily by adjusting the interest rate it pays on excess reserve balances.
  • ◦ During normalization, the Federal Reserve intends to use an overnight reverse repurchase agreement facility and other supplementary tools as needed to help control the federal funds rate. The Committee will use an overnight reverse repurchase agreement facility only to the extent necessary and will phase it out when it is no longer needed to help control the federal funds rate.
• • The Committee intends to reduce the Federal Reserve’s securities holdings in a gradual and predictable manner primarily by ceasing to reinvest repayments of principal on securities held in the SOMA.
  • ◦ The Committee expects to cease or commence phasing out reinvestments after it begins increasing the target range for the federal funds rate; the timing will depend on how economic and financial conditions and the economic outlook evolve.
  • ◦ The Committee currently does not anticipate selling agency mortgage-backed securities as part of the normalization process, although limited sales might be warranted in the longer run to reduce or eliminate residual holdings. The timing and pace of any sales would be communicated to the public in advance.
• • The Committee intends that the Federal Reserve will, in the longer run, hold no more securities than necessary to implement monetary policy efficiently and effectively, and that it will hold primarily Treasury securities, thereby minimizing the effect of Federal Reserve holdings on the allocation of credit across sectors of the economy.
• • The Committee is prepared to adjust the details of its approach to policy normalization in light of economic and financial developments.

This was accompanied by the FOMC release:

Information received since the Federal Open Market Committee met in July suggests that economic activity is expanding at a moderate pace. On balance, labor market conditions improved somewhat further; however, the unemployment rate is little changed and a range of labor market indicators suggests that there remains significant underutilization of labor resources. Household spending appears to be rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee’s longer-run objective. Longer-term inflation expectations have remained stable.
…
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation.
…
The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.
…
Voting against the action were Richard W. Fisher and Charles I. Plosser. President Fisher believed that the continued strengthening of the real economy, improved outlook for labor utilization and for general price stability, and continued signs of financial market excess, will likely warrant an earlier reduction in monetary accommodation than is suggested by the Committee’s stated forward guidance. President Plosser objected to the guidance indicating that it likely will be appropriate to maintain the current target range for the federal funds rate for “a considerable time after the asset purchase program ends,” because such language is time dependent and does not reflect the considerable economic progress that has been made toward the Committee’s goals.

The news was largely a wash as far as North American markets were concerned:

Stocks briefly extended gains as the Fed’s statement said the economy is expanding at a moderate pace and inflation is below its goal. It maintained a commitment to keep interest rates near zero for a “considerable time” after asset purchases are completed in October. Fed officials raised their median estimate for the federal funds rate at the end of 2015 to 1.375 percent, compared with 1.125 percent in June. The rate will be 3.75 percent at the end of 2017, the Fed said in its Summary of Economic Projections.

The Summary of Economic Projections shows that most FOMC members expect policy firming in 2015, with a longer-run (post 2017) Fed rate of 3.75-00%.

Meanwhile, here in Canada, the central planners are in charge:

The federal government is imposing a fine on Canadian National Railway Co. for failing to comply with an order that it move a minimum amount of grain each week.

The monetary penalty is the first levelled under the Fair Rail for Grain Farmers Act, which was passed in the spring to address agriculture industry complaints the country’s two major railways were providing poor service that left traders unable to meet demand from buyers and farmers facing cash shortages.
…
CN chief executive Claude Mongeau defended the company’s actions, telling a conference on Wednesday that there has not been enough demand from grain companies for the railway to supply the 5,000 railcars. He said that is an indication the backlog that gripped the rail network last winter has been cleared and the railway is having no trouble keeping up with the fall harvest.

“In fact, to be honest with you, the last several weeks, there has not been enough demand for us to meet the [government order], not enough demand, not enough deliveries in the farm country,” Mr. Mongeau said at an investors’ conference in Montreal. “So we can’t move what they don’t deliver or what they don’t order, and I think that’s a good sign.”

However, through a spokesman, Agriculture Minister Gerry Ritz said he was “concerned” the railway was not meeting the minimum volume requirements.

It was a poor day for the Canadian preferred share market, with PerpetualDiscounts losing 26bp, FixedResets off 4bp and DeemedRetractibles down 10bp. Volatility was average and mostly negative. Volume was low.

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	-0.6355 %	2,640.7
FixedFloater	4.18 %	3.43 %	25,451	18.49	1	0.0000 %	4,154.7
Floater	2.92 %	3.04 %	52,283	19.62	4	-0.6355 %	2,730.7
OpRet	4.05 %	0.41 %	90,960	0.08	1	0.0000 %	2,728.2
SplitShare	4.30 %	3.77 %	111,163	3.91	5	-0.4708 %	3,147.2
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0000 %	2,494.6
Perpetual-Premium	5.47 %	2.07 %	70,423	0.09	20	-0.0667 %	2,437.4
Perpetual-Discount	5.26 %	5.20 %	101,294	15.14	16	-0.2555 %	2,595.1
FixedReset	4.27 %	3.82 %	187,031	8.09	74	-0.0385 %	2,554.4
Deemed-Retractible	5.01 %	2.29 %	102,126	0.29	42	-0.0970 %	2,562.0
FloatingReset	2.62 %	0.96 %	72,776	0.16	6	0.2230 %	2,530.0

Performance Highlights
Issue	Index	Change	Notes
GWO.PR.R	Deemed-Retractible	-1.51 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.48 Bid-YTW : 5.59 %
BAM.PR.K	Floater	-1.39 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-17 Maturity Price : 17.08 Evaluated at bid price : 17.08 Bid-YTW : 3.07 %
FTS.PR.F	Perpetual-Discount	-1.37 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-17 Maturity Price : 23.46 Evaluated at bid price : 23.72 Bid-YTW : 5.20 %
BAM.PR.N	Perpetual-Discount	-1.26 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-17 Maturity Price : 21.24 Evaluated at bid price : 21.24 Bid-YTW : 5.62 %
BAM.PF.E	FixedReset	-1.13 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-17 Maturity Price : 22.97 Evaluated at bid price : 24.56 Bid-YTW : 4.27 %
IAG.PR.A	Deemed-Retractible	1.25 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.75 Bid-YTW : 5.78 %

Volume Highlights
Issue	Index	Shares Traded	Notes
NA.PR.Q	FixedReset	114,575	Scotia crossed 103,700 at 25.77. YTW SCENARIO Maturity Type : Call Maturity Date : 2017-11-15 Maturity Price : 25.00 Evaluated at bid price : 25.75 Bid-YTW : 2.93 %
BMO.PR.M	FixedReset	104,030	Nesbitt crossed 100,000 at 25.30. YTW SCENARIO Maturity Type : Call Maturity Date : 2018-08-25 Maturity Price : 25.00 Evaluated at bid price : 25.30 Bid-YTW : 3.14 %
ENB.PR.Y	FixedReset	85,688	Scotia crossed 80,400 at 23.52. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-17 Maturity Price : 22.55 Evaluated at bid price : 23.50 Bid-YTW : 4.28 %
TD.PF.B	FixedReset	82,389	Scotia crossed blocks of 37,000 and 15,800, both at 25.10. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-17 Maturity Price : 23.20 Evaluated at bid price : 25.08 Bid-YTW : 3.82 %
FTS.PR.K	FixedReset	82,194	RBC crossed blocks of 42,000 and 15,400, both at 25.00. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-17 Maturity Price : 23.12 Evaluated at bid price : 24.75 Bid-YTW : 3.74 %
MFC.PR.M	FixedReset	70,875	Scotia crossed 52,000 at 25.09. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-12-19 Maturity Price : 25.00 Evaluated at bid price : 25.13 Bid-YTW : 3.88 %
There were 23 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
PVS.PR.C	SplitShare	Quote: 25.91 – 26.80 Spot Rate : 0.8900 Average : 0.7539 YTW SCENARIO Maturity Type : Call Maturity Date : 2015-12-10 Maturity Price : 25.50 Evaluated at bid price : 25.91 Bid-YTW : 3.54 %
ENB.PR.B	FixedReset	Quote: 24.15 – 24.50 Spot Rate : 0.3500 Average : 0.2379 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-17 Maturity Price : 23.09 Evaluated at bid price : 24.15 Bid-YTW : 4.18 %
PWF.PR.A	Floater	Quote: 20.50 – 21.25 Spot Rate : 0.7500 Average : 0.6573 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-17 Maturity Price : 20.50 Evaluated at bid price : 20.50 Bid-YTW : 2.57 %
IAG.PR.F	Deemed-Retractible	Quote: 25.81 – 26.17 Spot Rate : 0.3600 Average : 0.2697 YTW SCENARIO Maturity Type : Call Maturity Date : 2018-03-31 Maturity Price : 25.25 Evaluated at bid price : 25.81 Bid-YTW : 5.13 %
BAM.PR.K	Floater	Quote: 17.08 – 17.30 Spot Rate : 0.2200 Average : 0.1322 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-17 Maturity Price : 17.08 Evaluated at bid price : 17.08 Bid-YTW : 3.07 %
GWO.PR.R	Deemed-Retractible	Quote: 23.48 – 23.74 Spot Rate : 0.2600 Average : 0.1753 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.48 Bid-YTW : 5.59 %

I don’t know whether this article on changes in the FX market makes me want to laugh or cry:

RBS and Barclays this year stopped traders and salespeople from seeing colleagues’ forthcoming deals and their banks’ buy and sell orders in aggregate, four of the people said. Such information is useful for traders looking to protect themselves or profit from future market moves, they said.

RBS now segregates client requests for currency trades at the benchmark rate from the rest of the order book, according to two of the people. Only the trader handling the order at the reference rate is able to see it. The Edinburgh-based bank also stopped taking orders at WM/Reuters rates for some emerging-market currencies, which are more vulnerable to manipulation because they’re less widely traded, the people said.

At Barclays, deals of more than $20 million now show only basic information, two people said. If a salesperson or trader tries to view the details of the order on the firm’s internal computer system, a pop-up box appears, warning them that their interest will be logged and an e-mail sent to compliance.
…
Bloomberg News reported in June that banks including New York-based Goldman Sachs were charging less-sophisticated clients excessive markups. Since then, the firm has prohibited its Alpha desk, which deals with hedge funds that specialize in equities and trade currencies infrequently, from adding more than 30 basis points to trades, one of the people said. A basis point is 0.01 percent.

This is ridiculous. Let’s take the last bit first, so-called excessive markups. These are institutional desks, people! The clients are handling – at least – tens of millions of dollars, if not hundreds of millions, if not billions. These clients spend half their lives telling their clients what hard-nosed top-guns they are. And the regulators are squaring their rots for a good boo-hoo-hoo about how they’re being taken advantage of by an FX salesman? It’s ridiculous, there’s a much bigger problem here.

I had a consulting job once where as part of my duties I had to maintain a CAD/USD hedge with one-month forward contracts, about $80-million worth. This is not exactly my specialty. So when it was time to trade, I GOT MULTIPLE QUOTES. And I made damn sure the dealers knew I was getting multiple quotes. Is that so hard? Any moron who’s hired a contractor for a big job has gotten multiple quotes, because when you don’t know what you’re doing that’s how you protect yourself.

You also get multiple quotes on corporate bonds, too, just as a matter of course; that’s not only because you don’t have a clue where the damn market is at, but because there was a very good chance that the dealer doesn’t either. I remember particularly well the time when I was looking at a decent sized corporate trade – decent sized for Canada, anyway, about $1-million face – and got three quotes. The difference between the high and low bid was just over a buck. A buck! And this wasn’t some obscure name, either, this was a blue-chip with a lot of issues in the market … as a rule, you’d figure it would be among the more tightly priced names.

But lordy, it seemingly never occurs to many of the clowns running money, and never to any of the clowns regulating them, that maybe multiple quotes is a good idea.

The other bit in that story that makes blood gush from my eyeballs is the restriction of information about flow. Information about flow is the dealers only advantage. That’s why they’re willing to call a two way market in size. Take away that information, you take away their advantage, you take away their profits, and they take away their capital … just like what is happening now with corporate bonds.

By and large, these problems – such as they are, which isn’t much – are due not so much to sell-side cupidity as buy-side stupidity. But the regulators – who, I am sure, have earnest three hour discussions with their financial advisors with multiple signed conflict of interest declarations before choosing which mutual fund gets their $500 saving this month – ignore this, in their perpetual attempts to make the world a cooperative game, just like in kiddie school.

Eventually, I forsee the dealing business going over to hedge funds, de facto if not de jure, with today’s dealers becoming mere brokers. And then we’ll see a little of life in the raw, because the funds will care as much about the long term relationship as a twenty year old sailor on pay night. Because when you have stupid people making big decisions … eventually, somehow, the chickens come home to roost.

And looks what’s being ignored in this rush to eliminate capital markets!

The U.K. Financial Conduct Authority hasn’t arrested anyone for insider trading this year, prompting lawyers and lawmakers to question whether cross-border cases like currency manipulation are over-taxing the regulator.

The agency — criticized for failing to criminally prosecute an insider-trading case until 2008 — has made 64 such arrests since then, according to data obtained through a freedom-of-information request. There were 15 last year, when the FCA opened the first inquiry in what’s now a global foreign-exchange rate-rigging case.
…
This is the first year without insider-trading arrests since the regulator began bolstering prosecution efforts after facing criticism from lawmakers for not doing enough to punish wrong-doers. Before 2008, it had only brought civil penalties for inside trades.

In an otherwise good column about preferred shares, Rob Carrick of the Globe makes a mistake that many will find costly and surprising:

Almost all of the preferred shares I hold are perpetuals, which means they don’t have the rate-reset feature that most pref shares issued today have.

FixedResets are just as perpetual as Straights are. Mitigation of interest rate risk has no effect on spread risk or on credit risk.

Atlantic Power, proud (indirect) issuer of AZP.PR.A and AZP.PR.B, got hammered today:

Shares of Atlantic Power Corp (ATP.TO) (AT.N) fell by about a third on Tuesday after the struggling utility removed its chief executive and decided against selling itself.

Faced with mounting debts in a volatile power market, the company also slashed its annual dividend by 70 percent, the second time since February 2013 that it has cut the dividend.

Boston-based Atlantic Power has been caught between falling demand in a volatile wholesale power market and a recovery in the price of the natural gas that feeds its plants in several U.S. states and Canadian provinces.
…
In May, Atlantic hired Goldman Sachs and Greenhill & Co to explore a sale or merger. The company said on Tuesday, however, that its best option would be to continue as an independent company.

Barry Welch, who ran the company for 10 years, stepped down as president and chief executive by “mutual agreement,” Atlantic said. Ken Hartwick, a director, took over as interim president and CEO but will not be a candidate for the permanent job.

Atlantic Power also said it would consider selling assets or entering joint ventures to raise capital and reduce its debt.

The company’s long-term debt almost quadrupled between 2010 and the end of June, Thomson Reuters data shows. At about $1.8 billion, the debt is equivalent to about three times its annual revenue for 2013.

The stock shed more than two-thirds of its value in the same period.

The commencement of the abortive sale process was reported on PrefBlog on May 5.

IGM.PR.B was confirmed at Pfd-2(high) [Stable] by DBRS:

DBRS has today confirmed the Issuer Rating and Unsecured Debentures rating of IGM Financial Inc.’s (IGM or the Company) at A (high) and its First Preferred Shares at Pfd-2 (high). All trends are Stable.
…
Selling and distribution expenses are somewhat variable, with certain distribution expenses also tied to the level of gross sales and AUM. This has the benefit of maintaining margins in a business downturn. The Company has demonstrated good administrative expense management, benefiting from good economies of scale, efficient work processes and shared service arrangements with its sister companies.

In addition to strong profitability, the Company’s credit rating also benefits from strong cash flows (which easily cover the upfront distribution costs of mutual fund sales), strong liquidity and a conservative financial profile. Debt plus preferred shares-to-EBITDA was just over one times in 2013 and for 6M 2014, which is conservative. The Company’s ratio of debt plus preferred shares-to-total capitalization remains appropriate for the rating at just under 25%.

As a member of the Power Financial Corporation (Power) group of companies, IGM benefits from the additional financial flexibility of having a strategic shareholder and the associated strong governance and risk avoidance management model that is typical of Power subsidiaries.

It was a rotten day for the Canadian preferred share market, with PerpetualDiscounts losing 42bp, FixedResets down 13bp and DeemedRetractibles off 5bp. Volatility was high and almost entirely negative, with Enbridge and Fortis issues notable amongst the losers – the Enbridge new issue, FixedReset 4.40%+268, settles September 23, and the Fortis monster new issue, FixedReset, 4.10%+248 settles September 19 … perhaps there’s a little market indigestion? Volume was average, but notably headed by Enbridge issues, with RBC writing some nice tickets.

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	-0.3030 %	2,657.6
FixedFloater	4.18 %	3.43 %	26,307	18.50	1	-0.7417 %	4,154.7
Floater	2.90 %	3.02 %	48,420	19.67	4	-0.3030 %	2,748.2
OpRet	4.05 %	0.28 %	90,219	0.08	1	-0.1577 %	2,728.2
SplitShare	4.27 %	3.74 %	112,713	3.92	5	0.1488 %	3,162.1
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.1577 %	2,494.6
Perpetual-Premium	5.46 %	1.44 %	70,679	0.09	20	-0.0392 %	2,439.0
Perpetual-Discount	5.24 %	5.14 %	101,146	15.19	16	-0.4178 %	2,601.8
FixedReset	4.27 %	3.82 %	177,141	6.57	74	-0.1278 %	2,555.4
Deemed-Retractible	5.00 %	1.83 %	103,478	0.29	42	-0.0494 %	2,564.4
FloatingReset	2.63 %	1.44 %	75,661	0.16	6	-0.0590 %	2,524.4

Performance Highlights
Issue	Index	Change	Notes
IAG.PR.A	Deemed-Retractible	-1.92 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.47 Bid-YTW : 5.93 %
PWF.PR.A	Floater	-1.53 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-16 Maturity Price : 20.55 Evaluated at bid price : 20.55 Bid-YTW : 2.57 %
FTS.PR.J	Perpetual-Discount	-1.50 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-16 Maturity Price : 23.35 Evaluated at bid price : 23.70 Bid-YTW : 5.03 %
FTS.PR.F	Perpetual-Discount	-1.43 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-16 Maturity Price : 23.62 Evaluated at bid price : 24.05 Bid-YTW : 5.11 %
IFC.PR.A	FixedReset	-1.30 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.49 Bid-YTW : 4.44 %
FTS.PR.K	FixedReset	-1.29 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-16 Maturity Price : 23.04 Evaluated at bid price : 24.55 Bid-YTW : 3.78 %
ENB.PR.P	FixedReset	-1.28 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-16 Maturity Price : 22.75 Evaluated at bid price : 23.86 Bid-YTW : 4.30 %
ENB.PR.F	FixedReset	-1.26 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-16 Maturity Price : 23.02 Evaluated at bid price : 24.30 Bid-YTW : 4.23 %
ENB.PR.T	FixedReset	-1.08 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-16 Maturity Price : 22.75 Evaluated at bid price : 23.89 Bid-YTW : 4.29 %
CIU.PR.C	FixedReset	1.70 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-16 Maturity Price : 20.90 Evaluated at bid price : 20.90 Bid-YTW : 3.75 %

Volume Highlights
Issue	Index	Shares Traded	Notes
ENB.PR.H	FixedReset	319,970	RBC crossed two blocks of 150,000 each, both at 23.20. TD crossed 10,000 at 23.15. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-16 Maturity Price : 22.40 Evaluated at bid price : 23.09 Bid-YTW : 4.15 %
ENB.PR.Y	FixedReset	257,615	RBC crossed two blocks of 123,000 each, both at 23.55. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-16 Maturity Price : 22.58 Evaluated at bid price : 23.56 Bid-YTW : 4.26 %
RY.PR.E	Deemed-Retractible	78,350	RBC crossed 50,000 at 25.65. Scotia crossed 25,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-02-24 Maturity Price : 25.25 Evaluated at bid price : 25.61 Bid-YTW : 1.83 %
GWO.PR.N	FixedReset	66,541	Nesbitt crossed blocks of 35,000 and 21,600, both at 21.84. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.80 Bid-YTW : 4.67 %
BMO.PR.T	FixedReset	64,000	TD crossed 50,000 at 25.26. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-16 Maturity Price : 23.25 Evaluated at bid price : 25.26 Bid-YTW : 3.82 %
BNS.PR.N	Deemed-Retractible	56,550	TD crossed 50,000 at 26.10. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-16 Maturity Price : 25.75 Evaluated at bid price : 26.08 Bid-YTW : -2.48 %
There were 27 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
PWF.PR.A	Floater	Quote: 20.55 – 21.47 Spot Rate : 0.9200 Average : 0.5557 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-16 Maturity Price : 20.55 Evaluated at bid price : 20.55 Bid-YTW : 2.57 %
NEW.PR.D	SplitShare	Quote: 32.80 – 33.37 Spot Rate : 0.5700 Average : 0.4720 YTW SCENARIO Maturity Type : Call Maturity Date : 2015-06-26 Maturity Price : 32.07 Evaluated at bid price : 32.80 Bid-YTW : 2.41 %
IFC.PR.A	FixedReset	Quote: 23.49 – 23.82 Spot Rate : 0.3300 Average : 0.2439 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.49 Bid-YTW : 4.44 %
PWF.PR.P	FixedReset	Quote: 23.02 – 23.35 Spot Rate : 0.3300 Average : 0.2485 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-16 Maturity Price : 22.58 Evaluated at bid price : 23.02 Bid-YTW : 3.66 %
IAG.PR.A	Deemed-Retractible	Quote: 22.47 – 22.75 Spot Rate : 0.2800 Average : 0.1995 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.47 Bid-YTW : 5.93 %
BAM.PR.G	FixedFloater	Quote: 22.75 – 23.00 Spot Rate : 0.2500 Average : 0.1718 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-16 Maturity Price : 22.79 Evaluated at bid price : 22.75 Bid-YTW : 3.43 %

Nothing happened today.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 16bp, FixedResets off 3bp and DeemedRetractibles gaining 3bp. Volatility was minimal. Volume was very low.

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	0.7074 %	2,665.7
FixedFloater	4.14 %	3.40 %	25,854	18.56	1	0.0000 %	4,185.8
Floater	2.89 %	3.03 %	46,407	19.65	4	0.7074 %	2,756.6
OpRet	4.04 %	-1.77 %	91,665	0.08	1	0.1975 %	2,732.5
SplitShare	4.28 %	3.72 %	110,343	3.92	5	0.0626 %	3,157.4
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.1975 %	2,498.6
Perpetual-Premium	5.46 %	1.75 %	70,587	0.09	20	0.0000 %	2,440.0
Perpetual-Discount	5.22 %	5.14 %	102,449	15.20	16	0.1583 %	2,612.7
FixedReset	4.26 %	3.80 %	177,882	6.49	74	-0.0329 %	2,558.7
Deemed-Retractible	5.00 %	1.90 %	102,068	0.29	42	0.0323 %	2,565.7
FloatingReset	2.63 %	1.92 %	75,135	0.08	6	-0.1048 %	2,525.9

Performance Highlights
Issue	Index	Change	Notes
PWF.PR.A	Floater	1.80 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-15 Maturity Price : 20.87 Evaluated at bid price : 20.87 Bid-YTW : 2.53 %
FTS.PR.J	Perpetual-Discount	1.91 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-15 Maturity Price : 23.68 Evaluated at bid price : 24.06 Bid-YTW : 4.95 %

Volume Highlights
Issue	Index	Shares Traded	Notes
BNS.PR.L	Deemed-Retractible	41,912	RBC bought blocks of 10,000 and 10,600 from anonymous, both at 25.75, then crossed 10,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-15 Maturity Price : 25.50 Evaluated at bid price : 25.75 Bid-YTW : -0.75 %
NA.PR.S	FixedReset	31,373	National crossed 19,100 at 25.74. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-05-15 Maturity Price : 25.00 Evaluated at bid price : 25.65 Bid-YTW : 3.59 %
TD.PR.P	Deemed-Retractible	22,247	RBC crossed two blocks of 10,000 each, both at 25.96. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-11-01 Maturity Price : 25.50 Evaluated at bid price : 25.90 Bid-YTW : -2.04 %
TD.PF.A	FixedReset	21,500	Scotia crossed 15,000 at 25.31. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-10-31 Maturity Price : 25.00 Evaluated at bid price : 25.30 Bid-YTW : 3.55 %
BNS.PR.Z	FixedReset	20,384	TD crossed 10,000 at 24.50. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.43 Bid-YTW : 3.60 %
IFC.PR.C	FixedReset	20,305	YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.46 Bid-YTW : 3.19 %
There were 16 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
NEW.PR.D	SplitShare	Quote: 32.79 – 33.28 Spot Rate : 0.4900 Average : 0.3644 YTW SCENARIO Maturity Type : Call Maturity Date : 2015-06-26 Maturity Price : 32.07 Evaluated at bid price : 32.79 Bid-YTW : 1.11 %
SLF.PR.G	FixedReset	Quote: 22.15 – 22.42 Spot Rate : 0.2700 Average : 0.1724 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.15 Bid-YTW : 4.58 %
PVS.PR.C	SplitShare	Quote: 25.99 – 26.90 Spot Rate : 0.9100 Average : 0.8292 YTW SCENARIO Maturity Type : Call Maturity Date : 2015-12-10 Maturity Price : 25.50 Evaluated at bid price : 25.99 Bid-YTW : 3.27 %
MFC.PR.F	FixedReset	Quote: 22.70 – 23.00 Spot Rate : 0.3000 Average : 0.2286 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.70 Bid-YTW : 4.43 %
RY.PR.Z	FixedReset	Quote: 25.34 – 25.51 Spot Rate : 0.1700 Average : 0.1047 YTW SCENARIO Maturity Type : Call Maturity Date : 2019-05-24 Maturity Price : 25.00 Evaluated at bid price : 25.34 Bid-YTW : 3.75 %
SLF.PR.A	Deemed-Retractible	Quote: 23.62 – 23.81 Spot Rate : 0.1900 Average : 0.1395 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.62 Bid-YTW : 5.46 %

Assiduous Reader DR alerts me to the Financial Post’s Barry Critchley’s attempt to whip up more hysteria regarding the so-called evils of so-called High Frequency Trading:

At best it may be unintentional consequences. At worst it may be an attempt to encourage high frequency trading in the preferred share market – all of which acts to the detriment of retail investors.

Diane Stibbard and Keith Honeyborne are two retail investors who make part of their living by buying, owning and selling preferred shares – and have concerns about how trades, especially at the market open, occur in that market.
…
Stibbard, an experienced investor, details the means by which the HFTs queue jump. That process starts with a market order from a retail investor – meaning the buyer or seller doesn’t specify a price – that in turn elicits a response from more sophisticated retail investors. The latter group then puts in a limit order that is inside (or between) the bid and ask of the market order. In turn, other more sophisticated retail investors follow which reduces the bid/ask spread.

Then the HFTs pounce. “At approximately one second before the open, a HFT will enter a market order on the ask side for a number of shares slightly lower than the market bid quantity, which because of your [TMX] Rule 4-701, will enable it to queue jump ahead of the prior limit orders,” said Stibbard.

The result of this last-second involvement, Stibbard says, is that at the market open, “the limit price of the lowest ask is used as the clearing price. As a result, the orders of the selling retail investors become the stalking horse for the HFT but that price-setting investor’s order will never be filled.”

At the heart of the matter is Rule 4-701:

Rule 4-701 Execution of Trades at the Opening

(1) Subject to Rule 4-702, securities shall open for trading at the opening time, and any opening trades shall be at the calculated opening price.

Amended (February 24, 2012)

(2) The following orders shall be completely filled at the opening:
(a) market orders and better-priced limit orders; and

(b) MBF orders.

(c) Repealed (October 15, 2012)

(d) Repealed (October 15, 2012)

Amended (October 15, 2012)

(3) The following orders are eligible to participate in the opening but are not guaranteed to be filled:
(a) Repealed (August 7, 2001)

(b) limit orders at the opening price.

(c) Repealed (October 15, 2012)

Amended (October 15, 2012)

(4) Unless otherwise provided, trades shall be allocated among orders at the opening price in the following manner and sequence:
(a) trades shall be allocated to orders guaranteed a fill pursuant to Rule 4-701(2) then;

(b) all possible crosses shall be executed; then

(c) Repealed (August 7, 2001)

(d) to limit orders at the opening price according to time priority.

(5) Repealed (August 7, 2001)

(6) Repealed (August 7, 2001)

(7) Orders at the opening price that are not completely filled at the opening shall remain in the Book, at the opening price.

So my reaction is, in short: Boo-hoo-fucken-hoo.

It is a pity that Critchley did not see fit to publish the “three-page letter” that Stibbard wrote to the Exchange, or to suggest improvements in the rule, but let’s look at the situation more closely.

Firstly, the strategy at issue starts with somebody entering a market order for delayed-execution in a size that is large relative to the usual or expected opening trades (which we may assume, in this market, is a very small number!). Or, to put it bluntly, we need to start the process with a moron.

Stibbard and Honeyborne like to make a little money fleecing morons – nothing wrong with that, that’s why God created morons. So, fine: they take the opposite side of the market with a limit order inside the other limit orders that are in the book at that point – which, no doubt, will fuel a column next week dealing with the complaints of those poor souls who entered their limit orders at 9:15, who are being victimized by predatory trading by the current complainants, who are not-quite-high-but-gee-whiz-pretty-often-you-know frequency traders.

Remember the old adage?

Big fleas have little fleas
On their backs to bite ’em
And them fleas got smaller fleas
And so ad infinitum.

So the predatory Stibbard and Honeyborne are having their lunch eaten by more predatory predators. And so they complain that the rules are unfair, that there should be special rules that will allow them to compete with the big boys, even though they’re conducting their predatory trading by typing orders manually on their ten-bucks-a-throw discount brokers’ screens. Which, boys and girls, is the whole story of the HFT controversy in a nutshell.

Still, it would be interesting to learn just what they propose as a solution. Eliminate the priority of market orders over limit orders? Have a black-out period before the opening, during which market orders will be refused? Criminalize the possession and use of better algorithms and hardware than what they have? Maybe the Exchange should simply deposit money directly into their bank account?

It will also be noted that there is no reason to believe that the fiercer predators are, in fact, HFT. I don’t think HFT will be much interested in the preferred share market, where 40,000 shares in a day will get you on the PrefBlog volume highlights; and besides, I don’t think any preferred share issues are qualified for maker-taker exchange fees, which is a big chunk of HFT profits; and anyway, I don’t know how maker-taker pricing applies to a collision of market orders at the opening and am too lazy to look it up. It’s more likely a prop trader or market-maker at a brokerage, who can get away with using yesterday’s technology because the competition is using last week’s. There is a strong possibility, as discussed below, that it isn’t a professional at all, that it’s just another retail trader committing the unpardonable sin of using a brokerage that isn’t bank-owned, one that offers order types that the Powers That Be have deemed too complex for stupid Canadians. How awful of him!

How would I attempt to compete in this kind of big boy’s game? Interactive Brokers offers iceberg orders, which:

provides a way to submit large volume orders to the market in increments while publicly displaying only a specified portion of the total order size.

These are supported for entry on the Toronto Exchange. And on the Toronto Exchange:

10. How will Icebergs be treated at the opening?

The total volume of an Iceberg order will be included in the calculation of the Calculated Opening Price (COP). If an Iceberg order is a Better Priced Limit order (BPL) or a MKT order, the disclosed volume is guaranteed a fill at the Opening. The reserve volume is not guaranteed to be filled, but will be treated as a Participatory Order for the opening rotation. Any remaining reserve volume will be re-priced at the COP.

So say there’s a market buy order coming in for 5,000 shares. And, say, by looking at the Level 2 book at 9:28 am, you figure the opening price is going to be 24.95, and you’d love to sell a bunch at anywhere north of 24.90.

Well, what you do is you enter your order to sell a bunch at 24.93, but display only 100 shares. So the sharpie with the market order, ignoring your order because it’s so small, figures he’s going to be filled at 24.95, but he’s only going to get 24.93. He’ll still get filled before you do, but the uncertainty is going to make the deal a little less attractive for him.

[To be frank, I’m not completely sure that this will work as planned. I’m not sure precisely what information is visible to clients in the pre-opening. Better check carefully before entering your order!]

And, as a side-benefit, the moron with the initial market order will get a better price, which is the whole point of the rules in the first place. It will be noted that the moron with the initial market order will never, ever get a worse price in the presence of the so-called predatory order than he will in its absence, and will probably get a better one (although you can make an argument that enough of this so-called predation will discourage the entry of limit orders before the open. Let’s see some figures on that first, though). It will also be noted that this entire dispute concerns traders and has nothing to do with investing which are two very different games. As I have often asserted in the past, market microstructure should be evaluated solely on the basis of how it affects investors – traders can look after themselves.

Another strategy, which will cost money but might be worth it in the end, is to create still more uncertainty by entering a market order for 300 shares at the last second. If this works, you might get an unfortunate fill if this small size tips the balance so that the opening is executed on the bid side rather than the ask … and the sharpie with his market order of 4,900 shares isn’t going to like that at all, perhaps to the extent he gives up his (rather simplistic) strategy. You could also do this at Interactive Brokers with their Good After Time order, which according to their example will give time increments down to 1-second. So presumably, you could put in this market order at 9:29:00, with a Good After Time of 9:29:59, although I’ve never tried it and don’t know if the IB system will actually do this. If it does, and if the “approximately one second before opening” estimate of Ms. Stibbard is correct, then there’s a decent chance that Stibbard and Honeyborne are being predated by somebody who’s only one notch up the food chain, not an apex predator. An apex predator would measure the interval between order placement and market opening in milliseconds, and not many of them either.

Note that Canadian banks’ discount brokerages do not – as far as I know – offer these useful order types to retail scum because … they don’t have to! Ha-ha! Suckers!

However, there is a third way to play this new game, and that’s to enter your own pre-emptive market order to sell. It’s 9:20, there’s a market buy order for 5,000 shares and you’ve got your limit sell order for 4,000 shares at 24.90, which you think will set the opening price. Maybe it’s an iceberg, maybe it’s not, whatever. But you’re afraid the competition is going to come in at 9:29, nine minutes from now, with a market order to sell 4,500 and scoop up all the profits. Fine. Get there first. Put it your own market sell order for 4,500 (in addition to your limit order). Now, if the enemy puts in his own market order, he’s going to tip the balance and the opening will be on the bid side, which would be horrible – so, you reason, he probably won’t do it. And hurray, you scoop the entire market buy!

It gets interesting, of course, if the enemy also reads PrefBlog and has been carefully watching the issue in question, because the pattern of orders will make it clear to him just what’s happening. ‘Oh, yeah, tough guy?’ he’ll think to himself, ‘You wanna play cute with me? Eat this!’ as he puts in a market sell for 4,500. And now it’s a fascinating Mexican stand-off, that is very well modelled as a Prisoner’s Dilemma game:

• If you both execute, you both lose a lot of money
• If one party cancels, he’s flat and the executing party makes a lot of money
• If you both cancel, you’re both flat, and somebody else grabs the moron’s cash

Note that there was such a thing as an anti-scooping rule so pro accounts couldn’t play this game after 9:28, but these rules have been repealed. Note also that I am not a trading specialist and rarely, if ever, trade at the opening. Or the close, for that matter. Plain vanilla trading works just fine for me.

In more traditional news, real estate prices rose faster than debt:

Statistics Canada’s quarterly national balance sheet report said household credit debt (consumer credit, mortgages and other loans) rose by 1.3 per cent in the quarter, outpacing the growth in disposable income. As a result, the ratio of credit debt to disposable income, a closely watched measure of the household debt burden, rose to 163.6 per cent, slightly below the record 164.1 per cent in the third quarter of 2013.

However, household net worth rose by 2.3 per cent in the second quarter, to a record $8.1-trillion (or $227,000 per person), driven primarily by a continued rise in real estate values. As a result, the ratio of household credit market debt to net worth – another measure of consumers’ capacity for debt – fell to 22.3 per cent from 22.5 per cent, the lowest level in six years.

The rise in household consumer credit came from all sources – mortgages, non-mortgage loans and consumer credit (primarily credit cards). Consumer credit rose 1.4 per cent in the quarter, its biggest increase since the 2012 third quarter. Mortgage debt rose 1.4 per cent, its biggest rise in three quarters.

It was a poor day for the Canadian preferred share market, with PerpetualDiscounts losing 24bp, FixedResets down 21bp and DeemedRetractibles off 15bp. Volatility was average. Volume was low.

And now it’s time for PrefLetter!

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	-0.5244 %	2,647.0
FixedFloater	4.14 %	3.40 %	25,692	18.56	1	0.0436 %	4,185.8
Floater	2.91 %	3.03 %	46,759	19.66	4	-0.5244 %	2,737.2
OpRet	4.05 %	0.22 %	93,077	0.08	1	-0.1578 %	2,727.1
SplitShare	4.28 %	3.73 %	111,959	3.93	5	-0.0036 %	3,155.4
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.1578 %	2,493.7
Perpetual-Premium	5.46 %	0.43 %	71,673	0.09	20	-0.0530 %	2,440.0
Perpetual-Discount	5.23 %	5.14 %	106,577	15.19	16	-0.2382 %	2,608.5
FixedReset	4.26 %	3.81 %	181,959	6.58	74	-0.2101 %	2,559.5
Deemed-Retractible	5.00 %	1.87 %	103,420	0.20	42	-0.1509 %	2,564.9
FloatingReset	2.62 %	0.48 %	82,022	0.08	6	-0.1504 %	2,528.5

Performance Highlights
Issue	Index	Change	Notes
FTS.PR.J	Perpetual-Discount	-2.36 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-12 Maturity Price : 23.27 Evaluated at bid price : 23.61 Bid-YTW : 5.05 %
PWF.PR.A	Floater	-1.73 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-12 Maturity Price : 20.50 Evaluated at bid price : 20.50 Bid-YTW : 2.57 %
IFC.PR.A	FixedReset	-1.01 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.60 Bid-YTW : 4.38 %
VNR.PR.A	FixedReset	1.03 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2017-10-15 Maturity Price : 25.00 Evaluated at bid price : 25.51 Bid-YTW : 3.91 %

Volume Highlights
Issue	Index	Shares Traded	Notes
ENB.PF.E	FixedReset	111,630	Nesbitt crossed three blocks: 11,200 shares, 14,400 and 50,000, all at 25.05. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-12 Maturity Price : 23.14 Evaluated at bid price : 25.05 Bid-YTW : 4.29 %
TD.PF.A	FixedReset	61,430	Desjardins crossed 50,000 at 25.30. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-12 Maturity Price : 23.25 Evaluated at bid price : 25.30 Bid-YTW : 3.81 %
BNS.PR.Y	FixedReset	46,370	TD crossed 40,000 at 24.00. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.97 Bid-YTW : 3.51 %
RY.PR.D	Deemed-Retractible	38,953	RBC crossed 35,000 at 25.60. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-02-24 Maturity Price : 25.25 Evaluated at bid price : 25.60 Bid-YTW : 1.87 %
CM.PR.O	FixedReset	36,300	RBC crossed 25,000 at 25.38. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.36 Bid-YTW : 3.83 %
SLF.PR.D	Deemed-Retractible	32,207	RBC crossed 25,000 at 22.45. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.39 Bid-YTW : 5.81 %
There were 16 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
FTS.PR.J	Perpetual-Discount	Quote: 23.61 – 24.08 Spot Rate : 0.4700 Average : 0.3073 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-12 Maturity Price : 23.27 Evaluated at bid price : 23.61 Bid-YTW : 5.05 %
BAM.PR.X	FixedReset	Quote: 22.16 – 22.45 Spot Rate : 0.2900 Average : 0.1968 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-12 Maturity Price : 21.89 Evaluated at bid price : 22.16 Bid-YTW : 4.10 %
BNS.PR.R	FixedReset	Quote: 25.72 – 25.95 Spot Rate : 0.2300 Average : 0.1382 YTW SCENARIO Maturity Type : Call Maturity Date : 2019-01-26 Maturity Price : 25.00 Evaluated at bid price : 25.72 Bid-YTW : 3.24 %
RY.PR.B	Deemed-Retractible	Quote: 25.50 – 25.70 Spot Rate : 0.2000 Average : 0.1285 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-12 Maturity Price : 25.25 Evaluated at bid price : 25.50 Bid-YTW : -4.37 %
ELF.PR.G	Perpetual-Discount	Quote: 22.18 – 22.36 Spot Rate : 0.1800 Average : 0.1129 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-12 Maturity Price : 21.83 Evaluated at bid price : 22.18 Bid-YTW : 5.42 %
PWF.PR.A	Floater	Quote: 20.50 – 20.86 Spot Rate : 0.3600 Average : 0.2945 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-12 Maturity Price : 20.50 Evaluated at bid price : 20.50 Bid-YTW : 2.57 %

The loonie got hit today:

The Canadian dollar fell to the lowest level in five months as crude oil, the nation’s largest export, traded at almost its lowest point in more than a year.

The currency weakened against all its 16 major peers after a report showed home prices were unchanged in July, the second indicator this week to suggest the housing market is fading as a driver of economic growth. The Bank of Canada said last week it is waiting for strong-enough exports to take the burden of economic growth from over-indebted consumers, prompting speculation it would lag behind the U.S. Federal Reserve raising interest rates.
…
The loonie, as the Canadian dollar is called for the image of the aquatic bird on the C$1 coin, fell 0.9 percent to C$1.1035 per U.S. dollar at 5 a.m. in Toronto. It reached C$1.1059, the weakest since April 1. One loonie buys 90.62 U.S. cents.

Crude oil fell as much as 1.4 percent to $90.43 per barrel in New York, the lowest since May 2013, before trading at $93.14, according to data compiled by Bloomberg.

BMO NVCC-compliant sub-debt got a provisional rating of A(low) from DBRS:

DBRS has today assigned a provisional rating of A (low) with a Stable trend to the Bank of Montreal’s (the Bank or BMO) Series H Medium Term-Notes (Subordinated Indebtedness) (NVCC Sub Debt Series H or Series H).

DBRS assigned the NVCC Sub Debt Series H a rating equal to the Bank’s intrinsic assessment, less three rating notches, because Series H has only the Office of the Superintendent of Financial Institutions (OSFI)-required non-viable contingent capital (NVCC) triggers and no additional triggers. Furthermore, in the event of a conversion to common shares, NVCC Sub Debt Series H has a potential for recovery which is sufficiently better than BMO’s existing NVCC Preferred Shares to allow for a differentiation in the Series H rating relative to the NVCC Preferred Shares rating. Please see the DBRS press release entitled “DBRS Provides Guidance on Canadian Bank Non-Viability Contingent Capital Ratings” dated January 10, 2014, for more details.

Those with good memories will remember the rating on the BMO NVCC-compliant preferreds:

DBRS has today provisionally rated Bank of Montreal’s (the Bank) Non-Cumulative 5-Year Rate Reset Class B Preferred Shares, Series 27 (NVCC Preferred Shares Series 27 or Series 27) at Pfd-2 with a Stable trend.

DBRS assigned the NVCC Preferred Shares Series 27 a rating equal to the Bank’s intrinsic assessment less four rating notches because the Series 27 has only an Office of the Superintendent of Financial Institutions (OSFI)-compliant non-viable contingent capital (NVCC) trigger, which is consistent with the OSFI requirements for NVCC instruments, and no additional triggers.

The relative recovery hopes of sub-debt and preferreds were discussed in the posts Royal Bank Issues NVCC-Compliant Sub-Debt and Feds Consulting on Bank Recapitalization Regime.

CU Inc., proud issuer of CIU.PR.A and CIU.PR.C, was confirmed at Pfd-2(high) by DBRS:

DBRS has today confirmed the Issuer Rating, Unsecured Debentures & Medium-Term Notes, Commercial Paper and Cumulative Preferred Shares of CU Inc. (CUI or the Company) at A (high), A (high), R-1 (low) and Pfd-2 (high), respectively. All trends are Stable, reflecting that CUI is on track to complete its heavy capital spending for the 2012 to 2016 period. The rating assumes further weakness in the debt-to-cash flow ratio over the next two years because of the elevated level of capital expenditures (capex), but this ratio is not expected to materially deviate from the current rating category while other key metrics, including the debt-to-capital and interest coverage ratios, may also weaken but will remain within the acceptable range.

CUI’s business risk profile is expected to benefit from the approximately $9.8 billion of capex spent over the 2012 to 2016 period, strengthening the Company’s internally generated cash flow capability. Once completed, the Company’s rate base will be double that of 2011 levels.
…
CUI’s financial risk profile has weakened because of the significant level of capex over the past few years. This has led to deterioration in the Company’s debt-to-capital and cash flow-to-debt ratios, which are expected to be pressured further in 2015. This temporary weakness in CUI’s key metrics is not, however, expected to negatively affect the Company’s current ratings. Following the completion of the transmission build-out in 2016, CUI will benefit from a higher rate base and its key financial ratios should recover to historical levels consistent with the current rating category. The large capex spent on transmission infrastructure is also considered to be a low-risk investment as it will provide stable returns once in service. For the remaining duration of the transmission build-out period, CUI is expected to finance its capex largely through debt issuances, along with continued support from its parent, Canadian Utilities Limited (rated “A” by DBRS), through timely equity injections and lower dividend payout requirements. Although this will likely result in a higher debt-to-capital ratio, the Company is committed to maintaining its leverage at approximately 60% to be in line with its regulatory capital structures and to still be commensurate with the “A” rating range. DBRS also expects the Company’s cash flow-to-debt ratio to remain above 10% during the transmission build-out period.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 30bp, FixedResets up 13bp and DeemedRetractibles gaining 10bp. Volatility was good, comprised entirely of winners and everything except the Floater was issued by BAM. Did people forget that BAM went ex-dividend today? Volume was very low, but notable for a heavy presence of ENB issues in the highlights, presumably due to the new issue announcement.

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	0.7658 %	2,660.9
FixedFloater	4.15 %	3.40 %	26,018	18.56	1	0.0000 %	4,183.9
Floater	2.90 %	3.04 %	45,384	19.64	4	0.7658 %	2,751.6
OpRet	4.04 %	-1.83 %	96,820	0.08	1	0.1580 %	2,731.4
SplitShare	4.28 %	3.82 %	113,393	3.93	5	0.0874 %	3,155.6
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.1580 %	2,497.6
Perpetual-Premium	5.46 %	0.42 %	83,638	0.09	20	0.1729 %	2,441.3
Perpetual-Discount	5.22 %	5.11 %	106,214	15.24	16	0.2951 %	2,614.8
FixedReset	4.25 %	3.74 %	179,672	6.61	74	0.1284 %	2,564.9
Deemed-Retractible	4.99 %	0.60 %	99,809	0.20	42	0.1046 %	2,568.8
FloatingReset	2.62 %	-1.43 %	83,043	0.08	6	0.1178 %	2,532.3

Performance Highlights
Issue	Index	Change	Notes
BAM.PR.N	Perpetual-Discount	1.14 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-11 Maturity Price : 21.55 Evaluated at bid price : 21.55 Bid-YTW : 5.53 %
BAM.PF.D	Perpetual-Discount	1.20 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-11 Maturity Price : 21.84 Evaluated at bid price : 22.16 Bid-YTW : 5.53 %
BAM.PF.E	FixedReset	1.30 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-11 Maturity Price : 23.16 Evaluated at bid price : 25.09 Bid-YTW : 4.08 %
BAM.PR.M	Perpetual-Discount	1.47 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-11 Maturity Price : 21.60 Evaluated at bid price : 21.60 Bid-YTW : 5.52 %
PWF.PR.A	Floater	1.66 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-11 Maturity Price : 20.86 Evaluated at bid price : 20.86 Bid-YTW : 2.53 %

Volume Highlights
Issue	Index	Shares Traded	Notes
ENB.PF.E	FixedReset	84,700	RBC crossed 50,000 at 25.00; Scotia crossed 80,000 at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-11 Maturity Price : 23.13 Evaluated at bid price : 25.02 Bid-YTW : 4.23 %
BMO.PR.J	Deemed-Retractible	52,376	RBC crossed 50,000 at 25.79. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-11 Maturity Price : 25.50 Evaluated at bid price : 25.75 Bid-YTW : -4.92 %
MFC.PR.M	FixedReset	52,255	Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-12-19 Maturity Price : 25.00 Evaluated at bid price : 25.08 Bid-YTW : 3.91 %
ENB.PF.A	FixedReset	50,100	Scotia crossed 37,000 at 24.95. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-11 Maturity Price : 23.16 Evaluated at bid price : 25.05 Bid-YTW : 4.19 %
ENB.PF.C	FixedReset	36,881	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-11 Maturity Price : 23.14 Evaluated at bid price : 25.03 Bid-YTW : 4.18 %
PWF.PR.S	Perpetual-Discount	34,654	RBC crossed 27,100 at 24.04. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-11 Maturity Price : 23.65 Evaluated at bid price : 24.01 Bid-YTW : 5.04 %
There were 14 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
BAM.PR.G	FixedFloater	Quote: 22.91 – 23.07 Spot Rate : 0.1600 Average : 0.1064 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-11 Maturity Price : 22.91 Evaluated at bid price : 22.91 Bid-YTW : 3.40 %
SLF.PR.I	FixedReset	Quote: 26.08 – 26.23 Spot Rate : 0.1500 Average : 0.1182 YTW SCENARIO Maturity Type : Call Maturity Date : 2016-12-31 Maturity Price : 25.00 Evaluated at bid price : 26.08 Bid-YTW : 2.23 %
FTS.PR.H	FixedReset	Quote: 20.62 – 20.80 Spot Rate : 0.1800 Average : 0.1503 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-11 Maturity Price : 20.62 Evaluated at bid price : 20.62 Bid-YTW : 3.76 %
BNS.PR.B	FloatingReset	Quote: 25.56 – 25.66 Spot Rate : 0.1000 Average : 0.0764 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-11 Maturity Price : 25.50 Evaluated at bid price : 25.56 Bid-YTW : -2.84 %
BMO.PR.S	FixedReset	Quote: 25.30 – 25.38 Spot Rate : 0.0800 Average : 0.0579 YTW SCENARIO Maturity Type : Call Maturity Date : 2019-05-25 Maturity Price : 25.00 Evaluated at bid price : 25.30 Bid-YTW : 3.78 %
FTS.PR.F	Perpetual-Discount	Quote: 24.23 – 24.43 Spot Rate : 0.2000 Average : 0.1782 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-11 Maturity Price : 23.96 Evaluated at bid price : 24.23 Bid-YTW : 5.08 %

Low policy rates are causing everybody in the world to pile into real-estate. The UK response deals with income, not Loan-to-Value:

[Professional government mouthpiece Mark] Carney’s attempt to reassure consumers and businesses that the BOE benchmark will peak well below the 5 percent seen before the financial crisis has helped to hold down borrowing costs. Five-year gilts are yielding 1.76 percent today compared with 1.86 percent at the end of last year. Traders are betting the BOE will refrain from raising the 0.5 percent benchmark until June, Sonia contracts show.

Financial-stability officials have taken some action to prevent an unsustainable debt buildup, toughening affordability checks in April and then restricting the proportion of mortgages at 4.5 times income to no more than 15 percent of new home loans.

“They’ve picked out this 4.5 times loan-to-income multiple from thin air because it’s one of the few measures where you’re not through the previous peak substantially,” [Talisman Global Asset Management Ltd. Chief Investment Officer Julian] Sinclair said.

Meanwhile, in Canada:

Bank of Montreal has once again lowered its five-year fixed mortgage rate to 2.99 per cent, from 3.29 per cent, a move that could cause more downward pressure on rates at a time when they’re already defying expectations.

BMO’s rate is not the lowest in the market, but it is the lowest that’s currently available from the country’s biggest banks. BMO sparked a mortgage price war among the banks when it first introduced its 2.99 per cent five-year-fixed rate in early 2012. That rate also earned the bank a lecture from then-Finance Minister Jim Flaherty, who had been taking steps to curb growth in the housing market amid fears that a bubble could be forming. BMO has repeatedly brought the rate back since then, most recently this March.

Dog bites man? That’s not news. But man bites dog is news!

Apple Inc. will charge fees from banks every time consumers use their iPhone to make purchases, a move that will give the company a cut of the growing mobile payments market, Bloomberg reported, citing people with knowledge of the arrangement.

Apple unveiled a watch, two larger iPhones and the mobile payments service Apple Pay on Tuesday.

The new iPhones will come equipped with the payments service, which launches in the United States next month and allows users to pay for items in stores with their phones instead of physically presenting their credit or debit cards.

Under the deals struck individually with each bank, Apple will collect a fee for each transaction, the report said.

As far as consumers are concerned, of course, it just means yet another layer of fee-demanding middlemen. That part isn’t news at all.

It was a poor day for the Canadian preferred share market, with PerpetualDiscounts down 11bp, FixedResets losing 15bp and DeemedRetractibles off 3bp. Volatility was average, but comprised entirely of FixedReset losers. Volume was low, but the highlights consist entirely of FixedResets.

PerpetualDiscounts now yield 5.13%, equivalent to 6.67% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.25%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 240bp, a significant narrowing from the 250bp reported September 3.

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	0.1108 %	2,640.7
FixedFloater	4.15 %	3.40 %	25,962	18.57	1	0.2626 %	4,183.9
Floater	2.90 %	3.07 %	45,069	19.47	4	0.1108 %	2,730.7
OpRet	4.05 %	-0.05 %	98,060	0.08	1	-0.0395 %	2,727.1
SplitShare	4.28 %	3.81 %	114,773	3.93	5	-0.0317 %	3,152.8
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0395 %	2,493.7
Perpetual-Premium	5.47 %	0.41 %	74,819	0.09	20	-0.0746 %	2,437.1
Perpetual-Discount	5.22 %	5.13 %	110,342	15.21	16	-0.1122 %	2,607.1
FixedReset	4.25 %	3.74 %	182,443	8.40	74	-0.1453 %	2,561.6
Deemed-Retractible	5.00 %	1.85 %	100,163	0.21	42	-0.0275 %	2,566.1
FloatingReset	2.62 %	1.92 %	80,212	0.16	6	-0.1438 %	2,529.4

Performance Highlights
Issue	Index	Change	Notes
VNR.PR.A	FixedReset	-1.96 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-10 Maturity Price : 23.38 Evaluated at bid price : 25.04 Bid-YTW : 4.35 %
CIU.PR.C	FixedReset	-1.87 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-10 Maturity Price : 20.42 Evaluated at bid price : 20.42 Bid-YTW : 3.73 %
TRP.PR.A	FixedReset	-1.80 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-10 Maturity Price : 21.86 Evaluated at bid price : 22.34 Bid-YTW : 3.93 %
TRP.PR.E	FixedReset	-1.02 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-10 Maturity Price : 23.26 Evaluated at bid price : 25.35 Bid-YTW : 3.87 %

Volume Highlights
Issue	Index	Shares Traded	Notes
NA.PR.S	FixedReset	147,403	TD crossed two blocks of 10,000 each, both at 25.60. RBC crossed two blocks of 24,200 and 25,000 at 25.60 and another block of 60,000 at 25.64. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-05-15 Maturity Price : 25.00 Evaluated at bid price : 25.61 Bid-YTW : 3.61 %
TD.PF.B	FixedReset	108,747	RBC bought 10,000 from Scotia at 25.12 and crossed 50,000 at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-10 Maturity Price : 23.20 Evaluated at bid price : 25.10 Bid-YTW : 3.74 %
TRP.PR.D	FixedReset	65,592	RBC crossed 25,000 at 25.35; TD crossed 26,300 at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-10 Maturity Price : 23.27 Evaluated at bid price : 25.25 Bid-YTW : 3.85 %
MFC.PR.E	FixedReset	61,921	Called for redemption September 19. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-19 Maturity Price : 25.00 Evaluated at bid price : 24.99 Bid-YTW : 4.73 %
ENB.PF.E	FixedReset	23,875	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-10 Maturity Price : 23.15 Evaluated at bid price : 25.08 Bid-YTW : 4.22 %
MFC.PR.M	FixedReset	23,150	Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-12-19 Maturity Price : 25.00 Evaluated at bid price : 25.07 Bid-YTW : 3.92 %
There were 23 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
VNR.PR.A	FixedReset	Quote: 25.04 – 25.49 Spot Rate : 0.4500 Average : 0.2836 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-10 Maturity Price : 23.38 Evaluated at bid price : 25.04 Bid-YTW : 4.35 %
CIU.PR.C	FixedReset	Quote: 20.42 – 21.00 Spot Rate : 0.5800 Average : 0.4395 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-10 Maturity Price : 20.42 Evaluated at bid price : 20.42 Bid-YTW : 3.73 %
GWO.PR.M	Deemed-Retractible	Quote: 26.20 – 26.45 Spot Rate : 0.2500 Average : 0.1643 YTW SCENARIO Maturity Type : Call Maturity Date : 2015-03-31 Maturity Price : 26.00 Evaluated at bid price : 26.20 Bid-YTW : 3.67 %
TRP.PR.E	FixedReset	Quote: 25.35 – 25.60 Spot Rate : 0.2500 Average : 0.1647 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-10 Maturity Price : 23.26 Evaluated at bid price : 25.35 Bid-YTW : 3.87 %
FTS.PR.G	FixedReset	Quote: 24.51 – 24.75 Spot Rate : 0.2400 Average : 0.1708 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-10 Maturity Price : 23.07 Evaluated at bid price : 24.51 Bid-YTW : 3.75 %
POW.PR.G	Perpetual-Premium	Quote: 26.02 – 26.23 Spot Rate : 0.2100 Average : 0.1414 YTW SCENARIO Maturity Type : Call Maturity Date : 2021-04-15 Maturity Price : 25.00 Evaluated at bid price : 26.02 Bid-YTW : 5.05 %

The Bank for International Settlements has released a paper by Sami Alpanda, Gino Cateau and Césaire Meh, all of the Bank of Canada, titled A policy model to analyze macroprudential regulations and monetary policy:

We construct a small-open-economy, New Keynesian dynamic stochastic general-equilibrium model with real-financial linkages to analyze the effects of financial shocks and macroprudential policies on the Canadian economy. Our model has four key features. First, it allows for non-trivial interactions between the balance sheets of households, firms and banks within a unified framework. Second, it incorporates a risk-taking channel by allowing the risk appetite of investors to depend on aggregate economic activity and funding conditions. Third, it incorporates long-term debt by allowing households and businesses to pay back their stock of debt over multiple periods. Fourth, it incorporates targeted and broader macroprudential instruments to analyze the interaction between macroprudential and monetary policy. The model also features nominal and real rigidities, and is calibrated to match dynamics in Canadian macroeconomic and financial data. We study the transmission of monetary policy and financial shocks in the model economy, and analyze the effectiveness of various policies in simultaneously achieving macroeconomic and financial stability. We find that, in terms of reducing household debt, more targeted tools such as loan-to-value regulations are the most effective and least costly, followed by bank capital regulations and monetary policy, respectively.

This conclusion is supported by:

Using our model, we …find that targeted policies such as LTV regulations are the most effective and least costly, followed by bank capital regulations and monetary policy, respectively. In particular, a 5 percentage point (pp) tightening in regulatory LTV decreases household debt by about 7.6 per cent at the peak, while its output impact is about 0.7 per cent. In contrast, a 1 pp increase in capital requirements reduces household debt by about 1.4 per cent and reduces output by about 0.35 per cent at the peak. Hence, an increase of about 2 pp in bank capital would have the same impact on output as a 5 pp reduction in LTV, but its impact on household debt would be about half of LTV at the peak. Similarly, a 100 basis point (bp) temporary increase in the policy rate reduces household debt by about 0.5 per cent at the peak, but this comes at an output cost of about 0.4 per cent, o¤ering an even worse trade-o¤ than capital requirements in terms of reducing household debt.

I’ll admit to being suspicious of this result, but without fully understanding and playing with the model I must also admit that I can’t explain why. I don’t like such finely targeted government policies, with some Pooh-Bah in Ottawa pronouncing on whether a citizen is permitted to buy a house or not. What if they get it wrong? They always do, eventually. Unaddressed in the paper is the effect of CMHC policies, which, in expanding the amount of mortgage insurance outstanding to a gargantuan extent, has thoroughly distorted the market, leading to today’s very high (although not necessarily excessive) debt levels and very high (although not necessarily excessive) housing prices.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 3bp, FixedResets off 7bp and DeemedRetractibles gaining 2bp. Volatility was average. Volume was low.

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	-0.1659 %	2,637.8
FixedFloater	4.16 %	3.41 %	25,134	18.55	1	-0.3923 %	4,173.0
Floater	2.91 %	3.07 %	45,746	19.48	4	-0.1659 %	2,727.7
OpRet	4.05 %	-0.67 %	97,938	0.08	1	0.0395 %	2,728.2
SplitShare	4.28 %	3.80 %	115,889	3.94	5	0.0521 %	3,153.8
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0395 %	2,494.6
Perpetual-Premium	5.46 %	0.41 %	74,441	0.09	20	0.1494 %	2,438.9
Perpetual-Discount	5.21 %	5.13 %	105,153	15.22	16	0.0321 %	2,610.0
FixedReset	4.24 %	3.71 %	181,617	8.40	74	-0.0666 %	2,565.3
Deemed-Retractible	5.00 %	1.45 %	99,717	0.15	42	0.0180 %	2,566.8
FloatingReset	2.62 %	0.00 %	74,741	0.08	6	-0.0653 %	2,533.0

Performance Highlights
Issue	Index	Change	Notes
FTS.PR.H	FixedReset	-1.48 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-09 Maturity Price : 20.70 Evaluated at bid price : 20.70 Bid-YTW : 3.75 %
PWF.PR.A	Floater	-1.11 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-09 Maturity Price : 20.52 Evaluated at bid price : 20.52 Bid-YTW : 2.57 %
IFC.PR.A	FixedReset	-1.03 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.00 Bid-YTW : 4.24 %
IGM.PR.B	Perpetual-Premium	1.29 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2017-12-31 Maturity Price : 25.25 Evaluated at bid price : 26.00 Bid-YTW : 5.09 %
MFC.PR.F	FixedReset	1.64 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.89 Bid-YTW : 4.25 %

Volume Highlights
Issue	Index	Shares Traded	Notes
TD.PF.B	FixedReset	194,678	RBC crossed blocks of 49,600 and 50,000, both at 25.12. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-09 Maturity Price : 23.21 Evaluated at bid price : 25.11 Bid-YTW : 3.74 %
ENB.PF.A	FixedReset	44,113	RBC crossed 40,000 at 25.05. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-09 Maturity Price : 23.15 Evaluated at bid price : 25.02 Bid-YTW : 4.19 %
BAM.PR.P	FixedReset	39,868	Called for redemption September 30. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-30 Maturity Price : 25.00 Evaluated at bid price : 25.41 Bid-YTW : 3.20 %
GWO.PR.S	Deemed-Retractible	36,400	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.53 Bid-YTW : 4.98 %
GWO.PR.N	FixedReset	31,160	CIBC crossed 18,000 at 21.77. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.70 Bid-YTW : 4.63 %
TRP.PR.B	FixedReset	27,332	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-09 Maturity Price : 19.70 Evaluated at bid price : 19.70 Bid-YTW : 3.70 %
There were 20 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
IFC.PR.A	FixedReset	Quote: 24.00 – 24.28 Spot Rate : 0.2800 Average : 0.1802 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.00 Bid-YTW : 4.24 %
PVS.PR.C	SplitShare	Quote: 25.81 – 26.90 Spot Rate : 1.0900 Average : 1.0096 YTW SCENARIO Maturity Type : Call Maturity Date : 2015-12-10 Maturity Price : 25.50 Evaluated at bid price : 25.81 Bid-YTW : 3.80 %
TD.PR.T	FloatingReset	Quote: 25.35 – 25.61 Spot Rate : 0.2600 Average : 0.1808 YTW SCENARIO Maturity Type : Call Maturity Date : 2018-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.35 Bid-YTW : 2.06 %
BAM.PR.X	FixedReset	Quote: 22.51 – 22.70 Spot Rate : 0.1900 Average : 0.1233 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-09 Maturity Price : 22.14 Evaluated at bid price : 22.51 Bid-YTW : 4.01 %
BAM.PR.M	Perpetual-Discount	Quote: 21.64 – 21.81 Spot Rate : 0.1700 Average : 0.1111 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-09 Maturity Price : 21.64 Evaluated at bid price : 21.64 Bid-YTW : 5.60 %
GWO.PR.N	FixedReset	Quote: 21.70 – 21.95 Spot Rate : 0.2500 Average : 0.1918 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.70 Bid-YTW : 4.63 %