Category: Market Action

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 %

We can hope that Saskatchewan’s flirtation with the national securities regulator gets consummated:

The federal government is close to signing up a third province for its voluntary national securities regulator, with Saskatchewan’s government now “optimistic” that it can reach an agreement to join Ontario and British Columbia.
…
And now, Saskatchewan is poised to become the next province, giving needed momentum to the project by adding a province that had long held a neutral stance regarding the idea.

“We are still working on it, and believe we will come to an agreement,” Saskatchewan government spokeswoman Kathy Young said in response to questions, adding, “we are certainly optimistic.”

The Canadian preferred share market kept the rally going – barely! – today, with PerpetualDiscounts gaining 1bp, FixedResets up 8bp and DeemedRetractibles flat. Floaters did very well, dominating the good part of the Performance Highlights table. Volume was slightly above average.

PerpetualDiscounts now yield 5.32%, equivalent to 6.92% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.4% (maybe just a smidgen over) so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 250bp, a slight (and perhaps spurious) widening from the 245bp reported April 30.

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	1.9546 %	2,463.3
FixedFloater	4.58 %	3.81 %	30,411	17.83	1	0.2899 %	3,752.2
Floater	2.96 %	3.08 %	53,642	19.49	4	1.9546 %	2,659.7
OpRet	4.34 %	-2.89 %	34,055	0.15	2	0.2124 %	2,709.3
SplitShare	4.78 %	4.35 %	67,715	4.18	5	0.2060 %	3,102.6
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.2124 %	2,477.4
Perpetual-Premium	5.51 %	-10.92 %	96,426	0.09	15	-0.0261 %	2,400.3
Perpetual-Discount	5.30 %	5.32 %	124,133	14.91	21	0.0091 %	2,542.3
FixedReset	4.50 %	3.39 %	210,763	4.14	75	0.0819 %	2,572.1
Deemed-Retractible	4.97 %	-6.00 %	139,428	0.13	42	0.0028 %	2,528.6
FloatingReset	2.67 %	2.34 %	146,838	4.20	6	-0.0724 %	2,495.4

Performance Highlights
Issue	Index	Change	Notes
FTS.PR.F	Perpetual-Discount	-1.28 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-07 Maturity Price : 23.72 Evaluated at bid price : 24.00 Bid-YTW : 5.18 %
BAM.PR.Z	FixedReset	-1.20 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2017-12-31 Maturity Price : 25.00 Evaluated at bid price : 26.32 Bid-YTW : 3.41 %
ELF.PR.G	Perpetual-Discount	1.24 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-07 Maturity Price : 21.66 Evaluated at bid price : 22.05 Bid-YTW : 5.42 %
BAM.PR.X	FixedReset	1.74 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-07 Maturity Price : 22.30 Evaluated at bid price : 22.81 Bid-YTW : 3.98 %
BAM.PR.B	Floater	2.29 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-07 Maturity Price : 16.98 Evaluated at bid price : 16.98 Bid-YTW : 3.11 %
BAM.PR.K	Floater	2.29 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-07 Maturity Price : 16.94 Evaluated at bid price : 16.94 Bid-YTW : 3.12 %
BAM.PR.C	Floater	2.82 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-07 Maturity Price : 17.14 Evaluated at bid price : 17.14 Bid-YTW : 3.08 %

Volume Highlights
Issue	Index	Shares Traded	Notes
TD.PR.Q	Deemed-Retractible	204,990	Scotia crossed three blocks;; 35,000 shares, 100,000 and 68,800, all at 26.50. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-06 Maturity Price : 25.75 Evaluated at bid price : 26.51 Bid-YTW : -26.76 %
HSE.PR.A	FixedReset	131,570	Nesbitt crossed 25,000 and 100,000, both at 23.50. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-07 Maturity Price : 23.09 Evaluated at bid price : 23.45 Bid-YTW : 3.71 %
ENB.PR.B	FixedReset	101,434	Scotia crossed 25,300 and 60,000, both at 25.30. YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-01 Maturity Price : 25.00 Evaluated at bid price : 25.33 Bid-YTW : 3.81 %
NA.PR.L	Deemed-Retractible	101,099	TD crossed 50,000 at 25.35; Nesbitt crossed 42,700 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-14 Maturity Price : 25.00 Evaluated at bid price : 25.35 Bid-YTW : -9.32 %
RY.PR.A	Deemed-Retractible	85,308	TD crossed 83,100 at 25.80. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-23 Maturity Price : 25.25 Evaluated at bid price : 25.72 Bid-YTW : -11.20 %
BNS.PR.B	FloatingReset	82,200	Nesbitt crossed 80,000 at 25.25. YTW SCENARIO Maturity Type : Call Maturity Date : 2018-10-25 Maturity Price : 25.00 Evaluated at bid price : 25.21 Bid-YTW : 2.33 %
There were 39 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
BAM.PF.A	FixedReset	Quote: 26.17 – 27.00 Spot Rate : 0.8300 Average : 0.4668 YTW SCENARIO Maturity Type : Call Maturity Date : 2018-09-30 Maturity Price : 25.00 Evaluated at bid price : 26.17 Bid-YTW : 3.47 %
MFC.PR.K	FixedReset	Quote: 25.34 – 26.16 Spot Rate : 0.8200 Average : 0.4623 YTW SCENARIO Maturity Type : Call Maturity Date : 2018-09-19 Maturity Price : 25.00 Evaluated at bid price : 25.34 Bid-YTW : 3.60 %
IFC.PR.A	FixedReset	Quote: 24.59 – 24.98 Spot Rate : 0.3900 Average : 0.2360 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.59 Bid-YTW : 3.92 %
RY.PR.I	FixedReset	Quote: 25.86 – 26.23 Spot Rate : 0.3700 Average : 0.2430 YTW SCENARIO Maturity Type : Call Maturity Date : 2019-02-24 Maturity Price : 25.00 Evaluated at bid price : 25.86 Bid-YTW : 2.72 %
MFC.PR.F	FixedReset	Quote: 24.01 – 24.34 Spot Rate : 0.3300 Average : 0.2174 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.01 Bid-YTW : 3.83 %
BNA.PR.E	SplitShare	Quote: 25.63 – 25.88 Spot Rate : 0.2500 Average : 0.1456 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2017-12-10 Maturity Price : 25.00 Evaluated at bid price : 25.63 Bid-YTW : 4.35 %

The scheduled European hyperinflation has been postponed:

Lower inflation forecasts from the European Commission will put more pressure on the European Central Bank to launch measures to prevent falling prices from destabilizing the weak economic revival.

The EC, the executive arm of the 28-country European Union, predicted on Monday morning that euro zone’s inflation rate will land at 0.8 per cent this year and 1.2 per cent next year. Both figures are well below the ECB’s target rate of close to 2 per cent Less than three months ago, the EC had forecast inflation this year at 1 per cent, and at 1.5 per cent next year. The downward revisions came as more evidence emerged that the euro zone’s deflationary pressures are still fully intact, in spite of rock-bottom interest rates, the end of the euro zone’s recession and slightly lower jobless figures.

So there’s one reason to be bond-bullish. But it takes two to make a market!

Junk-bond investors are accepting yields that are 0.74 percentage point lower than the earnings yield on the Standard & Poor’s 500 index, a measure of profit as a percentage of equity prices.

Historically, debt rated below investment grade has yielded an average 4.2 percentage points more than stocks since March 1995. That relationship has been turned on its head.

Could be a little ‘reaching for yield’ is going on. That always ends in tears.

Meanwhile the feds continue to micro-manage the Canadian economy:

The Conservative government’s bid to ease a multibillion-dollar backlog of Prairie grain is one step closer to becoming law, despite ongoing questions about its details and complaints by Canada’s two major railways.

Bill C-30 was tabled March 26 in an urgent bid to force railways to ship more grain after a bumper crop, and passed third reading in the House of Commons on Monday. That came after a weeks-long delay caused by a complaint over a government error, whereby a committee went too far in altering the bill by adding an amendment the Speaker ruled was out of bounds.

Bill C-30 is aimed at easing a backlog by expanding government power to set minimum shipping levels for railways. It also expands grain sellers’ power to choose a different railway – many had just one choice – and creates a new process for the Canadian Transportation Agency (CTA) to force a railway that fails to hold up its end of a deal to repay certain costs to grain shippers.

I was a little puzzled by the “many had just one choice” part. Apparently:

In most cases, shippers’ grain elevators have nearby access to only one of the two major Canadian railways. And by law, they may not transfer grain to the other railroad unless the elevator is within 30 kilometres of them. Yes, that’s anti-competitive. The bill would raise that limit to 160 km, giving more choice to growers and shippers.

The origins of these regulations on “interswitching” go back to 1904. It’s a relic of the long history of heavy-handed government power over grain and railroads, which included fixed freight rates.

Sounds like a pretty crazy law to me. To at least some extent it’s just another form of protectionism:

“A 160 km interchange limit would open up the southern portion of CNR and CP’s network to competition from U.S. carriers, especially BNSF,” [RBC Capital Markets analyst Walter] Spracklin said in a note to clients.
…
Mr. Spracklin noted that unlike market share shifts between Canadian railways that might also result from the interswitching rule changes, the market share losses to U.S. competitors would be more permanent because there are no reciprocal interchange provisions in the U.S.

“Accordingly, cargo losses to U.S. carriers would disappear from the Canadian supply chain altogether weakening all stakeholders’ positions (ports, trucks, etc),” Mr. Spracklin said.

But he said market share losses are not the only issue that might result from the new rules. They also threaten to raise costs for Canadian railways by introducing added complexity to their networks and may require extra infrastructure to be added.

The carriers hate the change:

CN said amended interswitching rules would allow U.S. railroads to poach Canadian rail traffic, erode the rate structure and economic viability of Canadian railways and drive traffic to U.S. ports, thus reducing traffic and employment at Canadian ports.


In a March 28 news release, Canadian Pacific Railway said it was disappointed with Ottawa’s decision to introduce legislation that does nothing to improve grain movement but has the potential to cause “great damage” to the Canadian rail transportation system.


“CP … believes that the expansion of regulated interswitching could seriously impact Canada’s competitiveness, as it effectively transfers traffic that normally would move over Canadian railways and ports to U.S. railroads and ports,” it said.


“Interswitching will also lead to double handling of grain shipments, which will slow down the grain supply chain, negatively impacting transit times.”


Federal officials say there are 18 interswitch locations on the Canadian Prairies.


Only 14 primary elevators in Western Canada are affected by interswitching under the current 30 km provisions.


Increasing the interswitch distance to 160 km would give 150 elevators potential access to service by more than one railway, including U.S. railways.

I’m prepared to listen, but it seems to me that in situations in which ‘natural monopoly’ conditions exist – such as railways, telecommunications and pipelines – interswitching should be mandatory, but at premium rates (so that, for instance, somebody who built a network and rented it out in toto could make a very good profit on the deal).

Of course, such mandatory carriage has its detractors:

While economic theory suggests that more competition always benefits the consumer, that may not be true in Canada’s telecom industry, where concentration in the hands of BCE, Rogers and Telus is good for customers, argue authors Martin Masse and Paul Beaudry in a 60-page report released Tuesday.

“It may be preferable for financial resources … to be concentrated in the hands of a few strong players willing to invest in new technologies and services rather than scattered among several small and feeble competitors trying to survive by selling at prices barely above marginal costs,” the report said.
…
The government, it added, has “lost sight of the ultimate goal of promoting the development of a dynamic, efficient industry.”

For example, Ottawa should drop all remaining foreign ownership restrictions, including in broadcasting, as well as allow the transfer of existing wireless spectrum licenses, the authors said. Even the threat that a major foreign player entering Canada would lead to better service, Mr. Masse said.

The government should also “gradually abandon” so-called mandatory access policies, which allow new entrants to piggy-back on the networks of established players at favourable rates.

I’m all in favour of dropping all remaining foreign ownership restrictions!

It was another (slightly!) positive day for the Canadian preferred share market, with PerpetualDiscounts gaining 2bp, FixedResets winning 11bp and DeemedRetractibles up 3bp. The Performance Highlights table is lengthy again, with a few losses indicating that some of the recent gains are considered to be out of whack; FixedResets dominated the winners. Volume was quite high.

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	0.2449 %	2,416.1
FixedFloater	4.59 %	3.82 %	30,666	17.81	1	0.7299 %	3,741.3
Floater	3.02 %	3.17 %	53,500	19.28	4	0.2449 %	2,608.7
OpRet	4.34 %	-2.09 %	33,697	0.15	2	0.0580 %	2,703.6
SplitShare	4.79 %	4.38 %	62,701	4.18	5	-0.0158 %	3,096.2
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0580 %	2,472.2
Perpetual-Premium	5.51 %	-9.60 %	97,017	0.09	15	0.0914 %	2,401.0
Perpetual-Discount	5.29 %	5.34 %	119,890	14.93	21	0.0222 %	2,542.0
FixedReset	4.50 %	3.32 %	210,334	4.14	75	0.1130 %	2,570.0
Deemed-Retractible	4.97 %	-5.69 %	138,328	0.14	42	0.0293 %	2,528.5
FloatingReset	2.67 %	2.30 %	135,928	4.21	6	0.0066 %	2,497.2

Performance Highlights
Issue	Index	Change	Notes
TRP.PR.A	FixedReset	-1.44 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-06 Maturity Price : 23.33 Evaluated at bid price : 24.01 Bid-YTW : 3.72 %
PWF.PR.P	FixedReset	-1.18 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-06 Maturity Price : 23.98 Evaluated at bid price : 24.31 Bid-YTW : 3.43 %
FTS.PR.F	Perpetual-Discount	-1.10 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-06 Maturity Price : 24.01 Evaluated at bid price : 24.31 Bid-YTW : 5.11 %
CU.PR.E	Perpetual-Discount	1.06 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-06 Maturity Price : 24.40 Evaluated at bid price : 24.81 Bid-YTW : 5.00 %
BAM.PR.Z	FixedReset	1.45 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2017-12-31 Maturity Price : 25.00 Evaluated at bid price : 26.64 Bid-YTW : 3.04 %
GWO.PR.N	FixedReset	1.46 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.59 Bid-YTW : 3.75 %
SLF.PR.G	FixedReset	1.54 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.71 Bid-YTW : 3.84 %
BAM.PR.X	FixedReset	1.59 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-06 Maturity Price : 22.04 Evaluated at bid price : 22.42 Bid-YTW : 4.06 %

Volume Highlights
Issue	Index	Shares Traded	Notes
SLF.PR.F	FixedReset	450,280	TD crossed two blocks of 225,000 each, both 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 : 1.04 %
BNS.PR.P	FixedReset	118,819	RBC crossed 113,700 at 25.50. YTW SCENARIO Maturity Type : Call Maturity Date : 2018-04-25 Maturity Price : 25.00 Evaluated at bid price : 25.50 Bid-YTW : 2.84 %
MFC.PR.A	OpRet	111,793	RBC crossed 107,200 at 25.90. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-19 Maturity Price : 25.25 Evaluated at bid price : 25.80 Bid-YTW : -9.22 %
BNS.PR.Z	FixedReset	100,461	Scotia bought 20,100 from RBC at 24.75 and crossed 10,800 at 24.80. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.76 Bid-YTW : 3.32 %
MFC.PR.D	FixedReset	91,954	RBC crossed 78,000 at 25.40. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-19 Maturity Price : 25.00 Evaluated at bid price : 25.41 Bid-YTW : 0.18 %
ENB.PR.B	FixedReset	62,798	TD crossed 50,000 at 25.32. YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-01 Maturity Price : 25.00 Evaluated at bid price : 25.32 Bid-YTW : 3.82 %
There were 50 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
MFC.PR.I	FixedReset	Quote: 26.31 – 26.75 Spot Rate : 0.4400 Average : 0.2482 YTW SCENARIO Maturity Type : Call Maturity Date : 2017-09-19 Maturity Price : 25.00 Evaluated at bid price : 26.31 Bid-YTW : 2.95 %
PWF.PR.G	Perpetual-Premium	Quote: 25.50 – 25.94 Spot Rate : 0.4400 Average : 0.2529 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-05 Maturity Price : 25.00 Evaluated at bid price : 25.50 Bid-YTW : -16.34 %
MFC.PR.J	FixedReset	Quote: 25.98 – 26.43 Spot Rate : 0.4500 Average : 0.2844 YTW SCENARIO Maturity Type : Call Maturity Date : 2018-03-19 Maturity Price : 25.00 Evaluated at bid price : 25.98 Bid-YTW : 3.07 %
IFC.PR.C	FixedReset	Quote: 26.06 – 26.43 Spot Rate : 0.3700 Average : 0.2419 YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-30 Maturity Price : 25.00 Evaluated at bid price : 26.06 Bid-YTW : 2.56 %
TD.PR.Q	Deemed-Retractible	Quote: 26.50 – 26.84 Spot Rate : 0.3400 Average : 0.2316 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-05 Maturity Price : 25.75 Evaluated at bid price : 26.50 Bid-YTW : -26.52 %
RY.PR.A	Deemed-Retractible	Quote: 25.75 – 26.03 Spot Rate : 0.2800 Average : 0.1874 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-23 Maturity Price : 25.25 Evaluated at bid price : 25.75 Bid-YTW : -11.81 %

Interesting cat-fight in CRA-land:

Standard & Poor’s underestimated the risk of mortgage-backed securities it had planned to rate before the deal was postponed, according to competitor Fitch Ratings.

S&P’s preliminary rankings, which were pulled yesterday after the issuer said it would delay the sale, relied on optimistic home values, Fitch said today in a report. S&P said in a statement yesterday it had asked for more information from issuer Bayview Asset Management LLC after releasing the planned grades as the deal started to be marketed.

Based on the property-price estimates of realty brokers instead of the computer models relied on by S&P, Fitch said the loans exceed current home values by more than 45 percent. That would increase projections for defaults by about 20 percent and the size of losses after foreclosures by 30 percent, Fitch said in its statement.

The $184.9 million transaction, called Bayview Opportunity Master Fund IIIa Trust 2014-9RPL, would be the first sale since the financial crisis of publicly rated securities backed by once-delinquent mortgages, according to Fitch. Similar deals without credit grades have been completed as recently as July 2013, GlobalCapital reported April 28 on its website.

Ed Sweeney, a spokesman for S&P, declined to comment. S&P said in a statement yesterday that Bayview sought to delay the sale after the ratings company requested more information about property valuations and loss severities.

Supply and demand? Schmupply and Schmemand! The best way to lower long term interest rates is to change the rules:

In a world awash with U.S. government bonds, buyers of the longest-term Treasuries are facing a potential shortage of supply.

Excluding those held by the Federal Reserve, Treasuries due in 10 years or more account for just 5 percent of the $12.1 trillion market for U.S. debt. New rules designed to plug shortfalls at pension funds may now triple their purchases of longer-dated Treasuries, creating $300 billion in extra demand over the next two years that would equal almost half the $642 billion outstanding, Bank of Nova Scotia estimates.

Fewer available bonds, along with a lack of inflation and increased foreign buying, help to explain why longer-term Treasuries are surging this year even as the Fed pares its own bond purchases. The demand has pushed down yields on 30-year government debt by more than a half-percentage point to 3.37 percent, the most since 2000, data compiled by Bloomberg show.
…
Pensions that closed deficits are pouring into Treasuries and exiting stocks to reduce volatility after a provision in the Budget Act of 2013 raised the amount underfunded plans are required to pay in insurance premiums over the next two years. It also imposed stiffer fees on those with shortfalls.

In the next 12 months alone, buying from private pensions will create $150 billion in demand for longer-maturity Treasuries, based on Bank of Nova Scotia’s estimates. That compares with the $40 billion in all maturities of U.S. government debt that the plans bought last year.

There’s a little good news out of CMHC:

The Canada Mortgage and Housing Agency said on Monday that it expects the amount of insurance in force to continue to decline in 2014 to $545-billion, down 2.2 per cent from $557-billion in 2013 and 3.9 per cent from a high of $567-billion in 2011, at the height of the post-recession housing expansion.
…
CMHC senior vice-president Steven Mennill said the decline was part of a normal repayment pattern and comes as the agency trims the value of new insurance it is prepared to write on the mortgages Canada’s lenders – mostly the nation’s biggest banks – offer to home buyers trying to get into the booming market.

“One of the factors that is important in this is we have reduced the total amount of portfolio insurance that we are prepared to underwrite in any given year – the insurance provided to lenders on a post-facto basis for portfolio, low-ratio loans – from $11-billion to $9-billion, in 2014,” Mennill told reporters on a conference call.

It’s not much of a cut, but it’s a start.

One of the great tensions in regulation right now is the role of underwriters in IPOs. Are they there so they can get a good deal for their beloved clients? Or are they just thinking – When then ducks quack, feed them?:

Wall Street is in business to make money; when investors want to buy something (such as an initial public offering), that something is offered for sale. It doesn’t make any difference if Wall Street knows in its heart of hearts that that something (such as an IPO) is overpriced.

“When the ducks quack, feed them” is a Wall Street proverb cited in print from at least 1991. The adage became especially popular with internet IPOs in the 1990s.

I hadn’t heard that one before, but the principle should be obvious – but, of course, some don’t get it.

Along those lines, Barry Richoltz of Bloomberg argues for a Treasury Fifty:

4. The U.S. now funds long-term obligations with shorter-term financing. If we learned anything during the credit crisis, this is a recipe for disaster. Bringing the length of financing into closer alignment with our obligations simply is good financial stewardship.

5. The private sector is showing the way: Fixed-income investors have been lining up to purchase 30-year bonds from Bank of America, Apple, IBM, General Electric, Wal-Mart, Novartis, Pemex and others. Financial firms such as Morgan Stanley and JPMorgan Chase have been issuing perpetual notes with a fixed rate for 10 years, which then become Libor-plus bonds.

I’m pleased to see that a milestone has been reached on solar-powered fuel production:

Several notable research organizations from academia through to industry (ETH Zürich, Bauhaus Luftfahrt, Deutsches Zentrum für Luft- und Raumfahrt (DLR), ARTTIC and Shell Global Solutions) have explored a thermochemical pathway driven by concentrated solar energy. A new solar reactor technology has been pioneered to produce liquid hydrocarbon fuels suitable for more sustainable transportation.

“Increasing environmental and supply security issues are leading the aviation sector to seek alternative fuels which can be used interchangeably with today’s jet fuel, so-called drop-in solutions”, states Dr. Andreas Sizmann, the project coordinator at Bauhaus Luftfahrt. “With this first-ever proof-of-concept for ‘solar’ kerosene, the SOLAR-JET project has made a major step towards truly sustainable fuels with virtually unlimited feedstocks in the future.

The SOLAR-JET project demonstrated an innovative process technology using concentrated sunlight to convert carbon dioxide and water to a so-called synthesis gas (syngas). This is accomplished by means of a redox cycle with metal-oxide based materials at high temperatures. The syngas, a mixture of hydrogen and carbon monoxide, is finally converted into kerosene by using commercial Fischer-Tropsch technology.

I’m a bit surprised that it’s thermochemical / catalytic instead of bio-engineering / enzymatic, but hey – a step forward is a step forward!

Atlantic Power Preferred Equity preferreds (AZP.PR.A and AZP.PR.B) have had a little zip in them since Friday noon, due to a report that they have hired advisors:

• Atlantic Power (AT) spiked to a 9.5% gain this afternoon after SparkSpread reported the power producer has hired advisers to explore a potential merger or sale.
• Atlantic Power reportedly tapped Goldman Sachs and Greenhill to help it consider whether a sale or merger makes sense and can be negotiated.

Today the company commented:

Atlantic Power Corporation (TSX: ATP; NYSE: AT) (the “Company” or “Atlantic Power”) owns and operates a diverse fleet of power generation assets in the United States and Canada. As previously disclosed, the Company continues to focus on how to best position itself to maximize value for its shareholders. In that framework, the Company is considering the relative merits of additional debt reduction, investment in accretive growth opportunities (both internal and external), and other allocation of its available cash. Consistent with the objective of acting in the best interests of the Company, its shareholders and its other stakeholders, the Company, as also previously disclosed, is committed to evaluating a broad range of potential options. These potential options include further selected asset sales or joint ventures to raise additional capital for growth or potential debt reduction, the acquisition of assets, including in exchange for shares, the dividend level, as well as broader strategic options, including a sale or merger of the Company. The Company has engaged Goldman, Sachs & Co. and Greenhill & Co., LLC to assist the Company in its evaluation of these potential options. No assurance can be given as to how the evaluation of any such potential options may evolve. The Company does not intend to comment further on its evaluation of potential options until it otherwise deems further disclosure is appropriate or required.

Well … any of these potential options will almost certainly improve the credit quality of the preferreds, currently rated Pfd-5(high), Trend Negative by DBRS.

Innergex Renewable Energy Inc., pwoud issuer of INE.PR.A and INE.PR.C, has been confirmed at Pfd-4(high) [Stable] by DBRS:

Innergex’s financial risk profile remains weak and is reflective of a B rating range. While Innergex’s EBITDA and operating cash flow continued to increase due to sustained organic growth, DBRS remains concerned about Innergex’s aggressive financing strategy for its development pipeline, combined with the Company’s high dividend payout. As the Company continued to pursue its growth plans, the Company’s deconsolidated leverage increased to 30.5% as of December 31, 2013, from 24.5% as of December 31, 2010. Furthermore, consolidated leverage increased to 68.3% as of December 31, 2013 (from 56.7% as of December 31, 2010), and could exceed 70% over the next several years, further pressuring the balance sheet. Should the Company’s financial profile deteriorate further, this could result in negative rating action.

It was a superb day (again! But they were a long time coming!) for the Canadian preferred share market, with PerpetualDiscounts winning 35bp, FixedResets gaining 13bp and DeemedRetractibles up 30bp. A lengthy list of winners – dominated, strangely enough, by FixedResets – was marred by only one loser. 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	0.2745 %	2,410.2
FixedFloater	4.62 %	3.86 %	30,458	17.75	1	-0.0972 %	3,714.2
Floater	3.03 %	3.17 %	53,215	19.27	4	0.2745 %	2,602.3
OpRet	4.35 %	-2.30 %	33,359	0.16	2	0.0773 %	2,702.0
SplitShare	4.79 %	4.38 %	63,496	4.19	5	-0.0396 %	3,096.7
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0773 %	2,470.7
Perpetual-Premium	5.52 %	-6.83 %	98,240	0.09	15	0.1726 %	2,398.8
Perpetual-Discount	5.29 %	5.29 %	119,463	14.93	21	0.3483 %	2,541.5
FixedReset	4.50 %	3.39 %	212,676	4.14	75	0.1275 %	2,567.1
Deemed-Retractible	4.97 %	-3.83 %	139,024	0.14	42	0.3048 %	2,527.7
FloatingReset	2.67 %	2.31 %	193,812	4.07	6	0.0857 %	2,497.0

Performance Highlights
Issue	Index	Change	Notes
SLF.PR.H	FixedReset	-1.46 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.60 Bid-YTW : 3.03 %
PWF.PR.A	Floater	1.03 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-05 Maturity Price : 19.70 Evaluated at bid price : 19.70 Bid-YTW : 2.66 %
TRP.PR.A	FixedReset	1.04 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-05 Maturity Price : 23.73 Evaluated at bid price : 24.36 Bid-YTW : 3.67 %
SLF.PR.B	Deemed-Retractible	1.05 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.95 Bid-YTW : 5.41 %
BAM.PR.T	FixedReset	1.08 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-05 Maturity Price : 23.49 Evaluated at bid price : 25.29 Bid-YTW : 3.90 %
POW.PR.B	Perpetual-Discount	1.10 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-05 Maturity Price : 24.64 Evaluated at bid price : 24.89 Bid-YTW : 5.42 %
BMO.PR.M	FixedReset	1.14 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2018-08-25 Maturity Price : 25.00 Evaluated at bid price : 25.80 Bid-YTW : 2.57 %
MFC.PR.C	Deemed-Retractible	1.15 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.83 Bid-YTW : 5.69 %
CU.PR.D	Perpetual-Discount	1.19 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-05 Maturity Price : 24.29 Evaluated at bid price : 24.70 Bid-YTW : 5.02 %
ENB.PR.Y	FixedReset	1.27 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-05 Maturity Price : 23.08 Evaluated at bid price : 24.81 Bid-YTW : 3.98 %
GWO.PR.P	Deemed-Retractible	1.30 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2020-03-31 Maturity Price : 25.25 Evaluated at bid price : 25.70 Bid-YTW : 5.12 %
GWO.PR.N	FixedReset	1.31 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.25 Bid-YTW : 3.91 %
W.PR.J	Perpetual-Discount	1.33 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-04 Maturity Price : 25.00 Evaluated at bid price : 25.17 Bid-YTW : 1.05 %
SLF.PR.A	Deemed-Retractible	1.49 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.80 Bid-YTW : 5.43 %
FTS.PR.H	FixedReset	1.61 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-05 Maturity Price : 21.66 Evaluated at bid price : 22.08 Bid-YTW : 3.59 %
MFC.PR.F	FixedReset	1.70 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.95 Bid-YTW : 3.85 %
TRP.PR.C	FixedReset	1.80 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-05 Maturity Price : 22.82 Evaluated at bid price : 23.20 Bid-YTW : 3.52 %

Volume Highlights
Issue	Index	Shares Traded	Notes
FTS.PR.H	FixedReset	116,368	RBC bought three blocks form ITG Canada Corp (who?); two of 10,000 each and one of 13,700, all at 22.00; then crossed 50,000 at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-05 Maturity Price : 21.66 Evaluated at bid price : 22.08 Bid-YTW : 3.59 %
BMO.PR.S	FixedReset	100,001	Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-05-25 Maturity Price : 25.00 Evaluated at bid price : 25.67 Bid-YTW : 3.46 %
BNS.PR.Z	FixedReset	73,857	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.71 Bid-YTW : 3.35 %
POW.PR.D	Perpetual-Discount	62,285	Scotia crossed blocks of 24,000 and 30,000, both at 23.80. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-05 Maturity Price : 23.50 Evaluated at bid price : 23.80 Bid-YTW : 5.29 %
BMO.PR.R	FloatingReset	59,454	Nesbitt crossed 53,000 at 25.12. YTW SCENARIO Maturity Type : Call Maturity Date : 2018-08-25 Maturity Price : 25.00 Evaluated at bid price : 25.12 Bid-YTW : 2.30 %
SLF.PR.I	FixedReset	53,105	RBC crossed 50,000 at 26.35. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-12-31 Maturity Price : 25.00 Evaluated at bid price : 26.32 Bid-YTW : 2.35 %
There were 32 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
TD.PR.Y	FixedReset	Quote: 25.54 – 25.95 Spot Rate : 0.4100 Average : 0.2355 YTW SCENARIO Maturity Type : Call Maturity Date : 2018-10-31 Maturity Price : 25.00 Evaluated at bid price : 25.54 Bid-YTW : 3.07 %
TRP.PR.B	FixedReset	Quote: 21.00 – 21.30 Spot Rate : 0.3000 Average : 0.1871 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-05 Maturity Price : 21.00 Evaluated at bid price : 21.00 Bid-YTW : 3.58 %
CU.PR.C	FixedReset	Quote: 26.22 – 26.69 Spot Rate : 0.4700 Average : 0.3905 YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-01 Maturity Price : 25.00 Evaluated at bid price : 26.22 Bid-YTW : 2.59 %
BAM.PR.X	FixedReset	Quote: 22.07 – 22.31 Spot Rate : 0.2400 Average : 0.1712 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-05 Maturity Price : 21.79 Evaluated at bid price : 22.07 Bid-YTW : 4.14 %
BNA.PR.C	SplitShare	Quote: 25.15 – 25.32 Spot Rate : 0.1700 Average : 0.1069 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2019-01-10 Maturity Price : 25.00 Evaluated at bid price : 25.15 Bid-YTW : 4.40 %
SLF.PR.H	FixedReset	Quote: 25.60 – 25.77 Spot Rate : 0.1700 Average : 0.1081 YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.60 Bid-YTW : 3.03 %

The build up of corporate cash since the Credit Crunch has a nice side-effect:

Rather than get the euros or pounds they need through currency markets, there’s speculation U.S. companies including General Electric Co. may be dipping into offshore cash piles they’ve built up to mitigate tax liabilities.

“Before the market gets excited that mega takeovers from the U.S. could lift the euro and pound, it’s worth recognizing that U.S. companies are sitting on truly huge cash piles abroad,” Steven Barrow, the head of Group of 10 research at Standard Bank Plc in London, wrote in an April 29 note to clients. “That does change the way we have to look at these takeovers from a currency perspective.”

The New York Times produced an excellent graphic regarding relative price changes over the past decade; regrettably but understandably they’ve made it a PNG which doesn’t reproduce well on this blog. Anyway, the point is that the cost of College tuition and fees has soared relative to everything else. I last complained about the universities’ mission-creep on March 6, 2014.

It was another excellent day for the Canadian preferred share market, with PerpetualDiscounts up 19bp, FixedResets winning 26bp and DeemedRetractibles gaining 15bp. Volatility was high, with a lengthy list of winners dominated by FixedResets. 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	0.8597 %	2,403.6
FixedFloater	4.62 %	3.85 %	30,409	17.77	1	0.1461 %	3,717.8
Floater	3.03 %	3.18 %	52,833	19.28	4	0.8597 %	2,595.2
OpRet	4.35 %	-7.00 %	33,369	0.08	2	-0.0387 %	2,699.9
SplitShare	4.79 %	4.33 %	63,718	4.20	5	0.0872 %	3,097.9
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0387 %	2,468.8
Perpetual-Premium	5.53 %	-5.42 %	99,692	0.08	15	0.0654 %	2,394.6
Perpetual-Discount	5.31 %	5.35 %	120,128	14.90	21	0.1907 %	2,532.7
FixedReset	4.51 %	3.38 %	208,500	4.15	75	0.2562 %	2,563.8
Deemed-Retractible	4.98 %	-4.25 %	143,597	0.14	42	0.1483 %	2,520.1
FloatingReset	2.68 %	2.30 %	143,689	4.22	6	0.0132 %	2,494.9

Performance Highlights
Issue	Index	Change	Notes
FTS.PR.H	FixedReset	-1.05 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-02 Maturity Price : 21.41 Evaluated at bid price : 21.73 Bid-YTW : 3.70 %
CU.PR.C	FixedReset	1.04 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-01 Maturity Price : 25.00 Evaluated at bid price : 26.21 Bid-YTW : 2.60 %
GWO.PR.N	FixedReset	1.06 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.95 Bid-YTW : 4.09 %
SLF.PR.I	FixedReset	1.07 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2016-12-31 Maturity Price : 25.00 Evaluated at bid price : 26.48 Bid-YTW : 2.10 %
MFC.PR.F	FixedReset	1.07 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.55 Bid-YTW : 4.08 %
SLF.PR.G	FixedReset	1.09 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.25 Bid-YTW : 4.10 %
SLF.PR.H	FixedReset	1.09 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.98 Bid-YTW : 2.37 %
HSE.PR.A	FixedReset	1.09 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-02 Maturity Price : 22.81 Evaluated at bid price : 23.16 Bid-YTW : 3.80 %
GWO.PR.I	Deemed-Retractible	1.16 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.70 Bid-YTW : 5.74 %
PWF.PR.A	Floater	1.51 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-02 Maturity Price : 19.50 Evaluated at bid price : 19.50 Bid-YTW : 2.68 %
PWF.PR.P	FixedReset	2.88 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-02 Maturity Price : 23.52 Evaluated at bid price : 24.65 Bid-YTW : 3.35 %

Volume Highlights
Issue	Index	Shares Traded	Notes
MFC.PR.D	FixedReset	78,218	CIBC bought four blocks from RBC: 12,200 shares, 11,100 shares, 11,400 and 10,600, all at 25.42. CIBC also bought 24,900 from TD at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-19 Maturity Price : 25.00 Evaluated at bid price : 25.36 Bid-YTW : 1.67 %
SLF.PR.I	FixedReset	69,146	Desjardins crossed blocks of 43,000 and 10,000, both at 26.30. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-12-31 Maturity Price : 25.00 Evaluated at bid price : 26.48 Bid-YTW : 2.10 %
RY.PR.Z	FixedReset	66,690	RBC crossed blocks of 24,900 and 30,000, both at 25.75. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-05-24 Maturity Price : 25.00 Evaluated at bid price : 25.76 Bid-YTW : 3.30 %
POW.PR.D	Perpetual-Discount	56,895	Scotia crossed 54,000 at 23.80. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-02 Maturity Price : 23.46 Evaluated at bid price : 23.76 Bid-YTW : 5.29 %
BAM.PR.P	FixedReset	52,170	Scotia crossed 50,000 at 25.65. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.65 Bid-YTW : 2.13 %
BNS.PR.Z	FixedReset	44,950	RBC crossed 25,000 at 24.75. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.70 Bid-YTW : 3.38 %
There were 31 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
PWF.PR.H	Perpetual-Premium	Quote: 25.50 – 26.01 Spot Rate : 0.5100 Average : 0.2999 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-01 Maturity Price : 25.00 Evaluated at bid price : 25.50 Bid-YTW : -17.21 %
CU.PR.C	FixedReset	Quote: 26.21 – 26.70 Spot Rate : 0.4900 Average : 0.3034 YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-01 Maturity Price : 25.00 Evaluated at bid price : 26.21 Bid-YTW : 2.60 %
VNR.PR.A	FixedReset	Quote: 25.74 – 26.10 Spot Rate : 0.3600 Average : 0.2122 YTW SCENARIO Maturity Type : Call Maturity Date : 2017-10-15 Maturity Price : 25.00 Evaluated at bid price : 25.74 Bid-YTW : 3.51 %
BAM.PR.T	FixedReset	Quote: 25.02 – 25.35 Spot Rate : 0.3300 Average : 0.1933 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-02 Maturity Price : 23.40 Evaluated at bid price : 25.02 Bid-YTW : 3.99 %
TRP.PR.C	FixedReset	Quote: 22.79 – 23.25 Spot Rate : 0.4600 Average : 0.3282 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-02 Maturity Price : 22.44 Evaluated at bid price : 22.79 Bid-YTW : 3.62 %
ENB.PR.Y	FixedReset	Quote: 24.50 – 24.85 Spot Rate : 0.3500 Average : 0.2188 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-02 Maturity Price : 22.96 Evaluated at bid price : 24.50 Bid-YTW : 4.08 %

In honour of May Day, Ontario has a pre-election budget:

Opinion research suggests there are far more swing voters on the Liberals’ left than on their right. So the government’s agenda, which includes a 2014-15 deficit, significantly higher than the one previously forecast, all but abandons hope of appealing to moderate fiscal conservatives. Instead, it is mostly about competing with the NDP.

According to KPMG:

The budget proposes to lower the taxable income threshold for the 13.16% tax rate from $514,090 to $220,000. The budget also adds a new tax rate of 12.16% on taxable income between $150,000 and $220,000. These changes would apply to taxation years ending after December 31, 2013. The new income thresholds would not be adjusted for inflation each year.

Therefore, they estimate:

… whence we can calculate …

So fear not, preferred share fans! Business as usual.

KPMG continues:

The budget proposes a mandatory new provincial pension plan based on the Canada Pension Plan (CPP). The Ontario Retirement Pension Plan (ORPP), which would be introduced in 2017, is intended to provide additional retirement income. The ORPP would be publically administered at arm’s length from the Ontario government.

The plan would require equal contributions shared between employers and employees (not exceeding 1.9% each, or 3.8% in total) up to a maximum annual earnings threshold of $90,000. The threshold would increase each year, consistent with the CPP maximum earnings threshold. Benefits would be earned as contributions are made.

Enrolment into the ORPP would occur in stages, starting with large employers, with contribution rates phased-in over two years. Individuals that already participate in a similar workplace pension plan would not be required to enroll in the ORPP.
…
The budget proposes to introduce a new asset pooling entity to enable pooling pension plan assets in the public sector. The entity would operate at arm’s length from the government. Legislation is expected in spring 2015.
…
The government also said it intends to address the following pension issues:
• Target benefit pension plans
• Regulation of financial planning
• Changes to the funding rules.

Pooling pension plan assets is a well-intentioned dumb idea (see, for example, March 22, 2013). But there will be some nice jobs going for a few lucky arse-suckers; no performance necessary. However, I think auditions for the CEO role at ORPP have already been held, as discussed on October 16, 2013.

Janet McFarland of the Globe points out:

Unlike the CPP, the ORPP will not cover all workers in the province, the government said.

Instead, it will cover about half of Ontario’s 6 million-person work force, excluding the self-employed, all workers whose companies already offer workplace pension plans, and Ontarians working in federally regulated sectors like banking, transportation and telecommunications. The latter group cannot be included because the province does not have jurisdiction over pensions for workers in federal sectors, while the government is excluding those with existing workplace pension plans because it says the program is aimed at those who most need help saving for retirement.

KPMG continues with the revelation that farmers will be getting yet another government cheque:

The budget announces that Ontario will draft legislation to implement a non-refundable income tax credit for farmers who donate food to community food programs, including food banks for donations beginning January 1, 2014.

And there are the usual favourite targets:

The budget proposes to increase tobacco tax from 12.350 cents to 13.975 cents per cigarette (i.e., from $24.70 to $27.95 per carton of 200 cigarettes) and per gram of tobacco products (other than cigarettes or cigars). This measure would be effective 12:01am on May 2, 2014. As a result, wholesalers of tobacco tax are required to take an inventory of all tobacco products (except cigars) held at the end of May 1, 2014 and remit additional tax on this inventory.
…
The budget proposes to raise the tax on aviation fuel to 3.7 cents per litre (from 2.7 cents per litre) for 2014, with an additional tax increase of one cent per year until 2018. This measure is effective on Royal Assent, with subsequent rate increases effective on April 1 of 2015, 2016 and 2017.

The NYSE’s getting fined for not ticking sufficient boxes:

As SROs, the NYSE exchanges are required to conduct their operations in accordance and compliance with their own rules as well as the federal securities laws. They are required to file all proposed rules and rule changes with the Commission, which publishes them for public comment, before they take effect. This transparency enables all participants trading on the exchanges to understand how their orders are processed and executed.

According to the SEC’s order instituting settled administrative proceedings, the NYSE exchanges repeatedly engaged in business practices that either violated exchange rules or required a rule when the exchanges had none in effect. For example, all of the NYSE exchanges used an error account maintained at Archipelago Securities to trade out of securities positions taken on as a result of their operations despite not having rules in effect that permitted them to maintain and use such an account. In another example, NYSE Arca failed to execute a certain type of limit order under specified market conditions despite having a rule in effect that stated that NYSE Arca would execute such orders.
…
The SEC’s order finds that the NYSE exchanges violated Section 19(b) and 19(g) of the Securities Exchange Act of 1934 through misconduct that included the following:

NYSE, NYSE Arca, and NYSE MKT (formerly NYSE Amex) used an error account maintained at Archipelago Securities to assume and trade out of securities positions without a rule in effect that permitted such trading and in a manner inconsistent with their rules for the routing broker, which limited Archipelago Securities’ activity primarily to outbound and inbound routing of orders on behalf of those exchanges.

NYSE provided co-location services to customers on disparate contractual terms without an exchange rule in effect that permitted and governed the provision of such services on a fair and equitable basis.
NYSE operated a block trading facility (New York Block Exchange) that for a period of time did not function in accordance with the rules submitted by NYSE and approved by the SEC.
NYSE distributed an automated feed of closing order imbalance information to its floor brokers at an earlier time than was specified in NYSE’s rules.

NYSE Arca failed to execute Mid-Point Passive Liquidity Orders (MPLOs) in locked markets (where the bid and ask prices are the same) contrary to its exchange rule in effect at the time.

In addition, the SEC’s order finds that NYSE Arca accepted MPLOs in sub-penny amounts for National Market System stocks trading at over $1.00 per share, in violation of Rule 612(a) of Regulation NMS.

The SEC’s order further finds that Archipelago Securities failed to establish and maintain policies reasonably designed to prevent the misuse of material, nonpublic information in connection with error account trading.

Wow – that’s enough to make you faint, huh? I love that last one, it’s classic: Archipelago didn’t actually do anything wrong, they just failed to write down that they wouldn’t do anything wrong.

I was intrigued by an advertisement for a discussion at Rotman on OSFI … until I saw the speakers list:

Stanley Hartt, Counsel, Norton Rose Fulbright; former Deputy Minister of Finance Canada
Hon. Michael Wilson, former Minister of Finance of Canada; Chairman, Barclays Capital Canada Inc.; Chancellor, University of Toronto
Hon. Barbara McDougall, former Minister of State (Finance) of Canada

Smiley boys. Not a single practitioner. Not even a big-bank zombie who will toe the line nicely. Have a nice time.

Manulife’s 14Q1 Quarterly Report casts broad hints that MFC.PR.D will be redeemed:

If the Company redeems, subject to regulatory approval, $450 million of preferred shares which will become redeemable at par in June, we would expect a further 3 point decline in the MCCSR ratio.

Mind you, a redemption of MFC.PR.D (FixedReset, 6.60%+456) will not actually surprise anybody.

In common with the Ontario government, the Canadian preferred share market celebrated May Day with a very nice pop; PerpetualDiscounts winning 50bp, FixedResets gaining 22bp and DeemedRetractibles up 23bp. Volatility was suitably present, with Floating Rate issues getting hit (gee, I guess the yanking of government policy rates has been postponed again). 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	-0.8667 %	2,383.1
FixedFloater	4.63 %	3.86 %	30,731	17.76	1	-0.2913 %	3,712.4
Floater	3.06 %	3.20 %	50,589	19.22	4	-0.8667 %	2,573.1
OpRet	4.35 %	-7.65 %	33,842	0.09	2	0.0774 %	2,701.0
SplitShare	4.79 %	4.41 %	64,508	4.20	5	-0.0475 %	3,095.2
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0774 %	2,469.8
Perpetual-Premium	5.53 %	-6.05 %	100,223	0.08	15	0.0367 %	2,393.1
Perpetual-Discount	5.32 %	5.38 %	116,194	14.86	21	0.4975 %	2,527.8
FixedReset	4.52 %	3.43 %	210,691	4.15	75	0.2171 %	2,557.2
Deemed-Retractible	4.99 %	-4.45 %	144,871	0.15	42	0.2335 %	2,516.3
FloatingReset	2.68 %	2.29 %	135,783	4.22	6	0.0396 %	2,494.6

Performance Highlights
Issue	Index	Change	Notes
BAM.PR.B	Floater	-1.67 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-01 Maturity Price : 16.47 Evaluated at bid price : 16.47 Bid-YTW : 3.21 %
BAM.PR.K	Floater	-1.14 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-01 Maturity Price : 16.43 Evaluated at bid price : 16.43 Bid-YTW : 3.22 %
CU.PR.D	Perpetual-Discount	1.08 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-01 Maturity Price : 23.96 Evaluated at bid price : 24.35 Bid-YTW : 5.09 %
POW.PR.D	Perpetual-Discount	1.11 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-01 Maturity Price : 23.42 Evaluated at bid price : 23.72 Bid-YTW : 5.30 %
ENB.PR.B	FixedReset	1.16 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-01 Maturity Price : 25.00 Evaluated at bid price : 25.24 Bid-YTW : 3.92 %
TRP.PR.B	FixedReset	1.49 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-01 Maturity Price : 21.16 Evaluated at bid price : 21.16 Bid-YTW : 3.60 %
PWF.PR.L	Perpetual-Discount	1.57 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-01 Maturity Price : 24.25 Evaluated at bid price : 24.55 Bid-YTW : 5.21 %

Volume Highlights
Issue	Index	Shares Traded	Notes
BNS.PR.Q	FixedReset	113,795	TD crossed blocks of 50,000 and 60,000, both at 25.55. YTW SCENARIO Maturity Type : Call Maturity Date : 2018-10-25 Maturity Price : 25.00 Evaluated at bid price : 25.52 Bid-YTW : 3.13 %
RY.PR.L	FixedReset	100,175	TD crossed blocks of 50,000 and 30,000, both at 26.55. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-02-24 Maturity Price : 25.00 Evaluated at bid price : 26.52 Bid-YTW : 2.85 %
TD.PR.K	FixedReset	75,783	TD crossed 62,900 at 25.33. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.29 Bid-YTW : 1.67 %
TD.PR.O	Deemed-Retractible	74,091	TD crossed 60,600 at 25.76. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-31 Maturity Price : 25.25 Evaluated at bid price : 25.65 Bid-YTW : -13.69 %
GWO.PR.F	Deemed-Retractible	63,688	TD crossed 60,000 at 25.45. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-31 Maturity Price : 25.00 Evaluated at bid price : 25.42 Bid-YTW : -8.36 %
BAM.PF.E	FixedReset	56,905	Scotia crossed 35,000 at 25.10. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-01 Maturity Price : 23.14 Evaluated at bid price : 25.10 Bid-YTW : 4.19 %
There were 41 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
GWO.PR.I	Deemed-Retractible	Quote: 22.44 – 22.99 Spot Rate : 0.5500 Average : 0.3403 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.44 Bid-YTW : 5.88 %
CU.PR.F	Perpetual-Discount	Quote: 22.40 – 22.86 Spot Rate : 0.4600 Average : 0.2808 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-01 Maturity Price : 22.10 Evaluated at bid price : 22.40 Bid-YTW : 5.09 %
HSB.PR.C	Deemed-Retractible	Quote: 25.29 – 25.59 Spot Rate : 0.3000 Average : 0.1812 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-30 Maturity Price : 25.00 Evaluated at bid price : 25.29 Bid-YTW : 0.58 %
TD.PR.R	Deemed-Retractible	Quote: 26.63 – 26.98 Spot Rate : 0.3500 Average : 0.2381 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-31 Maturity Price : 25.75 Evaluated at bid price : 26.63 Bid-YTW : -32.37 %
POW.PR.B	Perpetual-Discount	Quote: 24.64 – 24.96 Spot Rate : 0.3200 Average : 0.2130 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-01 Maturity Price : 24.33 Evaluated at bid price : 24.64 Bid-YTW : 5.46 %
PWF.PR.E	Perpetual-Premium	Quote: 25.20 – 25.50 Spot Rate : 0.3000 Average : 0.2152 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-31 Maturity Price : 25.00 Evaluated at bid price : 25.20 Bid-YTW : -3.99 %