Category: Market Action

Bank of America is closing its internal market-making unit:

Bank of America Corp. is dismantling an electronic market-making unit created last year to serve the lender’s Merrill Lynch wealth-management division, said two people with knowledge of the decision.

Increased regulatory scrutiny of U.S. equity markets and managers’ concerns for the potential perception of a conflict of interest killed the project, said the people. The desk advanced to a testing phase before being abandoned in recent weeks and two executives hired to run it, Jonathan Wang and Steven Sadoff, were told to seek new jobs within the firm, the people said, requesting anonymity because the matter is private.

Businesses such as the shuttered Bank of America unit usually execute equity orders internally, rather than sending them to the public stock market. Critics including Kor Group LLC’s Dave Lauer say the practice may cause harm by keeping some supply and demand private, distorting prices. Bank of America’s decision coincides with a renewed examination by regulators of whether trading in the $22 trillion U.S. stock market is fair.

For Bank of America, “this is either not a profitable business anymore or they don’t want to deal with the regulatory scrutiny that’s coming,” said Joe Saluzzi, co-head of equity trading at Themis Trading LLC in Chatham, New Jersey. “It definitely tells you they’re concerned and maybe they’re hearing things we haven’t.”

Kor Group LLC’s Dave Lauer’s argument is, essentially:

This structure is not dissimilar to something called Payment for Order Flow (PFOF), in which a wholesaler (such as Knight Getco or Citadel) will pay a retail broker for its order flow and then either internalize that flow or send it along to the broader market. In the case of PFOF, it is very profitable for the wholesalers to buy retail order flow and lucrative for brokers to sell this flow – so much so that it is generally referred to as “uninformed” or even “juicy” order flow. These terms describe the willingness of retail traders to pay the spread and the associated fees without a short-term view as to what will happen to the stock price over the next few milliseconds and seconds because of their long-term investment outlook or for swing/day-trading. For wholesalers, the profits from trading against this flow more than offset the fees that they pay to the retail brokers.

However, the PFOF model does a disservice to the market at large, as removing this order flow can theoretically inhibit price discovery, discouraging market makers from posting orders if they know that the only orders that make it to the exchange are the so-called “toxic” or “professional” flow. Internalizers and wholesalers are free-riding the public quote, and in essence “queue jumping” (a loaded term, to be sure) orders on lit exchanges that may have price-time priority from an absolute perspective.
…
So why can’t we count on the market and competitive forces to fix these issues? Because maker-taker creates a fundamental conflict of interest and a puts exchanges between a rock and a hard place. It makes no difference to an exchange’s revenue what its rebates/fees are – as the exchange makes money on the difference between the two. However, exchanges are unable to lower their rebates and fees because doing so would chase away resting orders to those exchanges that do not lower their rebates.

This is why regulatory intervention is required, and the Notre Dame study quantitatively shows that. In order to move forward, this intervention should be in the form of a pilot study – as advocated by Royal Bank of Canada (RBC) and others – that eliminates rebates in a set of symbols, and requires the trade-at rule in those names, as Canada and Australia do. This rule simply states that in order to execute a trade of less than 5,000 shares off-exchange (in a dark pool or internalization system), there must be significant price improvement (at least a tick, or half a tick if the spread is a tick wide). High-frequency trading (HFT) proponents explain, quite reasonably, that maker rebates are necessary to compensate them for adverse selection (as explained earlier, only the “toxic” flow actually makes it to exchanges now). The trade-at rule will reduce adverse selection and improve price discovery on public venues, ultimately benefitting all investors and providing compensation to market makers.

He also used as evidence the study by Robert Battalio, Shane Corwin, and Robert Jennings, Can Brokers Have It All?, referred to here on April 21, 2014. Seems to me that if the spread’s too wide, there’s money to be made by improving it.

TRACE? SchmACE!

The world’s biggest bond dealers, including JPMorgan Chase & Co. (JPM) and Morgan Stanley, failed to properly report trades to the industry’s price-tracking system more than 11,000 times. JPMorgan’s penalty: About three minutes of its annual profit.

Fines levied in settlements disclosed last month by the Financial Industry Regulatory Authority amounted to a fraction of what the two New York-based firms generated from trading debt during the two-year reviews. JPMorgan’s $95,000 penalty was the biggest imposed by Finra as it cited at least three other dealers in the past five months for similar types of violations.

Regulators are seeking to uphold the integrity of the bond-price reporting system known as Trace, the biggest window into a market that’s grown about 78 percent since 2008 as investors poured money into debt securities. Holding back information on trades can give Wall Street dealers an advantage over customers seeking a fair price, undermining Finra’s stated goal of equal access for all participants to real-time data.
…
JPMorgan racked up the most Trace-related violations disclosed this year, the result of five separate reviews, according to a settlement released in April. The bank, which ranks as the biggest bond trader and top underwriter of corporate debt, neglected to post trades or missed deadlines in at least 6,300 instances from March 2010 through May 2012, at times omitting a quarter of required reporting, Finra said.

In one review, Finra found the violations accounted for almost 20 percent of corporate debt transactions the bank was required to report over three months in 2011. In another, JPMorgan didn’t report 24 percent of new-issue offerings over five months, the regulator said.

Sometimes the bank didn’t report the correct volume, time or date of transactions, and the firm inadequately supervised compliance, according to the documents.

Moody’s sounded a warning on the provinces:

Both parties should take note of the latest from Moody’s, which puts [Ontario] net debt as a percentage of revenue at 237.7 in the 2014-15 fiscal year, the highest in the country.

Not only the highest, actually, but far and away above the next in line, Quebec, at 189.5.

The lowest is Alberta, at 31.9.

Alberta and British Columbia are alone among the provinces in holding a triple-A rating with Moody’s, the former deemed “stable” and the latter “negative.”

“Most Canadian provinces maintained their ratings and stable credit outlook through the financial crisis and subsequent slow recovery,” Moody’s said in its report.

“However, the continued accumulation of debt and difficulty in returning to balanced budgets is increasing negative credit pressure for some provinces.”

Revenue-to-debt, I can’t help with. But there’s a a good idea for improving debt-to-GDP!

Italy will include prostitution and illegal drug sales in the gross domestic product calculation this year, a boost for its chronically stagnant economy and Prime Minister Matteo Renzi’s effort to meet deficit targets.

Drugs, prostitution and smuggling will be part of GDP as of 2014 and prior-year figures will be adjusted to reflect the change in methodology, the Istat national statistics office said today. The revision was made to comply with European Union rules, it said.

Renzi, 39, is committed to narrowing Italy’s deficit to 2.6 percent of GDP this year, a task that’s easier if output is boosted by portions of the underground economy that previously went uncounted.

The administrators of the TMXMoney.com website got back to me this morning about the problem with the pricing data, as discussed on May 20 and May 21 …

Hello,

Thank you for your comment. We have forwarded your inquiry to marketdata@tmx.com. They will contact you shortly.

In the future, for any inquiries relating to market data, please reach out to marketdata@tmx.com directly or call (416) 947-4778.

If you have any suggestions for new functionality/features please feel free to use the “Suggest an Idea” box on TMXmoney.com.

Thank you,

This was followed shortly afterwards with:

Status update

An idea you voted for has been closed!

3 votes have been returned to you Go spend your votes on more ideas…

In other words … ‘Shee-it, man, if we had a clue we wouldn’t have to work for a bank!’ Well, it was worth a try! Thanks to all those who voted for the suggestion.

Assiduous Reader GA writes in and says:

AMBest withdrew their rating of CCS.PR.C and CCS.PR.D

IS this an indication that shares will be called for redemption by the end of the month? CCS.PR.D should certainly be redeemed and they have until the end of the month to announce it!

So, first of all, it’s true: A.M. Best Affirms Ratings of Co-operators General Insurance Company, Its Subsidiary and Co-operators Life Insurance Company:

A.M. Best has affirmed the financial strength rating (FSR) of A- (Excellent) and issuer credit ratings (ICR) of “a-” of Co-operators General Insurance Company (Co-operators General) and its subsidiary, The Sovereign General Insurance Company (Sovereign) (Alberta).

In addition, A.M. Best has affirmed the FSR of A (Excellent) and ICR of “a” of Co-operators Life Insurance Company (Co-operators Life) (Saskatchewan). The outlook for all ratings is stable.

Concurrently, A.M. Best has withdrawn the debt ratings of “bbb-” of the preferred shares of CAD 100 million 5% non-cumulative redeemable Class E preference shares, Series C [TSX: CCS.PR.C] and CAD 115 million 7.25% non-cumulative five-year reset Class E preference shares, Series D [TSX: CCS.PR.D] issued by Co-operators General.

But I think that it indicates only that Cooperators is tired of paying for ratings that don’t really make a lot of difference to their ability to sell preferred shares. Only ratings by DBRS and S&P are important; during the crisis it looked as if Moody’s was going to become a third player, but there doesn’t seem to be much of a rush for three ratings other than the initial handful of banks and insurers.

I continue to visit the Cooperators media page regularly to check whether they’ve finally pulled the trigger on the expected CCS.PR.D redemption (redeemable on 2014-6-30; Issue Reset Spread of 521bp) but it hasn’t happened yet.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 17bp, FixedResets gaining 4bp and DeemedRetractibles up 11bp. Volatility would have been low if it had not been for fine performance from the (generally very volatile) Floaters. Volume was very low, considering the boost that should have resulted from the two new issues settling today.

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	1.6750 %	2,529.3
FixedFloater	4.51 %	3.75 %	33,076	17.90	1	-0.1422 %	3,806.4
Floater	2.88 %	2.99 %	50,251	19.70	4	1.6750 %	2,730.9
OpRet	4.37 %	-12.00 %	33,077	0.11	2	0.0777 %	2,717.4
SplitShare	4.81 %	4.15 %	59,265	4.19	5	0.0557 %	3,110.9
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0777 %	2,484.8
Perpetual-Premium	5.51 %	-9.85 %	93,663	0.09	15	0.0052 %	2,404.4
Perpetual-Discount	5.29 %	5.31 %	107,938	14.91	21	0.1721 %	2,547.4
FixedReset	4.53 %	3.50 %	196,232	4.38	76	0.0363 %	2,560.0
Deemed-Retractible	4.98 %	-3.79 %	146,140	0.09	43	0.1147 %	2,529.5
FloatingReset	2.66 %	2.34 %	155,771	4.03	6	-0.0659 %	2,494.1

Performance Highlights
Issue	Index	Change	Notes
BAM.PR.C	Floater	1.14 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-22 Maturity Price : 17.69 Evaluated at bid price : 17.69 Bid-YTW : 2.99 %
ELF.PR.G	Perpetual-Discount	1.27 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-22 Maturity Price : 21.87 Evaluated at bid price : 22.28 Bid-YTW : 5.37 %
BAM.PR.K	Floater	1.39 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-22 Maturity Price : 17.53 Evaluated at bid price : 17.53 Bid-YTW : 3.02 %
BAM.PR.B	Floater	1.56 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-22 Maturity Price : 17.62 Evaluated at bid price : 17.62 Bid-YTW : 3.00 %
PWF.PR.A	Floater	2.51 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-22 Maturity Price : 20.00 Evaluated at bid price : 20.00 Bid-YTW : 2.63 %

Volume Highlights
Issue	Index	Shares Traded	Notes
ENB.PF.C	FixedReset	1,260,098	New issue settled today. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-22 Maturity Price : 23.13 Evaluated at bid price : 25.04 Bid-YTW : 4.14 %
GWO.PR.S	Deemed-Retractible	753,041	New issue settled today. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.10 Bid-YTW : 5.23 %
CU.PR.C	FixedReset	303,665	RBC crossed 294,500 at 25.70. YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-01 Maturity Price : 25.00 Evaluated at bid price : 25.65 Bid-YTW : 3.07 %
BMO.PR.S	FixedReset	108,865	Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-05-25 Maturity Price : 25.00 Evaluated at bid price : 25.55 Bid-YTW : 3.60 %
ENB.PR.J	FixedReset	81,798	Nesbitt crossed 70,000 at 25.12. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-22 Maturity Price : 23.20 Evaluated at bid price : 25.07 Bid-YTW : 4.07 %
BAM.PR.N	Perpetual-Discount	36,728	RBC probably did something. The public TMX reports aren’t clear. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-22 Maturity Price : 21.82 Evaluated at bid price : 21.82 Bid-YTW : 5.53 %
There were 18 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
FTS.PR.F	Perpetual-Discount	Quote: 23.75 – 24.23 Spot Rate : 0.4800 Average : 0.2821 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-22 Maturity Price : 23.48 Evaluated at bid price : 23.75 Bid-YTW : 5.16 %
RY.PR.A	Deemed-Retractible	Quote: 25.71 – 25.89 Spot Rate : 0.1800 Average : 0.1054 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-23 Maturity Price : 25.25 Evaluated at bid price : 25.71 Bid-YTW : -15.82 %
RY.PR.E	Deemed-Retractible	Quote: 25.89 – 26.10 Spot Rate : 0.2100 Average : 0.1379 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-21 Maturity Price : 25.50 Evaluated at bid price : 25.89 Bid-YTW : -13.86 %
PWF.PR.K	Perpetual-Discount	Quote: 23.53 – 23.84 Spot Rate : 0.3100 Average : 0.2416 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-22 Maturity Price : 23.24 Evaluated at bid price : 23.53 Bid-YTW : 5.30 %
PWF.PR.E	Perpetual-Premium	Quote: 25.22 – 25.45 Spot Rate : 0.2300 Average : 0.1621 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-21 Maturity Price : 25.00 Evaluated at bid price : 25.22 Bid-YTW : -1.17 %
CU.PR.G	Perpetual-Discount	Quote: 22.12 – 22.35 Spot Rate : 0.2300 Average : 0.1691 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-22 Maturity Price : 21.81 Evaluated at bid price : 22.12 Bid-YTW : 5.09 %

There’s a bit of news regarding high-trigger CoCo issuance:

Nykredit Realkredit A/S, Europe’s biggest issuer of mortgage-backed covered bonds, is planning to use its first sale of contingent convertible notes to bolster its rating after meeting capital requirements.

The Copenhagen-based lender, which is preparing a 500 million euro ($685 million) issue of Tier 2 CoCos that will be written down and canceled if a 7 percent capital adequacy requirement is breached, will use the securities “to get the best possible issuer rating relative to costs,” Chief Financial Officer Soeren Holmsaid in an interview.

What? Cancelled if 7% capital adequacy is breached? Yes, it’s true:

The notes are subordinated Tier 2 instruments without a coupon deferral feature and subject to a 7% capital adequacy trigger. On breach of the trigger, the notes will be automatically written down to zero and the notes cancelled, resulting in loss of principal and future interest for investors. The capital adequacy trigger is based on Nykredit Realkredit’s individual or consolidated common equity Tier 1 (CET1) ratio or Nykredit Holding’s consolidated CET1 ratio. The notes are rated three notches below Nykredit Realkredit’s ‘a’ Viability Rating (VR) in accordance with Fitch’s criteria for “Assessing and Rating Bank Subordinated and Hybrid Securities” dated 31 January 2014 at www.fitchratings.com. The notes are notched twice for loss severity to reflect the principal write-down feature, and once for non-performance risk, to reflect the moderate incremental risk due to the 7% CET1 ratio trigger, partly offset by the large capital buffer above this trigger point, compared with the risk reflected in the bank’s VR.

The interesting part is that they’re cheaper to issue than Innovative Tier 1 Capital (the cool guys are now calling this AT1):

Nykredit Realkredit A/S said it won’t follow its biggest Danish competitor in using additional Tier 1 instruments to refinance hybrid debt as contingent convertible bonds offer a cheaper path to supporting ratings.

“The rating impact outranks the need for regulatory capital for now,” Soeren Holm, chief financial officer at Copenhagen-based Nykredit, said in a phone interview on Friday. “We plan to use CoCo instruments for the refinancing. Standard & Poor’s includes all of them in full when setting our capital ratio.”

Well, Fitch can say what it likes, but I find the reliance on definitions of regulatory capital to be very alarming. There’s lots of room there for management discretion and regulatory discretion in times of trouble, and that means things can get pretty tricky when trying to analyze these things in a chaotic environment. We’ve seen regulatory discretion in Canada (albeit in the other direction) when OSFI solved MFCs problem by agreeing to pretend there wasn’t a problem during the recent credit crisis.

Aren’t you glad you don’t have these neighbors?

[1] The parties to this action live across the road from each other in Toronto’s tony Forest Hill neighbourhood. The video footage played at the hearing shows that both families live in stately houses on a well-manicured, picturesque street. They have numerous high end automobiles parked outside their homes.

[2] The Plaintiff, John Morland-Jones, is an oil company executive; the Defendant, Gary Taerk, is a psychiatrist. They do not seem to like each other, and neither do their respective spouses, the Plaintiff, Paris Morland-Jones and the Defendant, Audrey Taerk.

[3] In this motion, the Plaintiffs seek various forms of injunctive relief on an interlocutory basis. It all flows from the Plaintiffs’ allegation that the Defendants have been misbehaving and disturbing their peaceful life in this leafy corner of paradise.
…
[23] In my view, the parties do not need a judge; what they need is a rather stern kindergarten teacher
…
[27] There is no serious issue to be tried in this action. The Plaintiff’s motion is therefore dismissed.

It would appear that John Morland-Jones is an old UCC-boy who lives at the corner of Burton Road & Vesta. A nice neighborhood indeed! I see that Dr. Gary Taerk is with Toronto General Hospital which, given my experience with TGH personnel, sounds about right.

My suggestion to the TMX that they start reporting closing quotes (mentioned yesterday) has garnered twenty-five votes, so it looks like all eight of my Assiduous Readers have helped me out. Thanks! The Official Response is:

Hello,

This issue around Closing Prices on our 15-minute delayed website is currently under investigation. We hope to have it resolved as quickly as possible.

The problem is related to our use of Canadian Consolidated Quotes (“CCQ”) as a default when retrieving a quote. This view consolidates traded from all Canadian markets.

To correct this problem in the short-term, please check quotes on Toronto Stock Exchange or TSX Venture Exchange markets only instead of the CCQ. You can do this by adding TSX or TSXV suffix (:TSX or :TSV) in the “Get Quote” box when you enter a ticker.

Example: http://web.tmxmoney.com/quote.php?qm_symbol=RY:TSX
http://web.tmxmoney.com/quote.php?qm_symbol=PMI:TSV

Thanks again for your patience.

If you have any suggestions for new functionality/features, please feel free to use the “Suggest an Idea” box on TMXmoney.com.

I posted a comment but it has been deleted – perhaps because it included links. So I’ve sent them an eMail:

Sirs,

As of December, 2010, quotes accessed after market hours could be affected by order cancellations on the Toronto Stock Exchange after 4pm. See the discussion of the GWO.PR.J on 2010-12-2 at http://prefblog.com/?p=13456 (more information at http://prefblog.com/?p=13796 ).

In addition, this problem has also affected the historical information available via tmxdatalinx.com

Has there been a change in procedures in the interim? If so, just precisely what is the source of closing quotations provided via tmxmoney.com and tmxdatalinx.com?

Sincerely,

More on the junk bond liquidity premium:

It’s getting harder to trade bonds. Hours, sometimes days can go by before investors can complete a transaction. That’s not dissuading them from piling into the most-illiquid debt out there.

Junk-bond investors are earning practically nothing extra to own older, smaller bond issues that don’t typically trade as often as bigger, newer debt offerings, according to Barclays Plc (BARC) data. The gap has collapsed to almost zero from a 1.05 percentage point premium for the less-liquid notes in the fourth quarter of 2011.

That means bondholders aren’t really being compensated for the risk that there might be no one who wants to buy their obscure securities if demand dries up and they’re forced to sell. They’re not worrying about that now, though, with volatility at historic lows and cash flowing into credit markets amid a sixth year of unprecedented Federal Reserve stimulus.
…
Unlike stocks, junk bonds are traded over the phone away from exchanges. Wall Street’s biggest banks have traditionally facilitated corporate-debt trades using their own money. They’re reducing this role now in the face of regulations making them hold more capital against debt holdings.

In the past, dealers would purchase bigger clumps of bonds than they could immediately sell, allowing investors to get out of positions even if a broker didn’t have a client on the other side looking to buy. That’s changed, and junk-debt trading has fallen as a proportion of the total amount outstanding.

The amount of below investment-grade bonds in the market has swelled by 54 percent since 2009, yet trading volumes have only increased by 34 percent in that period, according to Bank of America (BAC) Merrill Lynch and Financial Industry Regulatory Authority data.

It was a day of small gains for the Canadian preferred share market, with PerpetualDiscounts up 4bp, FixedResets gaining 3bp and DeemedRetractibles winning 5bp. Average volatility was augmented by some good bouncing by Floaters. Volume was average.

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	0.6887 %	2,487.6
FixedFloater	4.50 %	3.75 %	31,758	17.91	1	0.1900 %	3,811.8
Floater	2.93 %	3.03 %	50,631	19.62	4	0.6887 %	2,685.9
OpRet	4.37 %	-10.75 %	34,435	0.12	2	0.0973 %	2,715.3
SplitShare	4.81 %	4.22 %	61,608	4.19	5	0.0318 %	3,109.2
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0973 %	2,482.9
Perpetual-Premium	5.51 %	-7.47 %	96,916	0.09	15	-0.0599 %	2,404.3
Perpetual-Discount	5.30 %	5.33 %	107,909	14.91	21	0.0405 %	2,543.1
FixedReset	4.53 %	3.48 %	195,447	4.32	75	0.0251 %	2,559.0
Deemed-Retractible	4.97 %	-3.74 %	147,160	0.09	42	0.0540 %	2,526.6
FloatingReset	2.66 %	2.33 %	156,824	4.03	6	0.0330 %	2,495.7

Performance Highlights
Issue	Index	Change	Notes
PWF.PR.A	Floater	-1.96 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-21 Maturity Price : 19.51 Evaluated at bid price : 19.51 Bid-YTW : 2.70 %
MFC.PR.F	FixedReset	-1.30 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.61 Bid-YTW : 3.84 %
PWF.PR.L	Perpetual-Discount	-1.27 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-21 Maturity Price : 23.81 Evaluated at bid price : 24.09 Bid-YTW : 5.33 %
BAM.PR.X	FixedReset	1.11 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-21 Maturity Price : 22.28 Evaluated at bid price : 22.77 Bid-YTW : 3.92 %
FTS.PR.J	Perpetual-Discount	1.37 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-21 Maturity Price : 23.29 Evaluated at bid price : 23.62 Bid-YTW : 5.03 %
BAM.PR.K	Floater	1.65 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-21 Maturity Price : 17.29 Evaluated at bid price : 17.29 Bid-YTW : 3.06 %
BAM.PR.B	Floater	1.70 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-21 Maturity Price : 17.35 Evaluated at bid price : 17.35 Bid-YTW : 3.05 %
BAM.PR.C	Floater	1.80 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-21 Maturity Price : 17.49 Evaluated at bid price : 17.49 Bid-YTW : 3.03 %

Volume Highlights
Issue	Index	Shares Traded	Notes
BMO.PR.S	FixedReset	392,113	Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-05-25 Maturity Price : 25.00 Evaluated at bid price : 25.55 Bid-YTW : 3.60 %
RY.PR.Z	FixedReset	190,555	Nesbitt crossed 50,000 at 25.58. Scotia crossed blocks of 49,800 and 50,000, both at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-05-24 Maturity Price : 25.00 Evaluated at bid price : 25.57 Bid-YTW : 3.51 %
TRP.PR.A	FixedReset	152,778	Nesbitt crossed 139,100 at 23.85. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-21 Maturity Price : 23.30 Evaluated at bid price : 24.00 Bid-YTW : 3.67 %
RY.PR.C	Deemed-Retractible	146,648	Desjardins crossed 142,900 at 25.69. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-20 Maturity Price : 25.50 Evaluated at bid price : 25.68 Bid-YTW : -4.46 %
HSB.PR.E	FixedReset	81,906	Called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-30 Maturity Price : 25.00 Evaluated at bid price : 25.38 Bid-YTW : 0.96 %
TRP.PR.C	FixedReset	73,976	Nesbitt crossed 50,000 at 23.34. Scotia crossed 15,200 at 23.30. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-21 Maturity Price : 22.77 Evaluated at bid price : 23.15 Bid-YTW : 3.45 %
There were 30 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: 21.09 – 22.45 Spot Rate : 1.3600 Average : 0.8239 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-21 Maturity Price : 21.63 Evaluated at bid price : 21.09 Bid-YTW : 3.75 %
PWF.PR.A	Floater	Quote: 19.51 – 20.30 Spot Rate : 0.7900 Average : 0.5880 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-21 Maturity Price : 19.51 Evaluated at bid price : 19.51 Bid-YTW : 2.70 %
MFC.PR.C	Deemed-Retractible	Quote: 22.46 – 22.90 Spot Rate : 0.4400 Average : 0.3015 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.46 Bid-YTW : 5.77 %
ENB.PR.A	Perpetual-Premium	Quote: 25.42 – 25.74 Spot Rate : 0.3200 Average : 0.1962 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-20 Maturity Price : 25.00 Evaluated at bid price : 25.42 Bid-YTW : -16.12 %
PWF.PR.L	Perpetual-Discount	Quote: 24.09 – 24.47 Spot Rate : 0.3800 Average : 0.2646 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-21 Maturity Price : 23.81 Evaluated at bid price : 24.09 Bid-YTW : 5.33 %
MFC.PR.F	FixedReset	Quote: 23.61 – 23.89 Spot Rate : 0.2800 Average : 0.2088 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.61 Bid-YTW : 3.84 %

So I was talking to a guy on the weekend who said he’d worked out that his house value had multiplied forty times since he bought it in 1967. Pretty good, eh? How does it compare to other things?

So the S&P 500 beat my buddy’s house over the period, but only by about 1.7% annually; property taxes, maintenance and insurance have been ignored, but so has rent … I suspect that once you throw everything into the mix the house has done a lot better.

Got some data? Let me know and I’ll add it to the table.

Coincidentally, Rob Carrick writes:

National price data from the Canadian Real Estate Association shows an average annual gain of 5.4 per cent nationally from 2004 through 2013 for resale homes. The comparable average return from stocks was just under 8 per cent. If we go back 20 years, we get an 8.3 per cent gain from Canadian stocks and an increase of 4.5 per cent in the average national house price. Over 30 years, stocks made 8.5 per cent and houses 5.5 per cent.

Stocks, or at least the benchmark for the Canadian market, win. Case closed. So why do houses enjoy such a great reputation as an investment? Some answers to this question were recently presented in a blog post by Adrian Spitters, a certified financial planner (CFP) with Assante Capital Management Ltd. in Abbotsford, B.C. For one thing, he thinks people take a much longer-term view of housing prices than they do with stocks. With stocks, they focus a lot on short-term price fluctuations and lose sight of long-term results.

The perception of stocks has also been hurt by two market crashes since 2000, even though long-term investors have still done fine. “Years ago, when people didn’t have access to information online, I don’t think they panicked as much about stocks,” Mr. Spitters said in an interview. “People tend to be more aware of the volatility.”

He also says people ignore the true cost of owning a home and thus come away with an overly optimistic view of how much money they’ve made. Property taxes, furnishings, maintenance, improvements, insurance and mortgage interest all have to be factored into calculations of how much money is being made on housing.

Property taxes, maintenance and insurance, I agree. Furnishings, mortgage interest, I disagree. But one thing is, of course, that houses can be levered up higher than equities.

Sunday School. Coming soon to a trading desk near you!

The video, shared widely on social media Friday, takes aim at the famously crass culture on trading floors – most recently highlighted in The Wolf of Wall Street movie – and is part of a broader campaign to change the corporate culture at scandal-plagued Deutsche Bank, which has faced major penalties in recent years for improper trading practices.

Mr. Fan warns in the video that all e-mails and conversations are open to scrutiny when regulators are investigating a case of suspected wrongdoing and said “communications that run even a small risk of being seen as unprofessional” must stop “right now.”

“Some of you are falling way short of our established standards,” Mr. Fan says in the video. “Let’s be clear: Our reputation is everything. Being boastful, indiscreet and vulgar is not okay. It will have serious consequences for your career, and I have lost patience on this issue.”

Assiduous Reader DW writes in and says:

I’ve read with some interest your recent posts on bond ladders. (I would have responded on your site, if I could figure out how to sign-in without re-registering. Although I’ve commented before, the system has no record of me; and instead of repeating the registration process again, I’ve decided to send you this note.)

I confess that many of the points raised by others and addressed by you are lost on me, in part because it’s easy to buy a bond ladder via an ETF and in part because I buy bond ladders as an act of duration defence, not offence; but also in part because I lack the financial sophistication to grasp some of the finer points – either that or they seem too minor for me to worry about.

But I have a specific question that ties into your point that some people hold short-term instruments to counter-balance longer-term fixed income, such as the preferred shares you recommend. I’m interested in your thoughts on whether it might make sense to use something like First Asset’s Laddered 1-5 Year Strip Bond ETF (BXF) for short-duration exposure. I like the strip aspect of the ETF because it eliminate the adverse tax effect of an ETF holding premium bonds; and I like the longer-term defensive characteristics of the ladder format. Your comments go me wondering whether it might make sense to construct something of a synthetic fixed income barbell by putting half of the fixed income allocation in something like BXF and half in a collection of the PrefLetter recommendations.

On this point, if it’s feasible, it would be nice to see some recommendations in your PrefLetter on this point: namely, how one might go about fitting your preferred share recommendations into an overall fixed income allocation, even if the guidance is only general and lists only a collection of bond ETFs you think are potentially sensible for this purpose. Regardless, the publication is excellent.

Some people lost their accounts during the horrific server migration in December. *sigh* They may re-register, or get me to do it.

Anyway, the first problem in looking at this is that the main page for the First Asset DEX 1-5 Year Laddered Government Strip Bond Index ETF states that:

The First Asset ETF has been designed to replicate, to the extent possible, the performance of a Canadian 1-5 year laddered government strip bond index, net of expenses. The current index is the DEX 1-5 Year Laddered Government Strip Bond Index … More information on the Index is available at the Index Provider’s website at www.canadianbondindices.com

… and the index is not mentioned on the TMX Debt Market Methodolgies page. It’s just the banks’ way of reminding us that they’re important bankers and we’re just ignorant customer scum. Ha-ha! Where else ya gonna go, suckers? Can you spell “monopoly”? However, somebody has inadvertently left a link to the methodology on the CANADIAN DEBT MARKET INDICES page, so we can look at that.

According to the DEX 1-5 year Laddered Government Strip Bond Index Methodology:

a Government only laddered index structure, in CDN$, selected from the constituents of the DEX Strip Bond Index (please refer to the DEX Strip Bond Index Methodology for qualification criteria)
– Laddered into 5 term buckets (1-1.99 yrs, 2-2.99 yrs, 3-3.99 yrs, 4-4.99 yrs, 5-5.99 yrs)
– Index constituents are rebalanced annually, each June 30 (or the last business day of June)
– Bonds will roll out to the next lower bucket on the rebalance date
– Bonds with < 1 year to maturity will roll out of the first bucket on the rebalance date at the mid market closing level on rebalance date – Index will re-invest the full market value of all roll out securities into the longest bucket at full units - Inception Date is June 29, 2012 – 5 bonds are selected for each term bucket (25 in total) in the following proportion: - 1 Government of Canada (or Government of Canada Agency) Bond - 4 Provincial Bond (including provincial guarantees) - Substitutions may be required where no Government of Canada or Agency Bond exists. – Minimum issue size 50MM – Select the most liquid in the bucket (as ranked by trailing 12 month average daily dollar volume traded)

They don’t say how they’re computing the “trailing 12 month average daily dollar volume traded”, but I assume it’s from data “provided by [the bank-owned] CDS (Canadian Depository for Securities) for the Canadian Strip marketplace.” as is the case with the Canadian Strip Bond Index. Compete with that, sucker! I feel certain that you, too, can buy such data from CDS at ever-so-reasonable prices.

With respect to distributions, according to the prospectus:

With respect to Strip Bonds, the First Asset ETF will generally be required to include annually in income notional interest deemed to have accrued on the Strip Bonds from the date of purchase, notwithstanding the fact that there is no entitlement to interest payable under the Strip Bonds.

OK, so all this is fair enough. How is it valued?

The value of any bond will be the price provided by FTSE TMX Global Debt Capital Markets Inc. (formerly “PC-Bond” a business unit of TSX Inc). FTSE TMX Global Debt Capital Markets Inc. will determine the price from quotes received from one or more dealers in the applicable bond, selected for this purpose by FTSE TMX Global Debt Capital Markets Inc.

So it looks like that the issues will be valued as strips. While this makes eminent sense, it should be noted that strips are expensive; pricing and yield information is difficult to get ahold of on their website (which is alarming in and of itself) but we can get some information from the December 31, 2013 Financial Statements.

They are, for instance, holding 195M PV of Canada Strips 2015-12-1, valued at $190,543. This means the price is 97.7144, with a term of 1.918 years. That’s an IRR of 1.213%, bond-equivalent-yield of 1.209%. A Two-Year Canada was yielding 1.13% about then.

Repeating all these calculations, very laboriously I might say, results in the calculation that (as of 2013-12-31) the portfolio was yielding 1.79% with a duration of just over three years. It was about 20% federal, 40% Ontario and 40% Quebec. Three year Canadas were about 1.21%. I don’t know about then, but now three year Ontario and Quebec bonds are both trading about 30bp over three year Canadas, So all in all, it looks like the pricing is fair, but you’re still paying strip prices for this stuff.

Strips are expensive and provincials are expensive (due to liquidity) and Canadas are very expensive (due to liquidity). I never recommend anybody ever buy Canadas, because the liquidity premium is grotesque.

Given that what you want is short-duration bonds to counterbalance the long duration of your preferred share portfolio, I would suggest buying short-term provincial bonds instead of strips (because strips are so expensive) and – if your portfolio is of sufficient size – buy short corporates in prudent size as they become available. Current coupon issues only, of course; and remember, in an RRSP it doesn’t matter so you can buy an ETF or fund in a registered plan without worrying about the coupon.

Here’s how business gets done:

A German water utility alleged a former UBS AG (UBSN) banker had an “inappropriate” relationship with consultants advising on disputed swap deals, the latest lawsuit to highlight how complex financial instruments backfired on municipal agencies during the 2008 financial crisis.

Kommunale Wasserwerke Leipzig GmbH said in court documents that Steven Bracy, the banker at the center of the allegations, booked strippers for consultants at Swiss firm Value Partners and went on an African safari with them. That happened even as he was supposed to be advising KWL on its derivative transactions with UBS.

KWL made the allegations in its response to a lawsuit filed by UBS, in which the bank is seeking $138 million under so-called credit protection agreements from 2006 and 2007. The utility argues in court documents that the close relationship between the bank and the consultants creates a conflict of interest that invalidates the deal. Bracy is scheduled to testify at the trial in London today.
…
Bracy, then a UBS employee, “appears” to have asked another man in 2006 to arrange for four strippers to be paid $5,600 each, KWL said in court documents. Later that year, Value Partners invited Bracy and another UBS employee to go on a “luxury safari” in South Africa to discuss a partnership.
…
A lawyer for UBS, Charles Falconer, told the court in April that written agreements show Value Partners was advising KWL on the transaction.

“There was never any doubt in anyone’s mind that Value Partners were acting for KWL,” he said. “Attempts by Value Partners during the course of the transactions to blur the line were rebuffed by UBS.”

Falconer said UBS didn’t force KWL to accept the deal and any blame was with the water supplier and its former managing director, Klaus Heininger. Heininger was convicted by a German court of accepting more than $3 million in bribes from Blatz and Senf beginning in 2005.
…
The strippers and safari weren’t the only gifts allegedly exchanged between UBS and Value Partners. The bank gave tickets to the World Cup soccer quarter-finals in Berlin in 2006 to Blatz and another person at Value Partners, and watches and suitcases to Blatz and Senf later that year, the bank said in court documents. The bank says the gifts were “normal” in the industry, unsolicited, too minor to breach fiduciary duties and not given surreptitiously.

The only thing I find surprising about this is that the strippers did so well. What did they have to do to earn $5,600 each?

Every now and then there’s a story decrying cybersecurity as a military boondoggle:

It’s a threat the government deems serious enough to hire more than 10,000 “cyber warriors” in the near future, according to the Cyber Security Challenge, a public-private contest created to hire the next generation of cybersecurity experts.

And it’s a focus that already consumes billions of dollars in taxpayer dollars each year.

In 2011, the federal government spent over $13 billion on cybersecurity, all but $3 billion of that from the Department of Defense, according to a recent report by the DOD’s Cyber Threat Task Force.

“There has been very little analysis as to the cost or expected benefits for any regulation pertaining to cybersecurity,” said James Gattuso, a senior research fellow at the Heritage Foundation, a nonprofit conservative think tank in Washington, D.C. “It’s admittedly a very difficult thing to measure.”

… and every now and then there’s a story about the lack of cybersecurity:

It shouldn’t be easy to shut down a European ministry for days, depriving bureaucrats of access to e-mail and the web. Someone, however, has managed to do just that to Belgium’s foreign ministry, which had to quarantine its entire computer system last Saturday and only managed to restore the work of the passport and visa processing systems on Thursday. Similar attacks seem to be taking place elsewhere in Europe, as Belgian Foreign Minister Didier Reynders told the Belga news agency after meeting with a senior French diplomat that “everyone (on the European level) notes at this moment a very powerful pickup in hacking activity probably coming from the east and in any case having to do with Ukraine.”
…
Given the attack target’s clout and resources, one would have expected the U.S. and its NATO allies to thoroughly study and block the malware. That didn’t happen. Defense conglomerate BAE Systems wrote in a recent report that “the operation behind the attacks has continued with little modification to the tools and techniques, in spite of the widespread attention a few years ago.”

… and every now and then there’s some actual sabre rattling:

The U.S. dramatically escalated its battle to curb China’s technology theft from American companies by accusing five Chinese military officials of stealing trade secrets, casting the hacker attacks as a direct economic threat.

The indictment effectively accuses China and its government of a vast effort to mine U.S. technology through cyber-espionage, stealing jobs as well as the innovation on which the success of major global companies like United States Steel Corp. (X) and Alcoa Corp. (AA) depends.
…
Those indicted were officers in Unit 61398 of the Third Department of the Chinese People’s Liberation Army. The Justice Department identified them as Wang Dong, Sun Kailiang, Wen Xinyu, Huang Zhenyu and Gu Chunhui.

In one of the cases, the Justice Department said Sun stole proprietary technical and design specifications for piping from Westinghouse, the nuclear reactor arm of Toshiba Corp. (6502), as the company was building four power plants in China and negotiating other business ventures with state-owned enterprises.

In another instance, Wang and Sun hacked into U.S. Steel computers as the company was participating in trade cases, according to the department’s statement.

… which results in more sabre rattling:

China is lashing out at the United States as a cybersecurity “hypocrite” after U.S. authorities indicted Chinese military officers with hacking into the systems of corporations.

China’s foreign ministry spokesman, Hong Lei, accused the U.S. on Tuesday of damaging already-fragile relations between Beijing and Washington. On Monday Beijing summoned the U.S. Ambassador to China to voice its complaints and pulled out of a joint cybersecurity working group, saying the U.S. must “correct its mistake and withdraw its indictment.”

A lot of long bonds are being issued globally:

Global borrowers from Shell in The Hague to Peoria, Illinois-based Caterpillar Inc. (CAT) raised a record $368 billion this year from bonds maturing in 10 years or more, according to data compiled by Bloomberg. The average yield companies pay to raise long-dated debt worldwide fell 61 basis points this year to 4.4 percent, approaching the low of 4.1 percent reached in 2013, Bank of America Merrill Lynch data show
…
The average maturity of global company notes has climbed to 8.5 years, compared with 8.1 years over the past decade, Bank of America Merrill Lynch data show.

OK, I want everybody to go to the TMX website. In the bottom left hand corner will be a little orange “Suggest an idea box”. Click that. Suggest something, or not. Your choice. But then go to the voting and feedback page (you might be able to do this directly. I’m not sure how their cookies work).

I have suggested the following:

Report Closing Quotes

You currently report Last quotations (as of 4:30pm) rather than Closing quotations (as of 4:00pm).

This is ridiculous. The extended session isn’t even an active market, as defined by the accounting profession.

I suspect that your use of Last quotations is a holdover from days prior to the extended session, and results solely from an oversight, since Last quotations have meaning only insofar as they reflect the Closing quotation.

You have ten votes and are allowed to place three of them with any one idea. I want three of your votes for this. For more information on this issue, see TMX DataLinx: “Last” != “Close” and More on the TMX Close != Last. This issue has been driving me nuts for over three years now.

Other ideas that got my support were:

provide real time quotes

It’s time for this – why not make a bold move a jump to the head of the line?

This doesn’t have a hope in hell, since selling real time quotes is extremely lucrative, but it’s a nice thought.

Provide alerts when a company changes their symbol and provide the new symbol is

This would be useful.

There was another about providing the net change rather than the gross price change on an ex-dividend day, but I can’t find it on the site now.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 19bp, FixedResets gaining 2bp and DeemedRetractibles off 5bp. Volatility was average. Volume was extremely light.

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	-0.0702 %	2,470.6
FixedFloater	4.51 %	3.75 %	33,047	17.90	1	0.4773 %	3,804.6
Floater	2.95 %	3.08 %	51,010	19.48	4	-0.0702 %	2,667.6
OpRet	4.38 %	-8.90 %	34,606	0.12	2	0.0389 %	2,712.7
SplitShare	4.81 %	4.10 %	63,995	4.19	5	0.2676 %	3,108.2
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0389 %	2,480.4
Perpetual-Premium	5.51 %	-9.94 %	97,754	0.09	15	0.0391 %	2,405.7
Perpetual-Discount	5.31 %	5.34 %	111,455	14.90	21	-0.1920 %	2,542.0
FixedReset	4.53 %	3.40 %	201,907	4.33	75	0.0214 %	2,558.4
Deemed-Retractible	4.98 %	-3.68 %	144,596	0.10	42	-0.0493 %	2,525.2
FloatingReset	2.66 %	2.33 %	163,223	4.03	6	0.0594 %	2,494.9

Performance Highlights
Issue	Index	Change	Notes
GWO.PR.R	Deemed-Retractible	-1.27 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.35 Bid-YTW : 5.75 %
FTS.PR.J	Perpetual-Discount	-1.23 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-20 Maturity Price : 23.00 Evaluated at bid price : 23.30 Bid-YTW : 5.10 %
MFC.PR.F	FixedReset	1.36 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.92 Bid-YTW : 3.69 %
SLF.PR.G	FixedReset	1.73 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.50 Bid-YTW : 3.89 %

Volume Highlights
Issue	Index	Shares Traded	Notes
BMO.PR.S	FixedReset	132,690	Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-05-25 Maturity Price : 25.00 Evaluated at bid price : 25.50 Bid-YTW : 3.64 %
MFC.PR.D	FixedReset	99,831	Called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-19 Maturity Price : 25.00 Evaluated at bid price : 24.97 Bid-YTW : 1.47 %
ENB.PF.A	FixedReset	27,390	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-20 Maturity Price : 23.16 Evaluated at bid price : 25.08 Bid-YTW : 4.14 %
NA.PR.S	FixedReset	26,506	YTW SCENARIO Maturity Type : Call Maturity Date : 2019-05-15 Maturity Price : 25.00 Evaluated at bid price : 25.57 Bid-YTW : 3.62 %
RY.PR.Z	FixedReset	26,198	YTW SCENARIO Maturity Type : Call Maturity Date : 2019-05-24 Maturity Price : 25.00 Evaluated at bid price : 25.60 Bid-YTW : 3.48 %
TRP.PR.D	FixedReset	23,330	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-20 Maturity Price : 23.17 Evaluated at bid price : 25.00 Bid-YTW : 3.85 %
There were 13 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
MFC.PR.A	OpRet	Quote: 25.53 – 26.24 Spot Rate : 0.7100 Average : 0.4495 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-19 Maturity Price : 25.25 Evaluated at bid price : 25.53 Bid-YTW : -12.99 %
FTS.PR.J	Perpetual-Discount	Quote: 23.30 – 23.73 Spot Rate : 0.4300 Average : 0.2931 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-20 Maturity Price : 23.00 Evaluated at bid price : 23.30 Bid-YTW : 5.10 %
IAG.PR.A	Deemed-Retractible	Quote: 23.10 – 23.51 Spot Rate : 0.4100 Average : 0.2906 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.10 Bid-YTW : 5.67 %
CU.PR.D	Perpetual-Discount	Quote: 24.15 – 24.48 Spot Rate : 0.3300 Average : 0.2432 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-20 Maturity Price : 23.77 Evaluated at bid price : 24.15 Bid-YTW : 5.07 %
GWO.PR.R	Deemed-Retractible	Quote: 23.35 – 23.60 Spot Rate : 0.2500 Average : 0.1829 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.35 Bid-YTW : 5.75 %
BAM.PR.B	Floater	Quote: 17.06 – 17.27 Spot Rate : 0.2100 Average : 0.1444 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-20 Maturity Price : 17.06 Evaluated at bid price : 17.06 Bid-YTW : 3.10 %

Here’s a straw in the wind:

This was supposed to be a tough year for fixed income. But so far it is turning out very differently. The bond bears are suffering. Global fixed income assets have returned 4.1 per cent in the year to date, compared with 2.5 per cent for global equities, according to Bank of America Merrill Lynch. And there is probably more pain in store for asset managers who are under-invested in debt.

Inflation is persistently low and central banks are determined to keep monetary policy accommodative. The European Central Bank is likely to ease in June. And the U.S. Federal Reserve and the Bank of England are proving more dovish than expected. Investors are pushing their timing for the first hike in official rates a few months further into the future.

But, as usually happens, there’s another straw in the wind:

These bond bears just won’t go away.

Some even appear to be doubling down as their losses mount.

Exhibit A: As the ProShares UltraShort 20+ Year Treasury (TBT) fund plunged 21.6 percent this year, investors have responded by plowing $525.3 million into the exchange-traded fund, which uses leverage and derivatives.

Exhibit B: Investors have boosted short wagers on Treasuries using futures contracts trading on the Chicago Board of Trade to 56 percent more than their five-year average. A few weeks ago, there were the most since March 2008.

As I mentioned on May 13, Rob Carrick recently wrote a piece titled GICs beat laddered bond ETFs, hands down, to which I took some exception; what I didn’t mention was that I repeated my remarks in the comments section and waited to see what would happen. Well, it turned out to be a long drawn-out argument with a guy who’s really swallowed the Kool-Aid: GIC ladders are always best and anybody who doesn’t agree is either stupid or paid. He referred to a Financial Post piece by a stockbroker which isn’t very interesting: it boils down to ‘Don’t time the market’, but while searching for it I stumbled across a more interesting piece by Jane Bryant Quinn, a well regarded US financial journalist who takes another view: Seven Reasons Why Bond Ladders are Bad for Investors.

1. Bond ladders deprive you of current income. The money you put into individual bonds pays you an income at a fixed rate. When rates in the marketplace go up, your income will stay the same. In a bond mutual fund, by contrast, the managers will be adding higher-rate bonds to the pool. Your interest income – and spending money – will increase.

Well, sure. A bond fund will – normally – trade more than any individual investor, both because more issues are held, because frictional costs are so much less, and because many PMs feel that if they don’t fiddle with portfolio often enough they’ll get fired. But I do not accept this as a point in favour of funds because (i) it only considers the case in which yields rise – income will be adversely affected when yields fall, and (ii) it is therefore a market-timing argument and (iii) one purpose of Fixed Income is to FIX your INCOME and volatility of income is, if anything, to be deprecated.

2. Bond ladders often force you to reinvest at lower rates. If you’re not spending the interest income you get from individual bonds, you need to reinvest it. What are you doing with that money? It might not be enough to buy more than one or two bonds, at a high commission cost. If you want that money to be readily available, you’ll siphon it into a money market fund whose interest rate is kissing zero.

In a bond mutual fund, by contrast, you can reinvest all your interest income in new shares, at the market’s current, higher yields. In other words, you’ll be buying more shares at a lower price. When interest rates decline again, the value of your bond fund shares will rise. You’ll have more shares than you started with, which means more dollars in your pocket.

I’ll agree with her on this one. I alluded to the problem when I spoke to John Heinzl about Why only millionaires should invest in bonds directly

3. Bond ladders deprive you of future capital gains. When you hold individual bonds and interest rates decline, your bonds will rise in market value. They’ll be worth more than you paid for them. But in ladders, you hold to maturity so you’ll never collect the capital gains. In a mutual fund, the manager will harvest those gains and add them to the value of your shares.

On the face of it, this is nonsensical. Assuming the only difference between the bonds is the coupon, then the yields to maturity should be the same (and this is usually basically true), therefore there’s nothing to be gained by executing the swap.

It gets more interesting when taxes are taken into consideration. I considered the case of a 6% bond maturing 2024-5-16, exactly ten years hence. At a yield of 3%, it trades at 125.753. We hold 10MM face value of these, with a book value of par, because we bought them at issue ten years ago. So, what should we do?

• Hold them, getting $600,000 interest annually and paying tax on that? Or
• Sell them, pay the capital gains tax, buy 12.5753MM of 3%-coupon bonds trading at 100.00, get $377,259 in interest annually and pay tax on that?

Pre-tax, the MS-Excel XIRR function returns a value of 3.01974% Internal Rate of Return for the 6% coupon and 3.01985% IRR for the 3% coupon.

After tax, the values of 0.91590% is returned for the 6% coupon and 1.38098% for the 3% coupon – so it’s clearly in the investor’s interest to execute the swap.

Purists will notice that there is a negative cash flow after tax in 2015, since there’s a tax bill of $590,511 compared to interest income of $377,259, but purists can go jump in the lake, since I’m assuming taxes are paid from other resources (i.e., by the investor, not the fund). I used tax rates of 40% for income and 20% for capital gains, by the way. Purists will also be quick to inform me that the duration of the 3% bond is significantly higher than that of the 6% bond, 8.71 vs. 7.95, so I really should be swapping into a weighted combination of Bills and the 3% (about 91% bonds, 9% bills) … purists can do their own damn calculations.

So on point (3) we’ll award Ms. Quinn part marks: she is correct, but only for taxable accounts, only if the PM actually executes the swap and only if there’s differential taxation on capital gains (when I change capital gain taxation to 40%, the same as income, the Swap Scenario yields 0.95643%, which, to be fair, is 4bp more than the Hold Scenario as long as the swap isn’t duration neutral.

4. Bond ladders carry more default risk. Individual investors might hold no more than 10 or 20 bonds. If one of them goes bad, it could take a mean slice out of your portfolio. Ladders should be built only with high-quality bonds but – in municipals, especially — you never know when a snake is hidden in the underbrush.

Mutual funds are far better diversified, owning hundreds, even thousands of bonds (Vanguard’s Intermediate-Term Tax-Exempt fund holds 4,641 of them). Like ladders, the bonds come in varying maturities, from short to long.

This is phrased badly (the default risk is the same for both the ladder and the fund; but the ladder’s default risk is more concentrated), but is true. It only applies to corporate bonds, though; there will be some who will compare only GICs and Canadas.

5. Bond ladders leave you unprepared for emergencies. Sometimes, you can’t hold individual bonds to maturity. You might have unexpected medical bills or one of your kids might need some cash. You might have inherited the bonds and want to convert them into cash. Selling bonds before maturity is more expensive than you imagine. If interest rates have risen, their market value will be down – especially for small, retail lots. The markets trade in amounts of $100,000 or more, and clip 2 to 3 percent off the price if you’re selling just 25 or 30 bonds. You pay your broker a sales commission. And, after the sale, you don’t have a ladder any more – one or more of the rungs is gone.

With a mutual fund, on the other hand, you can sell shares at any time and at no cost if you have a no-load fund. The remainder of your investment will be just as diversified as it was before.

Spot on, this is a very compelling argument against ladders. As I pointed out in my discussion in the Globe comments, an investor seeking to have $X annual liquidity out of a five year ladder must invest $5X – and even then, the funds are only available between maturity and reinvestment. There is therefore the potential where the investor could be simultaneously short of liquidity and over-invested in short-term securities. This is less important if the ladder has marketable rungs than if it’s in GICs.

6. Bond ladders are expensive. You’ll probably work with a broker to set one, paying 2 percent in markups, at retail price. The ladders have to be managed, meaning more sales commissions. A no-load mutual fund, by contrast, charges no commissions and costs only a small amount per year in management fees – at Vanguard, about 0.2 percent. Also, funds buy their bond at institutional prices, which are much lower than the price you pay in the retail market.

Ms. Quinn gets part marks for this one. Is it better to pay X% in markups on 1/N of your portfolio every year (where N is the number of rungs in your ladder)? Or is it better to pay Y% on all of your portfolio every year? This will depend on the relative values of X and Y, on the value of N, and how fussy you are about maintaining a precise ladder – if you buy corporate bonds as new issues, you’ll pay less mark-up, but you’ll be lucky to get the next rung of your ladder within three months of where you want it. And – my antagonist in the Globe’s comments section will be quick to point out – there’s no commission on GICs and those are available as new issues on demand. But I don’t recommend GICs for ladders anyway.

7. What about other kinds of ladders? Ladders built from certificates of deposit instead of bonds face many of the same drawbacks: No increase in income when interest rates rise and a penalty if you’re forced to sell before maturity. The same is true of ladders build from Treasury securities. But there’s no default risk and you don’t have to pay sales commissions (for Treasuries, you’d have to build the ladder yourself, using Treasury Direct).

No marks for this one, I consider it at best a duplication of the first six points.

Ivo Krznar and James Morsink wrote an IMF working paper titled With Great Power Comes Great Responsibility: Macroprudential Tools at Work in Canada:

The goal of this paper is to assess the effectiveness of the policy measures taken by Canadian authorities to address the housing boom. We find that the the last three rounds of macroprudential policies implemented since 2010 were associated with lower mortgage credit growth and house price growth. The international experience suggests that—in addition to tighter loan-to-value limits and longer amortization periods—lower caps on the debt-to-income ratio and higher risk weights could be effective if the housing boom were to reignite. Over the medium term, the authorities could consider structural measures to further improve the soundness of housing finance.

I have to admit to some astonishment that they are advocating increased micro-management rather than simply capping the amount of mortgage insurance offered.

Most loans are five-year fixed-rate mortgages that are rolled over into a new five-year fixed rate contract for the life of the loan (typically 25 years) with the rate renegotiated every five years. In the case of variable-rate mortgages (which are less prevalent), the monthly payment is typically fixed, but the fraction allocated to interest versus principal changes every month with fluctuations in interest rates. Longer-term fixed rates were phased out in the 1960s after lenders experienced difficulties with volatile interest rates and maturity mismatches.

I didn’t know that about the ’60’s. I consider the whole 5-year-term thing to be not just outrageous, but probably also linked to the CDIC rules on insuring deposits with a maximum term of five years. I’d like to see that increased (with an extra premium being charged to the banks for longer dated deposit insurance), but the feds seem intent on destroying the market for long-dated bank paper with the forthcoming bail-in rules.

Insured mortgage loans have lower risk weights than uninsured loans. CMHC-insured mortgages have a capital risk weight of zero under the standardized approach and an average risk weight of about 0.5 percent under the internal ratings based (IRB) approach, reflecting the fact that CMHC obligations are considered sovereign exposures.

This is an insidious and under-recognized consequence of CMHC insurance. Not only are the banks laying off their actual business risk when they insure, they’re also reducing their regulatory capital requirement.

Limits on government-backed mortgage insurance and CMHC securitization: The government has announced plans to prohibit the use of government-backed insured mortgages in non-CMHC securitization programs, plans to limit the insurance of low-LTV mortgages to those that will be used in CMHC securitization programs, and limits on CMHC securitization programs. In addition, CMHC is now required to pay the federal government a risk fee on new insurance premiums written.8 It has also announced that it will increase mortgage insurance premiums by about 15 percent on average for newly extended mortgage (for all LTV ranges), effective May 1, 2014.9

Limiting the amount issued and auctioning it off to the highest bidder would be way too simple. A very major shortcoming of this paper is that they do not examine, or even list, the growth in CMHC outstanding (although they do show the growth rate from 2006 on).

Over the long run, the authorities could consider the possibility of eliminating the government’s extensive role in mortgage insurance. In this regard, Australia’s experience is relevant. Australia’s mortgage insurance system before 1998 was similar in important respects to Canada’s current system. A government-owned mortgage insurance company, the Home Loan Insurance Corporation (HLIC), was created in 1965. By the early 1990s, HLIC had a market share of about 55 percent.28 The mortgage market was operating efficiently and private sector mortgage insurance was well established, competitive, and available at reasonable cost. In December 1997, the government decided that it was no longer necessary for the government to play a direct role in mortgage insurance and passed legislation to allow for the privatization of HLIC. GE Capital (now Genworth) subsequently purchased the company and entered the Australian mortgage insurance market. Australia provides an example of the development over time of a well established private-sector mortgage insurance industry that alleviates the need for public sector involvement, with the associated risk to the government’s balance sheet stemming from the government insuring most of the mortgages in the country.

I like this idea. I didn’t know this about Australia. ┴ɥosǝ ∀nssᴉǝs oɟʇǝu ɥɐʌǝ ƃoop ᴉpǝɐs; qǝᴉuƃ ndsᴉpǝ poʍu ɯnsʇ ɥǝld ʇɥǝ ɟloʍ oɟ qloop ʇo ʇɥǝ qɹɐᴉu˙

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 28bp, FixedResets off 13bp, but DeemedRetractibles managed to eke out a gain of 1bp. Volatility picked up; the list is comprised entirely of losers. Volume was extremely low, presumably due to the long weekend, as those of us employed in the best-compensated industry on the planet can’t be bothered to do a full day’s work before a long weekend.

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	0.0703 %	2,472.3
FixedFloater	4.53 %	3.77 %	33,534	17.87	1	-0.1430 %	3,786.5
Floater	2.95 %	3.07 %	51,550	19.51	4	0.0703 %	2,669.4
OpRet	4.38 %	-7.55 %	34,782	0.13	2	0.0779 %	2,711.6
SplitShare	4.79 %	4.28 %	61,786	4.16	5	0.0237 %	3,099.9
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0779 %	2,479.5
Perpetual-Premium	5.51 %	-9.72 %	98,009	0.09	15	-0.0495 %	2,404.8
Perpetual-Discount	5.30 %	5.29 %	113,076	14.91	21	-0.2781 %	2,546.9
FixedReset	4.54 %	3.48 %	203,897	4.26	75	-0.1339 %	2,557.9
Deemed-Retractible	4.97 %	-4.10 %	143,410	0.11	42	0.0142 %	2,526.5
FloatingReset	2.65 %	2.35 %	139,777	4.18	6	-0.0659 %	2,493.4

Performance Highlights
Issue	Index	Change	Notes
SLF.PR.G	FixedReset	-2.08 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.10 Bid-YTW : 4.14 %
MFC.PR.F	FixedReset	-1.87 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.60 Bid-YTW : 3.90 %
FTS.PR.F	Perpetual-Discount	-1.41 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-16 Maturity Price : 23.57 Evaluated at bid price : 23.85 Bid-YTW : 5.14 %
BAM.PR.X	FixedReset	-1.36 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-16 Maturity Price : 22.14 Evaluated at bid price : 22.55 Bid-YTW : 4.03 %
IFC.PR.A	FixedReset	-1.10 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.28 Bid-YTW : 4.08 %
FTS.PR.J	Perpetual-Discount	-1.09 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-16 Maturity Price : 23.26 Evaluated at bid price : 23.59 Bid-YTW : 5.03 %

Volume Highlights
Issue	Index	Shares Traded	Notes
NA.PR.L	Deemed-Retractible	76,970	TD crossed 75,000 at 25.35. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-15 Maturity Price : 25.00 Evaluated at bid price : 25.32 Bid-YTW : -10.21 %
ENB.PR.B	FixedReset	62,579	TD crossed 37,200 at 24.68. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-16 Maturity Price : 23.22 Evaluated at bid price : 24.59 Bid-YTW : 4.00 %
ENB.PR.N	FixedReset	33,080	YTW SCENARIO Maturity Type : Call Maturity Date : 2018-12-01 Maturity Price : 25.00 Evaluated at bid price : 24.98 Bid-YTW : 4.00 %
IFC.PR.C	FixedReset	31,800	RBC crossed blocks of 11,100 and 11,500, both at 26.00. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.82 Bid-YTW : 3.00 %
BNS.PR.Z	FixedReset	29,366	TD crossed 14,000 at 24.70. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.64 Bid-YTW : 3.40 %
BNS.PR.Y	FixedReset	23,442	TD sold 10,000 to anonymous at 24.50. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.40 Bid-YTW : 3.14 %
There were 11 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
BAM.PR.X	FixedReset	Quote: 22.55 – 22.99 Spot Rate : 0.4400 Average : 0.2658 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-16 Maturity Price : 22.14 Evaluated at bid price : 22.55 Bid-YTW : 4.03 %
PWF.PR.A	Floater	Quote: 19.80 – 20.30 Spot Rate : 0.5000 Average : 0.3296 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-16 Maturity Price : 19.80 Evaluated at bid price : 19.80 Bid-YTW : 2.66 %
SLF.PR.G	FixedReset	Quote: 23.10 – 23.55 Spot Rate : 0.4500 Average : 0.3001 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.10 Bid-YTW : 4.14 %
MFC.PR.F	FixedReset	Quote: 23.60 – 23.94 Spot Rate : 0.3400 Average : 0.2192 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.60 Bid-YTW : 3.90 %
IFC.PR.A	FixedReset	Quote: 24.28 – 24.65 Spot Rate : 0.3700 Average : 0.2528 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.28 Bid-YTW : 4.08 %
BAM.PR.G	FixedFloater	Quote: 20.95 – 21.38 Spot Rate : 0.4300 Average : 0.3197 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-16 Maturity Price : 21.56 Evaluated at bid price : 20.95 Bid-YTW : 3.77 %

Scotiabank will be selling its minority position in CI Financial:

Scotiabank owns 37 per cent of CI Financial Corp., a position now worth $3.8-billion. The country’s third-largest lender intends to “monetize” the stake at a time when wealth managers are in heavy demand and the S&P/TSX composite index nears a record high. Since the start of 2013, CI’s stock has climbed 44 per cent and the company now has $97-billion worth of assets under management.
…
Under the terms of an agreement between the two parties, Scotiabank cannot sell more than 20 per cent of CI to one purchaser. For that reason, the position could either be split up among multiple strategic parties, or could be sold directly to investors through a public offering.

DBRS confirmed FFN.PR.A at Pfd-4(high):

Although downside protection has increased over the past year, the Preferred Share dividend coverage ratio is below 1.0 times and the monthly Class A Share distribution is expected to result in a grind on the portfolio of 4.5% for the remaining six months until maturity. As a result, the rating of the Preferred Shares has been confirmed at Pfd-4 (high).

DBRS is behind the times – the term was extended yesterday.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 4bp, FixedResets off 7bp and DeemedRetractibles gaining 3bp. Volatility was minimal. Volume was below average.

PerpetualDiscounts now yield 5.24%, equivalent to 6.81% interest at the standard equivalency factor of 1.3x. Long corporates yield about 4.4%, so the pre-tax interest-equivalent spread is now about 240bp, a significant tightening from the 250bp reported May 7.

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	0.2678 %	2,470.6
FixedFloater	4.53 %	3.77 %	33,479	17.89	1	1.8447 %	3,791.9
Floater	2.95 %	3.09 %	51,439	19.47	4	0.2678 %	2,667.6
OpRet	4.38 %	-6.23 %	32,203	0.13	2	0.0585 %	2,709.5
SplitShare	4.79 %	4.38 %	64,338	4.16	5	0.1824 %	3,099.1
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0585 %	2,477.5
Perpetual-Premium	5.50 %	-11.33 %	96,857	0.09	15	0.0052 %	2,405.9
Perpetual-Discount	5.28 %	5.24 %	113,710	14.95	21	0.0444 %	2,554.0
FixedReset	4.53 %	3.51 %	206,676	4.26	75	-0.0731 %	2,561.3
Deemed-Retractible	4.98 %	-3.82 %	142,678	0.11	42	0.0265 %	2,526.1
FloatingReset	2.65 %	2.33 %	145,024	4.05	6	0.0726 %	2,495.1

Performance Highlights
Issue	Index	Change	Notes
SLF.PR.H	FixedReset	-1.09 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.32 Bid-YTW : 3.56 %
GCS.PR.A	SplitShare	1.50 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2019-07-31 Maturity Price : 25.00 Evaluated at bid price : 24.99 Bid-YTW : 4.10 %
BAM.PR.G	FixedFloater	1.84 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-15 Maturity Price : 21.58 Evaluated at bid price : 20.98 Bid-YTW : 3.77 %

Volume Highlights
Issue	Index	Shares Traded	Notes
BMO.PR.S	FixedReset	60,608	Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-05-25 Maturity Price : 25.00 Evaluated at bid price : 25.49 Bid-YTW : 3.64 %
MFC.PR.B	Deemed-Retractible	51,538	TD crossed 47,000 at 22.93. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.83 Bid-YTW : 5.72 %
MFC.PR.L	FixedReset	39,285	Desjardins crossed 13,000 at 24.95. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.90 Bid-YTW : 3.87 %
MFC.PR.G	FixedReset	37,616	Scotia crossed 25,200 at 26.05. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-12-19 Maturity Price : 25.00 Evaluated at bid price : 25.99 Bid-YTW : 2.65 %
GWO.PR.Q	Deemed-Retractible	34,910	RBC bought 30,800 from CIBC at 24.85. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.85 Bid-YTW : 5.33 %
POW.PR.D	Perpetual-Discount	30,738	Nesbitt crossed 27,100 at 24.00. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-15 Maturity Price : 23.70 Evaluated at bid price : 24.00 Bid-YTW : 5.25 %
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.K	Perpetual-Discount	Quote: 23.88 – 24.20 Spot Rate : 0.3200 Average : 0.2259 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-15 Maturity Price : 23.58 Evaluated at bid price : 23.88 Bid-YTW : 5.21 %
SLF.PR.H	FixedReset	Quote: 25.32 – 25.50 Spot Rate : 0.1800 Average : 0.1071 YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.32 Bid-YTW : 3.56 %
ENB.PR.A	Perpetual-Premium	Quote: 25.29 – 25.52 Spot Rate : 0.2300 Average : 0.1642 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-14 Maturity Price : 25.00 Evaluated at bid price : 25.29 Bid-YTW : -11.33 %
BAM.PF.D	Perpetual-Discount	Quote: 22.42 – 22.59 Spot Rate : 0.1700 Average : 0.1096 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-15 Maturity Price : 22.10 Evaluated at bid price : 22.42 Bid-YTW : 5.53 %
TRP.PR.D	FixedReset	Quote: 25.12 – 25.28 Spot Rate : 0.1600 Average : 0.1078 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-15 Maturity Price : 23.20 Evaluated at bid price : 25.12 Bid-YTW : 3.88 %
BAM.PF.A	FixedReset	Quote: 26.00 – 26.18 Spot Rate : 0.1800 Average : 0.1319 YTW SCENARIO Maturity Type : Call Maturity Date : 2018-09-30 Maturity Price : 25.00 Evaluated at bid price : 26.00 Bid-YTW : 3.66 %

Scandal at the Fed!

Some investors may have gotten early word of changes to Federal Reserve policy between 1997 and 2013 and profited by trading before the policy shifts were publicly announced, according to Singapore-based researchers.

Trading records show abnormally large price movements and imbalances in buy and sell orders that are “statistically significant and in the direction of the subsequent policy surprise,” according to a paper by Gennaro Bernile, Jianfeng Hu and Yuehua Tang at Singapore Management University.

The moves occurred before and during the time that reporters were given the Federal Open Market Committee statement in so-called media lockups.

I wonder if this allegation will be investigated with as much hand-wringing and vigour as the LIBOR and FX pseudo-scandals.

Speaking of scandals…:

Ex-U.S. Treasury Secretary Timothy Geithner must comply with Standard & Poor’s demand that he provide documents related to its claim the U.S. sued the company in retaliation for downgrading government debt.

Harold W. McGraw III, chairman of S&P parent McGraw Hill Financial Inc. (MHFI), said in a court statement that Geithner called him days after S&P downgraded the U.S. debt in August 2011 and told him that the company would be held accountable for it. McGraw said Geithner told him there would be a “response” for the downgrade, which the government said was based on an error.

Geithner is the highest former government official S&P has pursued for information to support its allegations. S&P, the only credit rating company sued by the Justice Department for allegedly giving fraudulent ratings to mortgage-backed securities, has said it was singled out because of the downgrade.

The Justice Department and Geithner have denied there is a connection between the downgrade and the lawsuit filed last year. The government has said it may seek as much as $5 billion in civil penalties from S&P for losses to federally insured financial institutions that relied on its ratings for mortgage-backed securities and collateralized-debt obligations, or CDOs, that lost value after the housing market collapsed.

Here’s a step in the right direction!:

Wall Street’s bonus pool may rise as much as 10 percent this year for asset managers while fixed-income traders could see a 15 percent cut, according to compensation consultant Johnson Associates Inc.
…
“Many asset-management firms pay the same or better than the big banks, and this year that gap will get even bigger,” [founder of the consultancy Alan] Johnson said in the interview.

It was a day of modest gains for the Canadian preferred share market today, with PerpetualDiscounts winning 9bp, FixedResets gaining 1bp and DeemedRetractibles up 4bp. Volatility was modest. Volume was average.

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	0.3252 %	2,464.0
FixedFloater	4.61 %	3.85 %	33,097	17.75	1	-1.1990 %	3,723.2
Floater	2.96 %	3.09 %	51,884	19.47	4	0.3252 %	2,660.4
OpRet	4.39 %	-6.96 %	33,423	0.13	2	-0.1039 %	2,707.9
SplitShare	4.80 %	4.37 %	65,031	4.16	5	-0.2847 %	3,093.5
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.1039 %	2,476.1
Perpetual-Premium	5.50 %	-11.78 %	96,746	0.09	15	-0.0052 %	2,405.8
Perpetual-Discount	5.28 %	5.26 %	115,093	14.91	21	0.0893 %	2,552.9
FixedReset	4.53 %	3.48 %	205,506	4.27	75	0.0090 %	2,563.2
Deemed-Retractible	4.98 %	-5.95 %	142,028	0.11	42	0.0379 %	2,525.4
FloatingReset	2.65 %	2.35 %	142,091	4.19	6	-0.0396 %	2,493.3

Performance Highlights
Issue	Index	Change	Notes
GCS.PR.A	SplitShare	-1.91 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2019-07-31 Maturity Price : 25.00 Evaluated at bid price : 24.62 Bid-YTW : 4.42 %
BAM.PR.G	FixedFloater	-1.20 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-14 Maturity Price : 21.37 Evaluated at bid price : 20.60 Bid-YTW : 3.85 %
CIU.PR.C	FixedReset	1.53 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-14 Maturity Price : 21.49 Evaluated at bid price : 21.85 Bid-YTW : 3.48 %

Volume Highlights
Issue	Index	Shares Traded	Notes
GWO.PR.I	Deemed-Retractible	125,955	TD crossed 48,700 at 22.80. Scotia crossed 70,000 at the same price. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.72 Bid-YTW : 5.75 %
ENB.PR.N	FixedReset	101,554	RBC crossed 69,000 at 24.98. YTW SCENARIO Maturity Type : Call Maturity Date : 2018-12-01 Maturity Price : 25.00 Evaluated at bid price : 24.95 Bid-YTW : 4.02 %
ENB.PR.P	FixedReset	96,071	Scotia crossed 86,700 at 24.43. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-14 Maturity Price : 22.97 Evaluated at bid price : 24.44 Bid-YTW : 4.10 %
BMO.PR.J	Deemed-Retractible	84,607	Nesbitt crossed 75,000 at 25.82. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-13 Maturity Price : 25.50 Evaluated at bid price : 25.79 Bid-YTW : -10.68 %
BMO.PR.M	FixedReset	80,840	Nesbitt crossed 75,000 at 25.35. YTW SCENARIO Maturity Type : Call Maturity Date : 2018-08-25 Maturity Price : 25.00 Evaluated at bid price : 25.37 Bid-YTW : 3.01 %
BNS.PR.M	Deemed-Retractible	73,783	Nesbitt crossed blocks of 30,700 and 35,000, both at 25.95. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-27 Maturity Price : 25.50 Evaluated at bid price : 25.93 Bid-YTW : -3.01 %
There were 30 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
MFC.PR.A	OpRet	Quote: 25.47 – 26.06 Spot Rate : 0.5900 Average : 0.3569 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-19 Maturity Price : 25.25 Evaluated at bid price : 25.47 Bid-YTW : -8.61 %
GCS.PR.A	SplitShare	Quote: 24.62 – 24.99 Spot Rate : 0.3700 Average : 0.2470 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2019-07-31 Maturity Price : 25.00 Evaluated at bid price : 24.62 Bid-YTW : 4.42 %
BNS.PR.K	Deemed-Retractible	Quote: 25.50 – 25.70 Spot Rate : 0.2000 Average : 0.1195 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-13 Maturity Price : 25.00 Evaluated at bid price : 25.50 Bid-YTW : -16.38 %
SLF.PR.C	Deemed-Retractible	Quote: 22.46 – 22.66 Spot Rate : 0.2000 Average : 0.1403 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.46 Bid-YTW : 5.84 %
CM.PR.E	Perpetual-Premium	Quote: 25.46 – 25.65 Spot Rate : 0.1900 Average : 0.1314 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-13 Maturity Price : 25.00 Evaluated at bid price : 25.46 Bid-YTW : -13.53 %
TD.PR.Y	FixedReset	Quote: 25.57 – 25.75 Spot Rate : 0.1800 Average : 0.1304 YTW SCENARIO Maturity Type : Call Maturity Date : 2018-10-31 Maturity Price : 25.00 Evaluated at bid price : 25.57 Bid-YTW : 3.06 %

Boyd Erman of the Globe comments on the HFT study that I reviewed yesterday:

The Bank of Canada has released a research paper on high-frequency trading that, unfortunately for those looking for a silver bullet that finally answers whether HFT is good or bad, provides ammunition for both sides.
…
In other words, it gets harder for those who had been in the market to read the new market, and it’s tougher to trade. That’s a tick in the column of the HFT opponents, who say HFT’s constant use of orders and cancellations to try to figure out the market’s direction creates noise that makes it difficult for other investors.

With respect to the “constant use of orders” point … that’s not what the study says. The study says:

Third, following entry by Aggressive HFT firms, those that mainly take liquidity, incumbents experience a loss in their ability to trade in the direction of future price movements.
…
In contrast, Aggressive HFT strategies are associated with informed trading, since they trade in the direction of future price movements (Biais, Foucault and Moinas 2013; Foucault, Hombert and Rosu 2012; Martinez and Rosu 2013). With more market participants monitoring for arbitrage opportunities, price predictability should decline. We study whether incumbent HFTs are less able to trade in the direction of future price changes.
…
Aggressive HFT entry decreases the price impact of the most informed incumbents’ trades. The average incumbent price impact decreases on average by 0.3 cents for a trade of $10,000. The first Aggressive entries decrease the incumbents’ price impact by a maximum of 1.3 cents.

Successive HFT entrants have a diminishing effect on incumbents’ informedness. In fact, there is no statistically significant impact after the second event. This suggests that HFTs are less able to predict future prices and that HFT trades are more reflective of short-term information.

The study does not address in any way the order fill-to-cancel ratio.

With respect to the claim that the actual point is “a tick in the column of the HFT opponents” … I don’t understand it. To the extent that directionality on a five-second time scale exists, what does it matter who gets the money? Is this some kind of argument that it’s better for ‘real money’ to make the profit, as opposed to HFT money? The paper itself refers only to incumbent HFT, not to who was exploiting the information beforehand.

I will make exactly the opposite point, that eliminating directionality on a five-second time horizon is actually a point in favour of HFT. We want markets to be efficient – HFT exploits, and eventually eliminates, the inefficiency on a five-second time-scale. Isn’t that good?

This also reduces the penalty for being poorly informed, which I understand is also a hobby-horse of the anti-HFT mob. In the extreme case, we have a single stock on the exchange, bid at say, 25.00-10, and a single ETF (which holds only the single stock). Ignoring frictional costs, we can then say that ideally the ETF will also be quoted at 25.00-10. But then somebody lifts the offer on the stock with a great big bid and the quote on the stock changes to 25.10-20. Then Granny Oakum puts in her market order to sell the ETF … she only gets 25.00 for it. Isn’t it an objective of market designers to assist Granny to get 25.10? Wouldn’t it be a good thing if somebody (an HFT, for instance) whipped an order to buy the ETF in between the big stock trade and Granny’s order, so that Granny makes an extra dime? Naturally, there will always be the chance that Granny’s order follows so swiftly behind the big stock trade that she doesn’t make that dime anyway. But reducing the time for which this obvious discrepancy is effective is a Good Thing for Granny.

The real problem that the anti-HFT crowd has is that the free dime used to be picked up by a big bank trader with a good pedigree and an expensive private school education. Now it’s going to some bum who nobody’s ever heard of, one of the geeks who was always screwing around with computers instead of attending the polo matches like a normal person. BooHooHoo.

My other complaint about today’s offerings from the Globe is Rob Carrick’s column GICs beat laddered bond ETFs, hands down:

A ladder of guaranteed investment certificates is better, as long as you don’t foresee the need to sell your holdings before maturity. Laddered bond ETFs can be bought and sold any time during the trading days, so they win decisively over GICs on liquidity.
…
If you invest equal amounts in these GICs, thereby creating a five-year ladder, your average yield would be 2.12 per cent.
…
The iShares 1-5 Year Laddered Government Bond Index Fund (CLF) … net yield of 1.22 per cent.
…
The iShares 1-5 Year Laddered Corporate Bond Index (CBO) … after-fee-yield of 1.6 per cent
…
The laddered bond ETF … also offers the possibility of capital gains if interest rates fall, or capital losses if rates rise. Given the flat to rising outlook for rates, losses seem more likely than gains.

So my first objection to this story is in the phrase “you don’t foresee the need to sell your holdings before maturity”. If you don’t foresee that, then why are you holding short-term instruments in the first place? That’s almost certainly just poor portfolio planning. It is possible that you hold the short-term instruments to counter-balance longer-term fixed income (such as the preferred shares that this blog is ostensibly about) – but then you’re frozen into your long-term position as well.

The other objection is “Given the flat to rising outlook for rates, losses seem more likely than gains”, a very common misconception. As I made clear in my article Bond ETFs demystified, there’s no real difference between the two vehicles; the only apparent difference is that an ETF makes visible the opportunity costs of a rise in interest rates that GIC holders like to ignore. Additionally, the objectionable phrase depends upon market timing for its validity and can be ignored solely on those grounds.

The Bank of Canada has released the Bank of Canada Review Spring 2014, with the following articles:

• The Canadian Dollar as a Reserve Currency
• Understanding Platform-Based Digital Currencies
• The Art and Science of Forecasting the Real Price of Oil
• Measuring Uncertainty in Monetary Policy Using Realized and Implied Volatility
• Beyond the Unemployment Rate: Assessing Canadian and U.S. Labour Markets Since the Great Recession

And at the Fed, they’re doing some work on the term premium.

Kevin Carmichael in the Globe comments on Tim Geithner’s book tour:

The European Union now is doing something similar [to the US public stress tests]. We can only wonder what the global economy would be like today if the Europeans had followed Mr. Geithner’s model sooner.
…
The Office of the Superintendent of Financial Institutions does one macro stress test a year and ad hoc tests on specific issues as necessary. But the results remain private, shared only with the Bank of Canada to help it with its twice-a-year assessments of the financial system.

Mr. Geithner would disapprove of the secrecy. I didn’t ask him to comment specifically on Canada, but I did ask how important it was that market participants be allowed to see the stress test results. “It’s central,” he said. “You need to let private investors, shareholders and creditors of banks, have enough information that they can better discriminate across institutions. You need to make the loss estimates transparent, you need to make the impact to individual markets transparent, if you are going to allow the markets to provide that form of triage.”

Well, the Europeans eventually did do stress tests, but they were fake, relaxed stress tests, as discussed on July 23, 2010. You only publicize stress tests if you know that the answer is going to be good.

It was a poor day for the Canadian preferred share market, with PerpetualDiscounts off 4bp, FixedResets down 13bp and DeemedRetractibles losing 27bp. The Performance Highlights table is lengthy by recent standards, but balanced with no clear pattern. Volume was above average, with GWO-group issues notable on the Volume Highlights table, presumably due to the GWO new issue.

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	0.4260 %	2,456.0
FixedFloater	4.56 %	3.79 %	30,644	17.85	1	0.2404 %	3,768.4
Floater	2.97 %	3.12 %	51,940	19.40	4	0.4260 %	2,651.8
OpRet	4.35 %	-6.06 %	33,696	0.14	2	-0.0580 %	2,710.7
SplitShare	4.78 %	4.36 %	65,696	4.17	5	-0.1973 %	3,102.3
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0580 %	2,478.7
Perpetual-Premium	5.50 %	-11.51 %	97,091	0.09	15	0.0609 %	2,405.9
Perpetual-Discount	5.28 %	5.34 %	115,448	14.92	21	-0.0383 %	2,550.6
FixedReset	4.52 %	3.45 %	206,050	4.27	75	-0.1278 %	2,562.9
Deemed-Retractible	4.98 %	-2.42 %	143,738	0.12	42	-0.2724 %	2,524.5
FloatingReset	2.65 %	2.33 %	143,946	4.19	6	-0.0330 %	2,494.2

Performance Highlights
Issue	Index	Change	Notes
IAG.PR.A	Deemed-Retractible	-1.98 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.74 Bid-YTW : 5.85 %
BNA.PR.E	SplitShare	-1.12 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2017-12-10 Maturity Price : 25.00 Evaluated at bid price : 25.61 Bid-YTW : 4.40 %
IFC.PR.C	FixedReset	-1.10 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-30 Maturity Price : 25.00 Evaluated at bid price : 26.10 Bid-YTW : 2.51 %
PWF.PR.P	FixedReset	-1.06 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-13 Maturity Price : 23.98 Evaluated at bid price : 24.31 Bid-YTW : 3.43 %
HSE.PR.A	FixedReset	-1.02 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-13 Maturity Price : 22.90 Evaluated at bid price : 23.26 Bid-YTW : 3.74 %
CIU.PR.C	FixedReset	1.18 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-13 Maturity Price : 21.25 Evaluated at bid price : 21.52 Bid-YTW : 3.54 %
BAM.PR.X	FixedReset	1.46 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-13 Maturity Price : 22.41 Evaluated at bid price : 22.98 Bid-YTW : 3.94 %
PWF.PR.A	Floater	2.31 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-13 Maturity Price : 19.95 Evaluated at bid price : 19.95 Bid-YTW : 2.63 %

Volume Highlights
Issue	Index	Shares Traded	Notes
TRP.PR.B	FixedReset	190,737	Nesbitt crossed 175,000 at 21.00. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-13 Maturity Price : 20.86 Evaluated at bid price : 20.86 Bid-YTW : 3.60 %
PWF.PR.P	FixedReset	127,558	RBC crossed two blocks of 60,000 each, both at 24.50. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-13 Maturity Price : 23.98 Evaluated at bid price : 24.31 Bid-YTW : 3.43 %
MFC.PR.C	Deemed-Retractible	109,065	TD crossed 94,100 at 22.63. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.41 Bid-YTW : 5.78 %
GWO.PR.H	Deemed-Retractible	107,674	Nesbitt may have crossed 100,000 at 23.85. The report isn’t clear. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.67 Bid-YTW : 5.62 %
GWO.PR.R	Deemed-Retractible	95,131	Nesbitt crossed 80,000 at 23.85. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.82 Bid-YTW : 5.49 %
GWO.PR.P	Deemed-Retractible	91,052	Nesbitt crossed 87,000 at 25.85. YTW SCENARIO Maturity Type : Call Maturity Date : 2020-03-31 Maturity Price : 25.25 Evaluated at bid price : 25.69 Bid-YTW : 5.15 %
There were 42 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
PWF.PR.P	FixedReset	Quote: 24.31 – 24.63 Spot Rate : 0.3200 Average : 0.2220 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-13 Maturity Price : 23.98 Evaluated at bid price : 24.31 Bid-YTW : 3.43 %
CU.PR.E	Perpetual-Discount	Quote: 24.16 – 24.53 Spot Rate : 0.3700 Average : 0.2759 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-13 Maturity Price : 23.78 Evaluated at bid price : 24.16 Bid-YTW : 5.06 %
MFC.PR.H	FixedReset	Quote: 26.17 – 26.49 Spot Rate : 0.3200 Average : 0.2268 YTW SCENARIO Maturity Type : Call Maturity Date : 2017-03-19 Maturity Price : 25.00 Evaluated at bid price : 26.17 Bid-YTW : 2.72 %
ENB.PR.T	FixedReset	Quote: 24.36 – 24.65 Spot Rate : 0.2900 Average : 0.1977 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-13 Maturity Price : 22.92 Evaluated at bid price : 24.36 Bid-YTW : 4.11 %
CU.PR.F	Perpetual-Discount	Quote: 22.21 – 22.65 Spot Rate : 0.4400 Average : 0.3556 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-13 Maturity Price : 21.88 Evaluated at bid price : 22.21 Bid-YTW : 5.06 %
IGM.PR.B	Perpetual-Premium	Quote: 26.00 – 26.24 Spot Rate : 0.2400 Average : 0.1596 YTW SCENARIO Maturity Type : Call Maturity Date : 2017-12-31 Maturity Price : 25.25 Evaluated at bid price : 26.00 Bid-YTW : 5.04 %

SEC Commissioner Daniel M. Gallagher mused on the tangled web of supervisory responsibility:

And although securities firms have been generally increasing the amount of resources they devote to compliance matters, compliance budgets have increased in a linear manner while the demands faced by compliance officers have increased exponentially. A member of the House Financial Services Committee, citing a study issued by the Committee,[1] stated, “It will take over 24 million man hours to comply with Dodd-Frank rules per year. It took only 20 million to build the Panama Canal.”[2] On the plus side, at least Dodd-Frank has caused fewer deaths by malaria or yellow fever.
…
The Commission’s ability to impose sanctions for failures to supervise is a valuable part of our regulatory toolkit, encouraging a broker-dealer or investment adviser’s managers and executives to proactively monitor subordinate employees’ compliance with laws and regulations. We must make sure, however, that our rules establishing failure to supervise liability do not act as a deterrent to in-house legal and compliance officers, discouraging them from departing from their clearly delineated roles.

After all, we don’t want compliance officers or in-house attorneys spending their days drafting policies and sending out memoranda while avoiding interaction with the individuals governed by those policies or the recipients of those memos out of fear of being deemed a supervisor and subjecting themselves to liability. Indeed, we want to encourage such personnel to bring their expertise to bear in addressing important, real-world compliance issues and in providing real-time advice for concrete problems the firms and their employees face.

Clearly, what is necessary is a new department to be called “Compliance Compliance”, in which Compliance Compliance Professionals can ensue that Compliance Professionals are doing their jobs correctly. They can be regulated in the U.S. by the Securities and Exchange Commission Commission.

Remember the highly politicized SEC report on the Flash Crash? The regulator who wrote it thinks we should hire more regulators:

High-speed trading in U.S. futures markets is being dominated by a small number of firms that should be forced to register with regulators to ensure adequate oversight, the Commodity Futures Trading Commission’s former chief economist will tell lawmakers.

The firms, which can account for more than half of trading volume in some markets, should face new record-keeping rules and be required to have consistent policies and safeguards, according to Andrei Kirilenko, who left the CFTC in 2012 after he led a study of high-speed trading following the May 2010 flash crash.
…
Kirilenko is the co-author of a study that concludes high-frequency traders earn consistent profits, often at the expense of smaller and retail participants. The research, released again last month, was based on proprietary transaction-level data collected at the CFTC about trading in the E-mini S&P 500 futures contract from August 2010 through August 2012.

The researchers concluded that a small number of firms are consistently profitable and benefit by trading faster than their rivals. The small number of firms competing for ever-faster trades can lead to inefficient investments in technology by “driving an arms race” and warding off new participants in the market, according to Kirilenko, who said regulators should investigate why the industry is concentrated among so few firms while new participants struggle to compete.

The study referred to is by Matthew Baron, Jonathan Brogaard and Andrei Kirilenko, titled The Trading Profits of High Frequency Traders:

Small traders are defined as firms that trade less than a median of 20 contracts a day of all the days that firm is active. This is the majority of traders, with 21,761 participants in August 2010. … More precisely, for each trader, we calculate the end-of-day profits as the cumulative cash received from selling short positions minus the cash paid from buying long positions, plus the value of any outstanding positions at the end-of-day, marked to the market price at close: … Small traders in particular suffer the highest short-term losses to HFTs on a per contract basis: $3.49 per contract to Aggressive HFTs compared to $1.92 for Fundamental traders and $2.49 for Opportunistic traders, for a contract valued at approximately $50,000. … Retail investors are thought to be noise traders and so under the uninformed hypothesis we expect them to incur significant losses to HFTs (e.g. Hvidkjaer, 2008; Kaniel, Saar, and Titman, 2008; Barber, Odean, and Zhu, 2009). … The results also support the hypothesis that Small (retail) traders are noise traders who incur the largest effective transaction costs per contract.

So, yeah, the paper does indicate that HFTs make money from retail (as defined). What it does not do is estimate how much money retail would lose in the absence of HFT. Market making is a service; one generally pays for services.

The Bank of Canada has published a paper by Jonathan Brogaard, Corey Garriott and Anna Pomeranets titled High-Frequency Trading Competition:

When an HFT firm begins trading a stock, it disturbs the trading environment and leads incumbent HFT firms to change their behaviour. Part of the incumbents’ volume share is lost to the entrant. Competition in providing liquidity leads incumbents to tighten their spreads. Entry results indicate that incumbent HFT price predictability decreases, consistent with markets becoming more efficient. The culmination is that revenues fall with competition. The influence of both Passive and Aggressive entrants diminishes with each subsequent entry.

The approach in this paper helps to isolate the role of competition from the role of speed and aims to understand the channel by which competition affects markets. Our findings complement papers on HFT market quality. We show that competition among HFT firms, not just speed, plays a role in how they behave in the market and consequently may be partially responsible for the documented relationships between HFT and market quality.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 10bp, FixedResets off 29bp and DeemedRetractibles gaining 1bp; it may be that the Enbridge new issue had an effect on the market! Or maybe it was profit taking. Possibly concerns over the Ukraine. How should I know? Enbridge issues certainly got whacked pretty hard; the Performance Highlights table is comprised entirely of Enbridge FixedReset losers. Could it be that the market is getting saturated with Enbridge and that investors are getting tired of their advisors passing gas all the time? Stay tuned! I won’t know next year, either! Enbridge issues also captured the top four spots on the Volume Highlights table on what was, overall, a day of average volume. Maybe a tad on the low side.

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	-0.4382 %	2,445.6
FixedFloater	4.57 %	3.80 %	31,090	17.83	1	0.1927 %	3,759.4
Floater	2.98 %	3.10 %	52,121	19.44	4	-0.4382 %	2,640.6
OpRet	4.35 %	-6.76 %	33,855	0.14	2	0.0774 %	2,712.3
SplitShare	4.77 %	4.04 %	66,447	4.17	5	0.0395 %	3,108.5
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0774 %	2,480.1
Perpetual-Premium	5.50 %	-9.46 %	95,782	0.09	15	0.0313 %	2,404.5
Perpetual-Discount	5.28 %	5.35 %	116,348	14.89	21	0.1029 %	2,551.6
FixedReset	4.51 %	3.49 %	208,147	4.27	75	-0.2937 %	2,566.2
Deemed-Retractible	4.97 %	-6.61 %	139,613	0.12	42	0.0057 %	2,531.4
FloatingReset	2.65 %	2.32 %	172,692	4.05	6	-0.0593 %	2,495.1

Performance Highlights
Issue	Index	Change	Notes
ENB.PR.J	FixedReset	-1.67 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-12 Maturity Price : 23.27 Evaluated at bid price : 25.30 Bid-YTW : 4.13 %
ENB.PR.H	FixedReset	-1.52 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-12 Maturity Price : 22.84 Evaluated at bid price : 24.03 Bid-YTW : 3.94 %
ENB.PR.N	FixedReset	-1.29 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2018-12-01 Maturity Price : 25.00 Evaluated at bid price : 25.21 Bid-YTW : 4.00 %
ENB.PR.D	FixedReset	-1.28 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-12 Maturity Price : 23.17 Evaluated at bid price : 24.72 Bid-YTW : 4.00 %
ENB.PR.F	FixedReset	-1.28 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-12 Maturity Price : 23.15 Evaluated at bid price : 24.74 Bid-YTW : 4.11 %
ENB.PR.Y	FixedReset	-1.21 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-12 Maturity Price : 22.96 Evaluated at bid price : 24.50 Bid-YTW : 4.05 %
ENB.PF.A	FixedReset	-1.17 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-12 Maturity Price : 23.22 Evaluated at bid price : 25.30 Bid-YTW : 4.19 %
ENB.PR.B	FixedReset	-1.15 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-12 Maturity Price : 23.36 Evaluated at bid price : 24.96 Bid-YTW : 3.98 %
ENB.PR.T	FixedReset	-1.04 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-12 Maturity Price : 23.06 Evaluated at bid price : 24.72 Bid-YTW : 4.09 %

Volume Highlights
Issue	Index	Shares Traded	Notes
ENB.PR.N	FixedReset	200,453	RBC bought 10,000 from Scotia at 25.40 and crossed 50,000 at 25.38, then crossed another 22,200 at 25.36. Scotia crossed 50,000 at 25.38. YTW SCENARIO Maturity Type : Call Maturity Date : 2018-12-01 Maturity Price : 25.00 Evaluated at bid price : 25.21 Bid-YTW : 4.00 %
ENB.PR.B	FixedReset	101,275	Scotia crossed 30,000 at 25.25; RBC crossed 24,100 at 24.97. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-12 Maturity Price : 23.36 Evaluated at bid price : 24.96 Bid-YTW : 3.98 %
ENB.PR.Y	FixedReset	95,748	RBC crossed 70,000 at 24.53. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-12 Maturity Price : 22.96 Evaluated at bid price : 24.50 Bid-YTW : 4.05 %
ENB.PF.A	FixedReset	78,915	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-12 Maturity Price : 23.22 Evaluated at bid price : 25.30 Bid-YTW : 4.19 %
BMO.PR.M	FixedReset	78,847	Nesbitt crossed 74,000 at 25.42. YTW SCENARIO Maturity Type : Call Maturity Date : 2018-08-25 Maturity Price : 25.00 Evaluated at bid price : 25.39 Bid-YTW : 2.98 %
SLF.PR.F	FixedReset	68,092	Scotia crossed 65,000 at 25.34. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-30 Maturity Price : 25.00 Evaluated at bid price : 25.33 Bid-YTW : 1.17 %
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.PR.G	FixedFloater	Quote: 20.80 – 21.23 Spot Rate : 0.4300 Average : 0.3034 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-12 Maturity Price : 21.48 Evaluated at bid price : 20.80 Bid-YTW : 3.80 %
CU.PR.F	Perpetual-Discount	Quote: 22.35 – 22.70 Spot Rate : 0.3500 Average : 0.2630 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-12 Maturity Price : 22.06 Evaluated at bid price : 22.35 Bid-YTW : 5.03 %
IAG.PR.E	Deemed-Retractible	Quote: 26.01 – 26.23 Spot Rate : 0.2200 Average : 0.1382 YTW SCENARIO Maturity Type : Call Maturity Date : 2017-12-31 Maturity Price : 25.25 Evaluated at bid price : 26.01 Bid-YTW : 5.26 %
GWO.PR.P	Deemed-Retractible	Quote: 25.58 – 25.87 Spot Rate : 0.2900 Average : 0.2168 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.58 Bid-YTW : 5.22 %
VNR.PR.A	FixedReset	Quote: 25.75 – 25.95 Spot Rate : 0.2000 Average : 0.1271 YTW SCENARIO Maturity Type : Call Maturity Date : 2017-10-15 Maturity Price : 25.00 Evaluated at bid price : 25.75 Bid-YTW : 3.53 %
CIU.PR.C	FixedReset	Quote: 21.27 – 21.91 Spot Rate : 0.6400 Average : 0.5699 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-12 Maturity Price : 21.27 Evaluated at bid price : 21.27 Bid-YTW : 3.61 %

Two stories today made me laugh about how 20th century structures are irrelevant to modern technology. The first was about taxis:

London’s taxis are planning a 10,000-cab protest next month, as professional drivers across Europe demonstrate growing opposition to Uber Technologies Inc.’s app.
…
The controversial app, which helps private drivers and professionals charge for rides, has met with protests in several markets from the taxi industry, whose drivers often pay steep fees for licenses and permits and complain that San Francisco-based Uber’s cars are given an unfair advantage.
…
Uber markets itself as a way for drivers to start their own businesses, showing profiles of top drivers on its website who include a student who used the app to make money on weekends, a single mother who started her own business and a man who quit his job to drive passengers around San Francisco. That means it can draw drivers from outside of the professional chauffeuring industry who may hold different licenses or qualifications. That’s a key difference from similar apps like Hailo, which recruit taxi drivers.

Cars in Brussels that use the app will be subject to a 10,000-euro ($13,863) fine after a local court ruled against Uber cars last month. European Commission Vice President Neelie Kroes called the ban “crazy” and anti-competitive.

In Berlin, the taxi association said that Uber hurt competition by violating rules that force limousine drivers to return to a base after delivering customers. In April, a court banned taxi services that use the app, though the injunction wasn’t enforced at the time.

Microjobs are coming. Deal with it. The second example was about guns:

Yoshitomo Imura, a 27-year-old Japanese man, has been arrested for allegedly possessing a collection of guns made with a 3D printer, according to The Japan Times.

Police say that two of the five recovered handguns are capable of firing, though no bullets were discovered at the man’s home in Kawasaki, south of Tokyo.

Imura, an employee of Shonan Institute of Technology in Fujisawa, is reported to have made the weapons using a commercial 3D printer he bought online for 60,000 yen (£349/$590) in conjunction with plans he downloaded from file-sharing sites.

Decentralized manufacturing is also coming. Deal with that, too.

Ian Lee provides us with a good reason to avoid Carleton University’s Sprott School of Business. His contribution to the so-called debate over voter ID and vouching may be summed up as:

This empirical research reveals that multiple federal and provincial government agencies are required by law to record and often monitor citizens in multiple overlapping digital identification databases – with identity cards numbering well in excess of 200 million for 18 million voters (excluding millions of monthly utility bills) – from health care cards to driver’s licenses to student ID cards to employee cards to birth certificates to passports to SIN cards to auto ownership cards to library cards to debit cards to credit cards to Aboriginal ID cards to title deeds to tenancy agreements.

His argument is that since 200-million cards have been issued – not all of which are valid identification under the current act, but never mind that – for 18-million voters, therefore every voter actually possesses valid ID. To my relief, he’s being ripped apart in the comments, showing that not all Canadians are completely incapable of formulating an actual argument.

I don’t have any opinion on voter ID, by the way. I have very little interest in the topic anyway, and when I do stumble across some reference to the so-called debate, it’s all pure garbage such as Ian Lee’s article.

Speaking of incompetent educators:

The Alberta task force noted that in 10 years, not one teacher has lost his or her job because of ineffectiveness – this, in a province that employs 35,000 full-time K-12 educators. That is a mind-boggling statistic and an indictment of both the government and the union. It’s not much different in most Canadian provinces. In British Columbia, just 16 teachers have been terminated or resigned in the past decade over incompetence-related issues. The province employs more than 30,000 K-12 teachers.

Talk to any teacher and they’ll identify at least one or two colleagues who shouldn’t be instructing kids for a living. That shouldn’t come as a great surprise. The teaching profession isn’t immune from the basic rules of the working world; 5 to 10 per cent of those making up any work force should probably be doing something else for a living. In the private sector, it’s much easier to push these people out the door and toward another direction. (And often, the departed are later happy they did.) In a unionized environment, where the mandate is frequently to protect the status quo, it’s much more difficult.

David Parkinson in the Globe comments on Canada’s bleak employment situation:

But the fact is that jobs have now declined in three of the past five months – during which time the Canadian labour market has actually lost nearly 8,000 jobs. If anything looks like a statistical outlier here, is was the big March gain, not the April fall.

Consider other disturbing details in the April report. All the job losses were concentrated in full-time positions (indeed, at 31,000, it was more than all of them, offset by a 2,000 job gain in part-time employment). The private sector shed 29,000 jobs while governments shed another 17,000; the only thing propping the job count from an even worse fate was a 17,000-job increase in self-employment, a dubious sign for job quality.

Gee, I wonder what could be driving this. Could it be idiotic energy policies?

“I doubt we’ll add any more plants in Canada,” Magna chief executive officer Don Walker told shareholders Thursday at the company’s annual meeting in Toronto.

The auto parts giant is competitive in Canada, invests about $150-million (U.S.) annually in its existing plants here and has benefited from the recent drop in the value of the Canadian dollar, Mr. Walker noted.

He is worried, however, about the level of vehicle production in Canada, rising electricity costs in Ontario and high transportation costs.

In the last Ontario election, two of the three main candidates knocked on my door personally; I told them both that nobody had my support because not one of the three parties had an electricity policy that made the slightest bit of sense at all. Looks like I’ll be saying the same thing this time ’round; actually, it may be worse because the opposition parties are blathering about a paltry $1-billion gas plant cancellation, which is basically a rounding error:

Solar energy – one of the key pillars of the Green Energy and Economy Act (GEEA) – is casting a dark cloud over Ontario electricity bills and is a big factor in recent and future bill increases. In 2013, solar projects caused electricity bills to be about $550-million higher than they would otherwise have been. For a typical homeowner, this works out to $47 per year. Ontario will have an estimated 1,100 MW of solar installed by year-end and roughly 900 MW will be added in 2014. This addition will cause 2014 electricity bills to increase by another $435-million – equal to a typical homeowner increase of $37 per year. By the end of 2014, solar will be costing Ontarians $1.25-billion per year – while generating a paltry 2% of Ontario’s total electricity requirement.

The TSX is rolling out a new system:

And as with many upgrades in trading technology, there is a debate. There is the usual grousing from Bay Street about the costs to connect to a new system, which requires testing and upgrades by users.

But the bigger question is, who will benefit?

TMX says everybody will, because the market will be faster, spreads will be tighter and speeds will be more consistent.
…
However, critics say that the real beneficiaries will be high frequency traders. That’s because some work that used to be done in the TMX trading engine will now have to be done by users.

The anonymous critics are missing a trick there. According to the Exchange:

Who will be impacted by the TMX Quantum XA upgrade? Anyone with a direct
connection to TSX, TSX Venture, or TMX Select with a certified order entry
application will be impacted and required to make changes as a result of the TMX
Quantum XA upgrade. This includes, but is not limited to:

• Service Bureau vendors
• Participating Organizations, Members, or Subscribers with in-house proprietary systems
• Software providers
• DMA customers supporting direct connections

So in other words, barriers to entry are increasing. So, in other words, a big beneficiary of the change will be the big banks. Who also own the Exchange. The changes, in total, may be good; they may be bad; as is usual in Canada, there is no informed debate either way; in large part because associate professors at business schools in Ottawa get more mileage out of spouting utter nonsense to further their political ambitions than in actually analyzing business. But there’s certainly no surprise that one division of the Big Banks is making system changes that will favour other divisions of the Big Banks.

I stumbled across a listing of nascent technologies:

7. Paper-Thin, Flexible Computers and Phones

How would you feel if your smartphone or tablet was as thin as paper and capable of exhibiting the same level of flexibility? Would feel pretty awesome, no? The future has such gadgets for you in store. As of now projects are underway to come up with smartphones and tablets, which will be fully functional yet look just like paper. Papertab was showed in CES 2013 and a collaborative effort is being made by two Canadian and American universities and the project is being called; ‘Paperphone’. Dr. Roel Vertegaal from Queens University says; ‘This is the future. Everything is going to look and feel like this within five years.

Now, this would be useful. Before I buy my first e-Book, or give up on my printed newspaper subscriptions, I want a device that will
i) allow me to read normally
ii) fit in my pocket

There’s a two year old status report available, but there’s a recent newspaper article:

The Human Media Lab is unveiling its revolutionary foldable smartphone technology “Paperfold” in Toronto today at the ACM CHI Conference on Human Factors in Computing Systems.

Queen’s professor Roel Vertegaal and student Antonio Gomes will be demonstrating the smartphone’s ability to fold open up to three flexible displays that allows extra screen space when needed. The three detachable electrophoretic displays allow the compact phone to be connected into a variety of arrangements that can mimic both a notebook computer format or a foldout map.

I’m not too enthusiastic about the 3-D remodelling; but if something like this can be produced for $500, I’m all for it!

The rally in the Canadian preferred share market paused today, with PerpetualDiscounts and DeemedRetractibles both off 6bp, while FixedResets gained 4bp. Hmmm … let’s see … down a bit after a rally … on a Friday … Profit taking! Must be profit taking! That will be $1,000, please. Volatility was muted. 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	0.1416 %	2,456.4
FixedFloater	4.58 %	3.81 %	32,361	17.82	1	-1.8440 %	3,752.2
Floater	2.97 %	3.09 %	52,568	19.47	4	0.1416 %	2,652.2
OpRet	4.36 %	-5.35 %	34,006	0.15	2	0.3794 %	2,710.2
SplitShare	4.78 %	4.06 %	66,274	4.18	5	0.1502 %	3,107.2
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.3794 %	2,478.2
Perpetual-Premium	5.50 %	-11.01 %	96,991	0.09	15	0.0287 %	2,403.7
Perpetual-Discount	5.28 %	5.30 %	121,023	14.93	21	-0.0564 %	2,549.0
FixedReset	4.50 %	3.33 %	208,346	4.28	75	0.0368 %	2,573.8
Deemed-Retractible	4.97 %	-6.98 %	142,717	0.13	42	-0.0631 %	2,531.2
FloatingReset	2.65 %	2.30 %	179,682	4.06	6	0.0527 %	2,496.5

Performance Highlights
Issue	Index	Change	Notes
BAM.PR.G	FixedFloater	-1.84 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-09 Maturity Price : 21.46 Evaluated at bid price : 20.76 Bid-YTW : 3.81 %
PWF.PR.P	FixedReset	1.02 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-09 Maturity Price : 23.55 Evaluated at bid price : 24.72 Bid-YTW : 3.30 %
MFC.PR.F	FixedReset	1.97 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.21 Bid-YTW : 3.60 %

Volume Highlights
Issue	Index	Shares Traded	Notes
MFC.PR.A	OpRet	229,545	RBC crossed 223,000 at 25.50. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-19 Maturity Price : 25.25 Evaluated at bid price : 25.55 Bid-YTW : -10.25 %
FTS.PR.G	FixedReset	57,121	RBC crossed 28,200 at 25.30. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-09 Maturity Price : 23.27 Evaluated at bid price : 25.16 Bid-YTW : 3.68 %
ENB.PR.B	FixedReset	50,975	Scotia crossed 40,000 at 25.30. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-09 Maturity Price : 23.46 Evaluated at bid price : 25.25 Bid-YTW : 3.92 %
BNS.PR.Z	FixedReset	28,765	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.74 Bid-YTW : 3.33 %
GWO.PR.H	Deemed-Retractible	23,121	TD crossed 15,000 at 24.05. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.95 Bid-YTW : 5.47 %
BAM.PF.E	FixedReset	22,488	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-09 Maturity Price : 23.18 Evaluated at bid price : 25.20 Bid-YTW : 4.14 %
There were 20 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
GWO.PR.L	Deemed-Retractible	Quote: 26.05 – 26.34 Spot Rate : 0.2900 Average : 0.1878 YTW SCENARIO Maturity Type : Call Maturity Date : 2017-12-31 Maturity Price : 25.25 Evaluated at bid price : 26.05 Bid-YTW : 4.84 %
CIU.PR.C	FixedReset	Quote: 21.40 – 21.98 Spot Rate : 0.5800 Average : 0.4931 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-09 Maturity Price : 21.40 Evaluated at bid price : 21.40 Bid-YTW : 3.59 %
CU.PR.E	Perpetual-Discount	Quote: 24.15 – 24.45 Spot Rate : 0.3000 Average : 0.2198 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-09 Maturity Price : 23.77 Evaluated at bid price : 24.15 Bid-YTW : 5.06 %
SLF.PR.A	Deemed-Retractible	Quote: 23.73 – 23.96 Spot Rate : 0.2300 Average : 0.1663 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.73 Bid-YTW : 5.47 %
MFC.PR.B	Deemed-Retractible	Quote: 22.96 – 23.20 Spot Rate : 0.2400 Average : 0.1792 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.96 Bid-YTW : 5.64 %
BMO.PR.M	FixedReset	Quote: 25.30 – 25.50 Spot Rate : 0.2000 Average : 0.1403 YTW SCENARIO Maturity Type : Call Maturity Date : 2018-08-25 Maturity Price : 25.00 Evaluated at bid price : 25.30 Bid-YTW : 3.07 %

The possibility of Saskatchewan entering the national securities regulation framework has led to calls for Nova Scotia to join the happy throng:

Nova Scotia treats its regulator as a bit of a cash cow. It takes in $15.8 million in yearly revenue and spends $2.7 million on programs. Finance Minister Diana Whalen has cited loss of this revenue, and of provincial control, as reasons for Nova Scotia not joining the voluntary initiative by Ottawa, Ontario and B.C. to set up a co-operative regulator after the courts said Ottawa could not do it alone.

These are parochial reasons to deny Nova Scotians better investor protection and to stymie creation of stronger national safeguards against system-wide risks.

We will surely have more real influence if we are early participants in this initiative. It can be designed to provide a share of fee income and appropriate regulation for local initiatives like Nova Scotia’s Community Economic Development Investment Funds. Nova Scotia should get on board and play a role in ensuring first-rate national regulation is also sensitive to local and regional needs.

But:

Andrew Preeper, a spokesman for the province’s Finance Department, said “the possibility of taking part in a co-operative regulator is being discussed and considered, but no decision has been made.” He said that Nova Scotia Finance and Treasury Board Minister Diana Whalen wants to have more talks with industry stakeholders.

Meanwhile, in Europe:

European Central Bank president Mario Draghi surprised the markets by saying the bank’s governing council is “comfortable” in launching measures next month to fight falling inflation and the rising euro, a strong signal that the ECB thinks the euro zone recovery is in jeopardy if no action is taken.

While the ECB, as expected, left the benchmark interest rate intact at a record low of 0.25 per cent, Mr. Draghi repeatedly highlighted the dangers of falling inflation and the rising euro. In his press conference, he said: “The strengthening of the exchange rate in the context of low inflation is cause for serious concern in the view of the governing council.”

But Mr. Draghi did not say which easing measures the ECB is prepared to take to tackle disinflation and the rising euro. Options include forms of quantitative easing tailored to the European markets, negative interest rates (charging banks to park funds at the ECB) or a cut that would take rates to zero. The ECB could also intervene in the foreign exchange markets to put downward pressure on the euro.

Many will be interested in the recent Economist article titled Maple, resting on laurels, but unfortunately it’s slap-dash bilge. They say, for instance:

the World Economic Forum anointed Canada’s banking system the soundest in the world

Bullshit. They obviously have not read my post What the WEF Report Really Says about Canadian Banks. They also repeat the claim…:

The latest calculations from The Economist suggest that house prices in Canada are overvalued by 76% and 31% when measured against long-term average rents and incomes respectively.

… without addressing the methodological problems discussed in How to Dissect a Housing Bubble. It’s very disappointing so see such crap spouting out of the Economist.

You want to see some layoffs? Barclays Bank can show you some layoffs:

Britain’s Barclays reined in its ambitions to be a Wall Street powerhouse on Thursday and signalled a return to its retail roots with a plan to hive off much of its investment bank and axe one in four jobs at the division.

Chief Executive Antony Jenkins, in his second strategic review in as many years, will cut 19,000 jobs in the next three years, 7,000 of them at the investment bank, and park 400 billion pounds of assets in a new “bad bank”.

Some bond ETFs are benefitting from price reductions:

The cost of owning an ETF tracking the S&P/TSX composite index has fallen from 0.27 per cent to 0.05 per cent this year, and U.S. and international fund fees have fallen significantly as well. But, with only a couple of exceptions, bond ETFs have for the most part been exempt from this price competition.

One of those exceptions is the iShares High Quality Canadian Bond Index ETF (CAB), which holds a portfolio that is 60 per cent weighted to government bonds and 40 per cent weighted to corporate bonds. All bonds in the portfolio have a credit rating of A or higher, which is where the “high quality” name for this ETF comes from. The fee for CAB has fallen to 0.12 per cent from 0.3 per cent, which makes it a low-cost leader for ETF investors. Other broad Canadian bond ETFs have fees in the 0.23 to 0.33 per cent range.

Another bond fund to benefit from fee cuts is the BMO Short Corporate Bond Index ETF (ZCS), which falls to 0.12 per cent from 0.30 per cent. The previous floor for this type of ETF had been about 0.15 per cent.

And … in one of PrefBlog’s least surprising links … Canadian banks are extending their hegemony over the financial system:

DBRS has today confirmed the Issuer Rating, Medium-Term Notes and Debentures ratings of Canadian Tire Corporation, Limited (CTC or the Company) at BBB (high), and its Commercial Paper rating at R-2 (high), all with Stable trends. This rating action follows CTC’s announcement earlier today of a far-reaching strategic partnership with Scotiabank, under which Scotiabank will acquire 20% of the equity interest in Canadian Tire’s financial services business for $500 million in cash (the Transaction).

Julie Dickson gave a self-congratulatory valedictory. She did not mention OSFI’s botching of the Life Insurance Regulatory Framework, that she has kicked down the road to her successor.

The Canadian preferred share market reignited today, with PerpetualDiscounts winning 32bp, FixedResets gaining 3bp and DeemedRetractibles up 17bp. Volatility was muted. Volume was above 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	-0.4229 %	2,452.9
FixedFloater	4.49 %	3.72 %	31,695	17.97	1	1.8786 %	3,822.6
Floater	2.97 %	3.09 %	53,050	19.48	4	-0.4229 %	2,648.4
OpRet	4.35 %	-1.65 %	33,681	0.15	2	-0.3468 %	2,699.9
SplitShare	4.78 %	4.07 %	66,639	4.18	5	0.0000 %	3,102.6
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.3468 %	2,468.8
Perpetual-Premium	5.51 %	-8.62 %	97,080	0.09	15	0.1122 %	2,403.0
Perpetual-Discount	5.28 %	5.30 %	122,690	14.93	21	0.3195 %	2,550.4
FixedReset	4.50 %	3.31 %	209,792	4.14	75	0.0297 %	2,572.8
Deemed-Retractible	4.96 %	-7.23 %	137,905	0.13	42	0.1684 %	2,532.8
FloatingReset	2.67 %	2.36 %	186,427	4.06	6	-0.0066 %	2,495.2

Performance Highlights
Issue	Index	Change	Notes
PWF.PR.A	Floater	-1.86 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-08 Maturity Price : 19.51 Evaluated at bid price : 19.51 Bid-YTW : 2.68 %
IAG.PR.A	Deemed-Retractible	1.09 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.20 Bid-YTW : 5.59 %
BAM.PR.G	FixedFloater	1.88 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-08 Maturity Price : 21.67 Evaluated at bid price : 21.15 Bid-YTW : 3.72 %

Volume Highlights
Issue	Index	Shares Traded	Notes
PWF.PR.P	FixedReset	105,900	TD crossed three blocks: 45,000 shares, 35,000 and 10,000, all at 24.50. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-08 Maturity Price : 23.44 Evaluated at bid price : 24.47 Bid-YTW : 3.35 %
TD.PR.R	Deemed-Retractible	104,604	RBC crossed blocks of 71,600 and 25,000, both at 26.69. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-07 Maturity Price : 25.75 Evaluated at bid price : 26.65 Bid-YTW : -32.07 %
ENB.PR.B	FixedReset	69,747	Scotia crossed 60,000 at 25.30. YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-01 Maturity Price : 25.00 Evaluated at bid price : 25.32 Bid-YTW : 3.83 %
BMO.PR.Q	FixedReset	53,815	TD crossed 12,800 and 25,000, both at 25.05. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.06 Bid-YTW : 3.08 %
RY.PR.X	FixedReset	49,291	RBC crossed 17,300 and 20,800, both at 25.30. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-24 Maturity Price : 25.00 Evaluated at bid price : 25.30 Bid-YTW : 1.25 %
IFC.PR.A	FixedReset	47,385	RBC crossed 39,600 at 24.85. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.81 Bid-YTW : 3.82 %
There were 40 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: 19.51 – 19.99 Spot Rate : 0.4800 Average : 0.3372 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-08 Maturity Price : 19.51 Evaluated at bid price : 19.51 Bid-YTW : 2.68 %
CIU.PR.C	FixedReset	Quote: 21.46 – 21.96 Spot Rate : 0.5000 Average : 0.3977 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-08 Maturity Price : 21.46 Evaluated at bid price : 21.46 Bid-YTW : 3.59 %
SLF.PR.B	Deemed-Retractible	Quote: 23.96 – 24.19 Spot Rate : 0.2300 Average : 0.1474 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.96 Bid-YTW : 5.41 %
CGI.PR.D	SplitShare	Quote: 25.01 – 25.25 Spot Rate : 0.2400 Average : 0.1623 YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2023-06-14 Maturity Price : 25.00 Evaluated at bid price : 25.01 Bid-YTW : 3.84 %
BNA.PR.E	SplitShare	Quote: 25.87 – 26.16 Spot Rate : 0.2900 Average : 0.2211 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2017-12-10 Maturity Price : 25.00 Evaluated at bid price : 25.87 Bid-YTW : 4.07 %
MFC.PR.B	Deemed-Retractible	Quote: 23.30 – 23.47 Spot Rate : 0.1700 Average : 0.1126 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.30 Bid-YTW : 5.61 %