PrefBlog

The Swedes are serious about bank regulation:

Sweden will start publishing banks’ individual capital requirements in a step designed to reveal risks investors have so far been unable to measure based on reported buffers.

The Swedish Financial Supervisory Authority is planning to follow its Danish counterpart and disclose so-called Pillar 2 requirements as Scandinavia leads Europe in stepping up efforts to improve transparency. In Denmark, which like Sweden has a bank industry whose assets are four times gross domestic product, lenders can be shut down by the regulator if reserves drop below individual requirements.
…
Sweden already requires its biggest banks to meet some of the world’s most rigorous capital standards, ranging from 14 percent for Nordea Bank AB (NDA) to 19 percent for Swedbank AB. In May, the FSA said banks should hold a 1 percent counter-cyclical buffer after household debt burdens swelled to a record.

BIS explains pillar 2 requirements:

There are three main areas that might be particularly suited to treatment under Pillar 2: risks considered under Pillar 1 that are not fully captured by the Pillar 1 process (e.g. the proposed operational risk charge in Pillar 1 may not adequately cover all the specific risks of any given institution); those factors not taken into account by the Pillar 1 process (e.g. interest rate risk); and factors external to the bank (e.g. business cycle effects).

Authoritarian governments world-wide are clamping down on housing bubbles:

Singapore and Hong Kong, as a special administrative region of China, have governments with policy-making power over their entire geographic areas, where they are relatively free of political opposition from neighborhood groups or borough councils that stymie directives or mitigate their effectiveness. The Asian cities control the land supply and are the biggest landlords.

That allows them to implement decisive policy measures. For example, in January 2013, the Monetary Authority of Singapore, effectively the central bank and chief regulator, cut the mortgage ratio allowable on purchases of second homes while more than doubling minimum down payments from 10 percent to 25 percent. The banks had no choice but to follow.
…
Hong Kong and Singapore haven’t shied away from using taxes to discriminate against foreign buyers — something other locales with surging prices have yet to do. Non-permanent residents in both cities are subject to an additional 15 percent tax when they buy property, except in Singapore where Americans are exempted by treaty.
…
The U.K. government has tried some measures. After it increased the stamp duty to 7 percent on high-value properties in March 2012, price increases for homes valued from 5 million pounds to 10 million pounds ($8.5 million to $17 million) slowed from 9.7 percent to 5.8 percent in the subsequent year, according to broker Knight Frank LLP.

Bank of England Governor Mark Carney announced another set of measures last month, citing concerns over household indebtedness and the threat of a property bubble. They limit mortgages to less than 4.5 times a borrowers’ annual income and require banks to refuse loans to those failing to prove they could afford a 3 percentage-point rise in interest rates.

But France wins the prize:

French President Francois Hollande’s government may have made a housing slump worse, pushing the construction market to its lowest in more than 15 years.

Housing starts fell 19 percent in the second quarter from a year earlier, and permits — a gauge of future construction — dropped 13 percent, the French Housing Ministry said yesterday.

The rout stems from a law this year that seeks to make housing more affordable by capping rents in expensive neighborhoods. To protect home buyers, the law also boosted the number of documents that must be provided by sellers, leading to a decline in home sales and longer transaction times.

Meanwhile, the Bank of England is cracking down on the rule of law:

Miscreant bankers face having their bonuses clawed back for up to seven years after their award under measures set out on Wednesday by the Bank of England, as it tightens its regulatory clampdown on wrongdoing in the financial sector.
…
Lawyers say enforcing clawbacks is untested in the UK courts if a banker refuses to pay up, and there are also questions over what happens to tax paid on a recovered bonus. But some senior figures in the sector support the idea.
…
The Bank and the fellow regulator the Financial Conduct Authority (FCA) also proposed in a new consultation that senior managers face clawbacks of up to 10 years if they are being investigated.

“These proposals are tougher than the industry would have liked, but there was a general resignation that they would be implemented whatever the costs and technical difficulties and however far it puts the UK outside international norms,” said Nicholas Stretch of law firm CMS.

Great, huh? Now the regulators can decide after the fact whether or not something was reckless and impose a fine of whatever they like. Untrammelled by parliament or those old fogeys in the courts! Hurrah!

…and there’s more!

Bank regulators have just given the top people in U.K. corporate life another reason to avoid job offers from domestic banks.
…
Requiring bankers to have annual “MOT”-style tests of their fit and proper status, and bringing in a new, tougher “senior manager regime” sounds good for accountability, post-Libor, and chief executives are used to longer deferral periods for their pay.

But incomers will hesitate about being held responsible, perhaps even criminally, for malpractice somewhere in their hugely complex universal bank.

Moreover, some of the BoE proposals are actively disconcerting. Banning so-called buyout clauses – compensation of new employees for deferred income lost by leaving their old jobs – would prevent some of the more outlandish recent payments made to bank bosses. But they also incentivise candidates to stay put.

Also, the ability to demand repayment of awards already paid will almost certainly make UK banks less inviting places to work, even though the minimum period in which bonuses can be clawed back has been cut by two years to seven years.

Today’s FOMC statement is moderately positive:

The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases.
…
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation.
…
When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.
…
Voting against was Charles I. Plosser who objected to the guidance indicating that it likely will be appropriate to maintain the current target range for the federal funds rate for “a considerable time after the asset purchase program ends,” because such language is time dependent and does not reflect the considerable economic progress that has been made toward the Committee’s goals.

Jeff Kearns of Bloomberg notes:

Since meeting in mid-June, the committee has come closer to achieving its goals for stable prices and full employment. Employers added 288,000 jobs last month, helping push down unemployment to 6.1 percent, the lowest in almost six years.

Today’s Commerce Department report showed gross domestic product expanded at a 4 percent annual pace in the second quarter, confirming the Fed’s view that a first-quarter contraction was transitory.
…
Yellen told lawmakers this month that while her view of the economy has turned “more positive,” she’s concerned about signs of job-market “slack” such as low participation in the labor force.

“We need to be careful to make sure that the economy is on a solid trajectory before we consider raising interest rates,” she said in her semi-annual testimony. “There are mixed signals.”

Among them: average hourly earnings fell or were stagnant in the past four months, after adjusting for inflation.

Simon Kennedy of Bloomberg reports on an interesting difference between UK and US mortgage debt:

While investors bet the U.K. central bank will raise its benchmark interest rate as soon as the end of this year, with its U.S. counterpart following six months later, economists at London-based Fathom Consulting aren’t so sure.
…
While the International Monetary Fund has called the U.K. the fastest-growing rich economy this year, Fathom says the U.S. household sector may be better placed than that of the U.K. to stomach higher interest rates. No one expects Yellen’s Fed to act on interest rates when policy makers meet today.

A key measure of how vulnerable households are to increased rates is their exposure to variable-rate home loans, known as adjustable rate mortgages or ARMs in the U.S.

In the U.S., the share of mortgage applications based on such loans has declined to fewer than 20 percent from about 50 percent before the financial crisis, according to Fathom’s July 28 report.
…
By contrast, about 70 percent of outstanding British mortgages are at a variable rate, meaning the BOE will try to keep increases to a minimum, they said.

After all that we need some comic relief, so let’s mock an unsigned article that came to my attention today:

s we have discussed previously, the Portfolio Turnover Ratio (PTR) for any given mutual or exchange-traded fund is a quick and easy tool to use when you’re trying to figure out which is the better investment for your savings. A fund’s PTR gives you a way to judge how much activity and risk the professional money managers are taking on to generate their investment returns.
…
As you can clearly see from the PTRs listed above, and despite the same investment objectives and risk profiles, each fund’s manager has a completely different trading strategy! The PTRs for TD points to a serious disconnect between their managers’ actual trading strategy and their fund’s stated investment objective and risk profile, whereas the PTRs for the RBC managers fits aptly with their stated investment objective and risk profile.

OK, so maybe you bought the TD fund in 2008 and still hold it today thinking that you were staying true to your conservative buy and hold investment strategy. But unfortunately someone forgot to tell the fund’s investment managers at TD what kind of investor you are because, unbeknownst to you, they bought and sold every investment in the fund more than 14 times! Yes, that’s right! On average, they’ve traded your savings over and over again 2.82 times every year since 2008, which appears to be in contrast to the fund’s stated investment objective and risk profile!
…
Some of you may want to argue with me that your investment in the TD fund did fine in terms of your over-all rate of returns, and for some investors that’s all that matters – how much did I make? Some investors don’t care about the risks they have to take to get results, and in good markets even risky investments go up in value. But ignoring an investment’s risks can be dangerous when markets are not so good. These particular mutual funds are a good case in point. Look at the difference in losses between these two funds in the 2009 downturn in market: the TD Canadian Equity fund lost 46% in the 12 months ending February 2009 compared to a 23% decline for RBC Canadian Equity Fund. So, what we can learn from this particular case study is that when you take the time to study a fund’s PTR to make more informed investment choices, taking into account good and bad market cycles, you’ll come out the real winner.

Equating portfolio turnover to risk, without examining what those trades actually were, implying that TD’s underperformance in the twelve month’s ending February, 2009, was due to portfolio turnover, and completely ignoring benchmarks is the height of ignorance. According to one source (I can’t be bothered to look it up):

•By comparison, the Toronto Stock Exchange lost money almost 30% of the time. The worst 1 year return was -38% (ending February 2009).

This leads to a suspicion that the RBC fund got very lucky on its market timing, while TD underperformed by what would be a gigantic amount in normal times, but is somewhat less surprising considering the time period. But, of course, it’s only a suspicion. Only a complete idiot would draw any conclusions at all based solely on these numbers; but properly supported investment conclusions – even when it’s only a question of categorization – require a bit of work.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 2bp, FixedResets off 11bp and DeemedRetractibles gaining 1bp. Volatility was minimal, but Assiduous Reader thom4kat will be gratified to see the table includes GWO.PR.N! The issue had 25 trades timestamped after 3:05pm, nothing very big, but it looks like they just kept chip-chip-chipping away at the bid and wore it out. It made the Wide Spreads Table, too, which tells you that … um … it made the Wide Spreads Table. Volume was average.

PerpetualDiscounts now yield 5.16%, equivalent to 6.71% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.2%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 250bp, a significant widening from the 240bp reported July 23.

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	3.07 %	3.04 %	20,209	19.59	1	0.9080 %	2,596.9
FixedFloater	4.17 %	3.40 %	28,121	18.63	1	0.0000 %	4,163.9
Floater	2.87 %	2.96 %	45,044	19.82	4	-0.6121 %	2,759.4
OpRet	4.01 %	-4.29 %	75,401	0.08	1	-0.0391 %	2,724.3
SplitShare	4.25 %	3.78 %	54,003	3.99	6	0.0730 %	3,123.4
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0391 %	2,491.1
Perpetual-Premium	5.52 %	-6.83 %	81,677	0.08	17	0.0346 %	2,432.3
Perpetual-Discount	5.23 %	5.16 %	104,392	15.22	20	0.0192 %	2,583.0
FixedReset	4.40 %	3.61 %	195,245	8.58	78	-0.1087 %	2,556.5
Deemed-Retractible	4.98 %	-2.11 %	117,265	0.09	42	0.0094 %	2,556.4
FloatingReset	2.68 %	2.15 %	87,250	3.86	6	0.1247 %	2,515.3

Performance Highlights
Issue	Index	Change	Notes
GWO.PR.N	FixedReset	-1.55 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.02 Bid-YTW : 4.95 %
BAM.PR.Z	FixedReset	-1.04 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2017-12-31 Maturity Price : 25.00 Evaluated at bid price : 25.80 Bid-YTW : 3.94 %

Volume Highlights
Issue	Index	Shares Traded	Notes
BMO.PR.W	FixedReset	1,311,855	New issue settled today. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-30 Maturity Price : 23.13 Evaluated at bid price : 24.96 Bid-YTW : 3.61 %
BAM.PF.F	FixedReset	181,250	Nesbitt crossed 176,000 at 25.41. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-30 Maturity Price : 23.28 Evaluated at bid price : 25.41 Bid-YTW : 4.23 %
ENB.PF.E	FixedReset	141,973	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-30 Maturity Price : 23.11 Evaluated at bid price : 24.99 Bid-YTW : 4.12 %
ENB.PR.N	FixedReset	125,515	Scotia crossed two blocks of 25,000 each and one of 50,000, all at 24.87. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-30 Maturity Price : 23.15 Evaluated at bid price : 24.82 Bid-YTW : 4.07 %
TRP.PR.D	FixedReset	100,717	RBC crossed 34,500 at 25.24; Nesbitt crossed 38,400 at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-30 Maturity Price : 23.22 Evaluated at bid price : 25.13 Bid-YTW : 3.75 %
ENB.PF.C	FixedReset	93,510	Scotia crossed two blocks of 25,000 each, both at 25.10 and bought 14,400 from Instinet at 25.11. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-30 Maturity Price : 23.16 Evaluated at bid price : 25.10 Bid-YTW : 4.12 %
There were 35 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
CIU.PR.A	Perpetual-Discount	Quote: 22.91 – 23.91 Spot Rate : 1.0000 Average : 0.6580 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-30 Maturity Price : 22.63 Evaluated at bid price : 22.91 Bid-YTW : 5.09 %
GWO.PR.N	FixedReset	Quote: 21.02 – 21.37 Spot Rate : 0.3500 Average : 0.2400 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.02 Bid-YTW : 4.95 %
TRP.PR.A	FixedReset	Quote: 23.26 – 23.50 Spot Rate : 0.2400 Average : 0.1540 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-30 Maturity Price : 22.40 Evaluated at bid price : 23.26 Bid-YTW : 3.66 %
IAG.PR.F	Deemed-Retractible	Quote: 26.14 – 26.49 Spot Rate : 0.3500 Average : 0.2673 YTW SCENARIO Maturity Type : Call Maturity Date : 2018-03-31 Maturity Price : 25.25 Evaluated at bid price : 26.14 Bid-YTW : 4.96 %
ELF.PR.F	Perpetual-Discount	Quote: 24.10 – 24.38 Spot Rate : 0.2800 Average : 0.2025 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-30 Maturity Price : 23.85 Evaluated at bid price : 24.10 Bid-YTW : 5.53 %
MFC.PR.F	FixedReset	Quote: 23.01 – 23.74 Spot Rate : 0.7300 Average : 0.6545 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.01 Bid-YTW : 4.16 %

A silly publication titled Virtuous Banking: Placing ethos and purpose at the heart of finance has just hit the streets with a thud:

While it cannot plausibly be argued that a systematically stable system is not to be desired, the current approach focuses far too much on this and ignores the crucial root cause of the banking crisis: a calamity that has its origins in the profligate and irresponsible actions of a significant number of bankers and banking institutions, urged on by a banking culture that was at its core fundamentally self-serving. There was on the part of organisations and people,a systemic disregard for the regulatory system, a belief that the pursuit of individual advantage would act for the advantage of all. The banking sector had, in short, lost its ethos. Instead of a culture that prioritised its own self-interest, it should look towards the fulfilment of a broader common good and its wider social purpose.
…
Given the failure of rule following ethics as evinced by the crash and multiple scandals, bankers evidently and most obviously need to be of good character. Bankers need to know the good, do the good and be good.
…
In short, if we want to place ethos and virtue firmly at the heart of banking, policy makers will need to ensure that there are suitable internal checks on banking institutions through better governance, and that there are adequate external checks on banking behaviour through improved competition and diversity. The ten recommendations below outline how such a programme for reform could be pursed in the next parliament, regardless of which political party assumes power.

1. Define and enshrine an overarching purpose for banking: A criticism often levelled at the banks is that they either perform no clear social purpose or, if they do, this is often not reflected in the actions of bankers.
…
2. Co-design codes of conduct to place customers at the heart of standards:
…
3. Require all bankers to swear the Bankers’ Oath::
…
4. Toughen shareholder fiduciary duties to promote activism:
…
5. Encourage the banks to compete on customer satisfaction:
…
6. Reclassify small businesses as consumers:
…
7. Launch a competition to kick-start the online advice market:
…
8. Conduct an immediate review into the diversity of UK banking:
…
9. Localise the British Business Bank through [Local Enterprise Partnerships]:
…
10. Utilise public funds to boost the digital finance market: …. we recommend that the Department for Business, Innovation and Skills conduct a review to determine the viability of utilising local government funds to increase lending to small businesses and social enterprises through digital lending platforms.

How sweet. Wency Leung in the Globe quoted one instant rejoinder:

A proposed version of the bankers’ oath reads: “I will remember that I remain a member of society, with special obligations to the financial security and wellbeing of my customers, their families and the communities they reside in.”
…
“People pledge allegiance to flags and all sorts of things, but it may or may not affect their behaviour,” says Gini Graham Scott, a Lafayette, Calif.-based consultant specializing in business and work relationships, and author of The Truth About Lying: Why and How We All Do It and What to Do About It.

For some, she says, an oath may simply represent a token formality that doesn’t really have much meaning. And people tend to lie more often in cultures that emphasize competition and monetary, materialistic values, Scott says.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 1bp, FixedResets gaining 7bp and DeemedRetractibles up 9bp. Volatility was minimal. Volume was below average.

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	3.10 %	3.07 %	19,873	19.53	1	-0.5221 %	2,573.5
FixedFloater	4.17 %	3.40 %	28,388	18.63	1	0.0000 %	4,163.9
Floater	2.86 %	2.95 %	45,308	19.84	4	0.0272 %	2,776.4
OpRet	4.01 %	-4.88 %	75,705	0.08	1	0.1961 %	2,725.4
SplitShare	4.25 %	3.86 %	53,422	4.00	6	0.0266 %	3,121.1
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.1961 %	2,492.1
Perpetual-Premium	5.52 %	-3.89 %	81,919	0.09	17	0.0254 %	2,431.4
Perpetual-Discount	5.23 %	5.14 %	104,401	15.21	20	-0.0149 %	2,582.5
FixedReset	4.40 %	3.60 %	193,525	6.75	77	0.0691 %	2,559.3
Deemed-Retractible	4.98 %	0.08 %	117,715	0.09	43	0.0879 %	2,556.1
FloatingReset	2.68 %	2.20 %	88,137	3.84	6	0.0329 %	2,512.2

Performance Highlights
Issue	Index	Change	Notes
MFC.PR.F	FixedReset	-1.59 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.92 Bid-YTW : 4.20 %
CIU.PR.C	FixedReset	1.57 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-29 Maturity Price : 21.60 Evaluated at bid price : 22.00 Bid-YTW : 3.33 %

Volume Highlights
Issue	Index	Shares Traded	Notes
RY.PR.X	FixedReset	184,620	Called for redemption August 25. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-09-23 Maturity Price : 25.00 Evaluated at bid price : 24.97 Bid-YTW : 4.17 %
RY.PR.H	FixedReset	139,810	Nesbitt crossed 117,600 at 25.20. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-29 Maturity Price : 23.22 Evaluated at bid price : 25.20 Bid-YTW : 3.60 %
CM.PR.O	FixedReset	85,920	Nesbitt crossed 40,000 at 25.60; TD sold 10,000 to anonymous at 25.59. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.58 Bid-YTW : 3.53 %
CM.PR.M	FixedReset	73,300	Called for redemption July 31. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.98 Bid-YTW : 5.86 %
ENB.PF.E	FixedReset	73,000	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-29 Maturity Price : 23.11 Evaluated at bid price : 24.98 Bid-YTW : 4.12 %
PWF.PR.I	Perpetual-Premium	69,235	TD crossed 60,000 at 25.40. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-28 Maturity Price : 25.00 Evaluated at bid price : 25.37 Bid-YTW : -11.93 %
There were 25 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
MFC.PR.F	FixedReset	Quote: 22.92 – 23.67 Spot Rate : 0.7500 Average : 0.5718 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.92 Bid-YTW : 4.20 %
CIU.PR.A	Perpetual-Discount	Quote: 22.90 – 23.34 Spot Rate : 0.4400 Average : 0.2829 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-29 Maturity Price : 22.62 Evaluated at bid price : 22.90 Bid-YTW : 5.09 %
HSE.PR.A	FixedReset	Quote: 23.07 – 23.44 Spot Rate : 0.3700 Average : 0.2538 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-29 Maturity Price : 22.69 Evaluated at bid price : 23.07 Bid-YTW : 3.60 %
FTS.PR.F	Perpetual-Discount	Quote: 24.52 – 24.77 Spot Rate : 0.2500 Average : 0.1941 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-29 Maturity Price : 24.04 Evaluated at bid price : 24.52 Bid-YTW : 5.05 %
MFC.PR.I	FixedReset	Quote: 26.10 – 26.25 Spot Rate : 0.1500 Average : 0.0992 YTW SCENARIO Maturity Type : Call Maturity Date : 2017-09-19 Maturity Price : 25.00 Evaluated at bid price : 26.10 Bid-YTW : 3.10 %
SLF.PR.H	FixedReset	Quote: 25.41 – 25.64 Spot Rate : 0.2300 Average : 0.1800 YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.41 Bid-YTW : 3.27 %

A story on regulatory secrecy alerted me to the fact that Joe Oliver is no more honest than his predecessor:

When Finance Minister Joe Oliver went to Europe in June, he boasted about how the country’s financial system has been ranked the world’s soundest by the World Economic Forum for six years running.

The links supporting this assertion are from the Ministry of Finance, 2014-6-23:

For the sixth year in a row, the World Economic Forum rated Canada’s banking system as the world’s soundest.

and from the Ministry of Finance, 2013-9-5:

“I am very pleased to see that the World Economic Forum has ranked Canada’s banking system as the soundest in the world for the sixth consecutive year,” said Minister Flaherty.

These liars rely on the fact that nobody actually reads the World Economic Forum’s Global Competitiveness Report. The full report for 2013-14 makes no bones about its methodology:

The World Economic Forum’s Executive Opinion Survey
remains the largest poll of its kind, capturing the insight of more than 13,000 executives into critical drivers of their respective countries’ development. This scale could not be achieved without the tremendous efforts of the Forum’s network of over 160 Partner Institutes in carrying out the Survey at a national level. It gathers valuable information on a broad range of variables for which data sources are scarce or nonexistent. For this reason, and for the integrity of our publication and related research, sampling and comparability across the globe remain an essential and ongoing endeavor of The Global Competitiveness and Benchmarking Network.

It’s a poll – as I have pointed out before. Responses by Canadian interviewees regarding Canada are compared to responses from interviewees from other countries about those countries. In Canada, the poll is administered by The Conference Board of Canada, an organization I consider to be little more than a joke, but that’s beside the point. The point is, it’s a poll. There is no straight-up comparison of Canada’s financial system’s strength vs. the strength of any other country’s financial system. It’s a measure of confidence only, and the blind led the blind into the abyss, trumpeted by sleaze-bag politicians and abetted by shoddy journalism.

However, the Globe and Mail article does illuminate the current government’s desire to politicize everything:

The argument against Mr. Jenkins’s and Mr. Thiessen’s recommendation is a philosophical one: in a democracy, major decisions should be made by elected representatives. “I believe in elected people,” the late Jim Flaherty, Canada’s finance minister during the financial crisis, told me when I asked him in October 2013 whether he thought Canada needed a more rigorous regulatory regime. “I don’t think bureaucrats, and God love them, should run the world.”

DBRS commented on RONA, proud issuer of RON.PR.A:

Going forward, DBRS believes that stabilization of RONA’s earnings profile will remain challenging in the near term, particularly as the Company will continue to face intense competition in an uncertain demand and housing market, highlighted by significant regional disparity. RONA’s typically high inventory balance and working capital position at the end of Q1 traditionally unwinds through the course of the year. DBRS believes that despite the recent decline in balance sheet debt, RONA’s credit risk profile will remain pressured until it displays sustainable growth in organic operating income and cash flow. DBRS will continue to monitor the Company’s operating performance through the disproportionately significant spring and summer periods (Q2 and Q3 F2014), which should provide a greater indication of the impact of RONA’s restructuring and repositioning efforts, key to whether the rating will stabilize in the current BB (high) rating category. Should RONA achieve stabilization of same-store sales and operating income, as well as a modest improvement in key credit metrics through the end of Q3 F2014, the rating outlook could stabilize. However, should RONA’s credit risk profile continue to display deterioration in same-store sales, operating income and key credit metrics through the end of Q3 F2014 (i.e., lease-adjusted debt-to-EBITDAR over 4.0x and lease-adjusted EBITDA coverage below 4.5x), a further downgrade to BB and Pfd-4 could result.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 6bp, FixedResets gaining 7bp and DeemedRetractibles off 4bp. Volatility was minimal. Volume was low.

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	3.07 %	3.06 %	19,709	19.52	1	0.0820 %	2,587.0
FixedFloater	4.17 %	3.40 %	28,470	18.63	1	-0.0876 %	4,163.9
Floater	2.86 %	2.94 %	45,991	19.87	4	0.2592 %	2,775.6
OpRet	4.02 %	-2.68 %	78,392	0.08	1	-0.0784 %	2,720.0
SplitShare	4.25 %	3.92 %	52,168	4.00	6	-0.0110 %	3,120.3
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0784 %	2,487.2
Perpetual-Premium	5.52 %	-2.81 %	81,732	0.09	17	-0.0785 %	2,430.8
Perpetual-Discount	5.23 %	5.07 %	108,433	15.23	20	-0.0638 %	2,582.9
FixedReset	4.40 %	3.62 %	194,808	8.58	77	0.0749 %	2,557.5
Deemed-Retractible	4.98 %	-0.37 %	119,542	0.09	43	-0.0352 %	2,553.9
FloatingReset	2.68 %	2.21 %	91,772	3.84	6	-0.1053 %	2,511.3

Performance Highlights
Issue	Index	Change	Notes
CIU.PR.C	FixedReset	-2.65 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-28 Maturity Price : 21.35 Evaluated at bid price : 21.66 Bid-YTW : 3.40 %
BAM.PR.B	Floater	1.08 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-28 Maturity Price : 17.74 Evaluated at bid price : 17.74 Bid-YTW : 2.98 %
RY.PR.L	FixedReset	1.29 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2019-02-24 Maturity Price : 25.00 Evaluated at bid price : 26.66 Bid-YTW : 2.65 %

Volume Highlights
Issue	Index	Shares Traded	Notes
ENB.PR.F	FixedReset	48,764	Nesbitt crossed 41,000 at 24.75. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-28 Maturity Price : 23.14 Evaluated at bid price : 24.66 Bid-YTW : 4.00 %
ENB.PF.E	FixedReset	46,500	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-28 Maturity Price : 23.11 Evaluated at bid price : 24.98 Bid-YTW : 4.12 %
BNS.PR.Q	FixedReset	43,351	TD crossed 34,800 at 25.80. YTW SCENARIO Maturity Type : Call Maturity Date : 2018-10-25 Maturity Price : 25.00 Evaluated at bid price : 25.48 Bid-YTW : 3.13 %
BAM.PF.F	FixedReset	31,450	National bought 10,000 from Nesbitt at 25.48. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-28 Maturity Price : 23.28 Evaluated at bid price : 25.41 Bid-YTW : 4.23 %
FTS.PR.G	FixedReset	23,825	TD crossed 15,600 at 24.97. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-28 Maturity Price : 23.21 Evaluated at bid price : 24.92 Bid-YTW : 3.60 %
MFC.PR.E	FixedReset	23,400	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-09-19 Maturity Price : 25.00 Evaluated at bid price : 25.32 Bid-YTW : 0.89 %
There were 18 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
CIU.PR.C	FixedReset	Quote: 21.66 – 22.98 Spot Rate : 1.3200 Average : 0.9812 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-28 Maturity Price : 21.35 Evaluated at bid price : 21.66 Bid-YTW : 3.40 %
RY.PR.C	Deemed-Retractible	Quote: 25.53 – 25.86 Spot Rate : 0.3300 Average : 0.2039 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-27 Maturity Price : 25.50 Evaluated at bid price : 25.53 Bid-YTW : -0.98 %
W.PR.H	Perpetual-Premium	Quote: 25.09 – 25.42 Spot Rate : 0.3300 Average : 0.2179 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-27 Maturity Price : 25.00 Evaluated at bid price : 25.09 Bid-YTW : 3.51 %
GWO.PR.F	Deemed-Retractible	Quote: 25.56 – 26.00 Spot Rate : 0.4400 Average : 0.3551 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-27 Maturity Price : 25.00 Evaluated at bid price : 25.56 Bid-YTW : -15.02 %
MFC.PR.F	FixedReset	Quote: 23.29 – 23.75 Spot Rate : 0.4600 Average : 0.3764 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.29 Bid-YTW : 4.02 %
ENB.PR.A	Perpetual-Premium	Quote: 25.35 – 25.55 Spot Rate : 0.2000 Average : 0.1244 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-27 Maturity Price : 25.00 Evaluated at bid price : 25.35 Bid-YTW : -1.08 %

Algonquin Power & Utilities Corporation, proud issuer of AQN.PR.A and AQN.PR.D, was confirmed at Pfd-3(low) today by DBRS:

APUC’s non-consolidated key financial metrics are in line with the current rating profile. Non-consolidated debt-to-capital has remained minimal (0% as of March 31, 2014) and APUC intends to maintain debt at the HoldCo level well below the 20% threshold. In addition, APUC’s financial profile is also supported by the small size of preferred dividends relative to the cash flow available to the HoldCo. For the year ended December 31, 2013, preferred dividends totalled $5.4 million, while estimated cash flow available to service these dividends totalled approximately $105 million, allowing the remaining cash to service common dividends and partially fund capital expenditure needs.

It was a mixed day for the Canadian preferred share market today, with PerpetualDiscounts off 1bp, FixedResets down 7bp and DeemedRetractibles gaining 5bp. Volatility was low, with two of the three issues mentioned being high-volatility Floaters. Volume was very low.

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	3.07 %	3.06 %	19,563	19.52	1	0.4115 %	2,584.9
FixedFloater	4.16 %	3.40 %	28,148	18.65	1	0.0438 %	4,167.5
Floater	2.86 %	2.96 %	46,347	19.84	4	-0.2992 %	2,768.5
OpRet	4.02 %	-4.01 %	79,133	0.08	1	0.1177 %	2,722.2
SplitShare	4.25 %	3.85 %	50,019	4.01	6	-0.0347 %	3,120.6
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.1177 %	2,489.1
Perpetual-Premium	5.52 %	-5.09 %	82,653	0.09	17	0.0300 %	2,432.7
Perpetual-Discount	5.23 %	5.08 %	105,690	15.24	20	-0.0149 %	2,584.5
FixedReset	4.40 %	3.59 %	195,658	8.59	77	-0.0712 %	2,555.6
Deemed-Retractible	4.98 %	-1.40 %	121,058	0.09	43	0.0546 %	2,554.8
FloatingReset	2.66 %	2.16 %	93,176	3.85	6	-0.1904 %	2,514.0

Performance Highlights
Issue	Index	Change	Notes
BAM.PR.B	Floater	-1.52 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-25 Maturity Price : 17.55 Evaluated at bid price : 17.55 Bid-YTW : 3.01 %
PWF.PR.P	FixedReset	-1.11 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-25 Maturity Price : 22.71 Evaluated at bid price : 23.12 Bid-YTW : 3.40 %
PWF.PR.A	Floater	1.20 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-25 Maturity Price : 20.30 Evaluated at bid price : 20.30 Bid-YTW : 2.58 %

Volume Highlights
Issue	Index	Shares Traded	Notes
GWO.PR.N	FixedReset	103,249	Scotia crossed 40,000 at 21.40; Desjardins crossed 56,200 at the same price. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.35 Bid-YTW : 4.75 %
GWO.PR.P	Deemed-Retractible	77,290	TD crossed blocks of 30,000 and 45,000, both at 25.80. YTW SCENARIO Maturity Type : Call Maturity Date : 2020-03-31 Maturity Price : 25.25 Evaluated at bid price : 25.70 Bid-YTW : 5.09 %
POW.PR.G	Perpetual-Premium	76,100	TD crossed blocks of 30,000 and 45,000, both at 25.72. YTW SCENARIO Maturity Type : Call Maturity Date : 2021-04-15 Maturity Price : 25.00 Evaluated at bid price : 25.76 Bid-YTW : 5.12 %
TD.PF.A	FixedReset	72,500	TD crossed 50,000 at 25.28. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-25 Maturity Price : 23.23 Evaluated at bid price : 25.28 Bid-YTW : 3.61 %
SLF.PR.A	Deemed-Retractible	54,125	Desjardins crossed 49,200 at 24.20. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.15 Bid-YTW : 5.24 %
BNS.PR.P	FixedReset	52,100	TD crossed 50,000 at 25.50. YTW SCENARIO Maturity Type : Call Maturity Date : 2018-04-25 Maturity Price : 25.00 Evaluated at bid price : 25.45 Bid-YTW : 2.83 %
There were 16 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
TD.PR.P	Deemed-Retractible	Quote: 26.08 – 26.55 Spot Rate : 0.4700 Average : 0.2743 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-24 Maturity Price : 25.75 Evaluated at bid price : 26.08 Bid-YTW : -11.11 %
GWO.PR.F	Deemed-Retractible	Quote: 25.75 – 26.20 Spot Rate : 0.4500 Average : 0.2620 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-24 Maturity Price : 25.00 Evaluated at bid price : 25.75 Bid-YTW : -23.69 %
IAG.PR.F	Deemed-Retractible	Quote: 26.05 – 26.49 Spot Rate : 0.4400 Average : 0.2755 YTW SCENARIO Maturity Type : Call Maturity Date : 2018-03-31 Maturity Price : 25.25 Evaluated at bid price : 26.05 Bid-YTW : 5.05 %
BAM.PR.K	Floater	Quote: 17.60 – 18.00 Spot Rate : 0.4000 Average : 0.2599 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-25 Maturity Price : 17.60 Evaluated at bid price : 17.60 Bid-YTW : 3.00 %
BAM.PR.B	Floater	Quote: 17.55 – 17.95 Spot Rate : 0.4000 Average : 0.2697 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-25 Maturity Price : 17.55 Evaluated at bid price : 17.55 Bid-YTW : 3.01 %
PWF.PR.P	FixedReset	Quote: 23.12 – 23.45 Spot Rate : 0.3300 Average : 0.2080 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-25 Maturity Price : 22.71 Evaluated at bid price : 23.12 Bid-YTW : 3.40 %

A paper by Nicholas Labelle, Varya Taylor titled Removal of the Unwinding Provisions in the Automated Clearing Settlement System: A Risk Assessment is interesting:

A default in the Automated Clearing Settlement System (ACSS) occurs when a Direct Clearer is unable to settle its final obligation. In August 2012, the Canadian Payments Association amended the ACSS by-law and rules to repeal the unwinding provisions from the ACSS default framework. Without unwinding, payment items are no longer returned by the defaulter to the other participants as a means of reducing the defaulter’s final obligation. Instead, the other Direct Clearers (survivors) pay only additional settlement obligations to cover the defaulter’s shortfall. To assess the potential exposures of an ACSS default without unwinding, we use simulations to estimate the value of additional settlement obligations for each survivor and compare these exposures to their capital and liquid assets. Results indicate that these exposures are indeed manageable by survivors and, therefore, that the ACSS does not pose systemic risk.

The global economy still looks lousy:

Today’s report from the IMF highlights, in particular, the struggles of the euro zone and the still-uneven recovery in the United States after a brutal winter, as well as the troubles in emerging markets.

In the update to its earlier world economic outlook, released in Mexico City, the IMF now forecasts that Canada’s economy will grow by 2.2 per cent this year, down marginally from its April forecast of 2.3 per cent. It held its 2015 outlook for Canada steady at 2.4 per cent.

Despite the trim, Canada’s economy will be outpaced this year among the G7 nations only by Britain, at 3.2 per cent. Next year, according to the forecast both Britain and the United States will outstrip Canada, at 2.7 per cent and 3 per cent, respectively.

The IMF forecast puts the spotlight on the euro zone, where Germany’s economy is projected to grow by 1.9 per cent this and 1.7 per cent in 2015, France by 0.7 per cent and 1.4 per cent, and Italy, by 0.3 per cent and 1.1 per cent.

Japan will also lag, at 1.6 per cent and 1.1 per cent.

Well, it looks like we have a winner for Quote of the Day!

Yes, that’s right, BAM.PR.G is quoted at 22.81-500.00, 1×9. Timestamped details are not yet available from the Toronto Stock Exchange, so it’s not clear whether this is due to a moronic market-maker, or to the TMX’s moronic practice of reporting the ‘last’ quote rather than the closing quote. I have followed my usual practice in such cases and reset the ask price used by HIMIPref™ to $1 above the bid.

Update: I’ve checked it out, buying all ‘Trades and Quotes’ between 3:55pm and 4:00pm. The only entry in the file is a quote timestamped 15:59:45, 22.81-500.00, 1×1. So what we have here, people, is a lackadaisical market-maker

It was a modestly negative day for the Canadian preferred share market, with PerpetualDiscounts flat, FixedResets down 8bp and DeemedRetractibles off 3bp. Volatility was negligible. 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	3.09 %	3.07 %	19,802	19.49	1	-0.4098 %	2,574.3
FixedFloater	4.16 %	3.40 %	29,083	18.65	1	0.4846 %	4,165.7
Floater	2.86 %	2.95 %	46,302	19.85	4	-0.3118 %	2,776.8
OpRet	4.02 %	-2.74 %	79,535	0.08	1	-0.5462 %	2,719.0
SplitShare	4.25 %	3.86 %	52,079	4.01	6	0.0398 %	3,121.7
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.5462 %	2,486.2
Perpetual-Premium	5.52 %	-5.27 %	82,840	0.09	17	0.0878 %	2,432.0
Perpetual-Discount	5.23 %	5.09 %	109,492	15.24	20	0.0000 %	2,584.9
FixedReset	4.40 %	3.59 %	199,507	8.60	77	-0.0843 %	2,557.4
Deemed-Retractible	4.98 %	0.08 %	122,672	0.09	43	-0.0333 %	2,553.4
FloatingReset	2.66 %	2.13 %	94,093	3.82	6	-0.0787 %	2,518.8

Performance Highlights
Issue	Index	Change	Notes
BAM.PF.A	FixedReset	-1.08 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2018-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.53 Bid-YTW : 4.04 %
BMO.PR.S	FixedReset	-1.01 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-24 Maturity Price : 23.30 Evaluated at bid price : 25.41 Bid-YTW : 3.70 %

Volume Highlights
Issue	Index	Shares Traded	Notes
GWO.PR.Q	Deemed-Retractible	303,100	Scotia crossed 298,800 at 24.95. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.95 Bid-YTW : 5.25 %
RY.PR.H	FixedReset	268,050	Nesbitt crossed 153,100 and two blocks of 50,000 each, all at 25.26. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-24 Maturity Price : 23.22 Evaluated at bid price : 25.20 Bid-YTW : 3.59 %
ELF.PR.H	Perpetual-Discount	202,900	Nesbitt crossed 200,000 at 24.85. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-24 Maturity Price : 24.38 Evaluated at bid price : 24.81 Bid-YTW : 5.56 %
GWO.PR.P	Deemed-Retractible	199,660	TD crossed blocks of 75,000 shares, 35,000 and 85,000, all at 25.80. YTW SCENARIO Maturity Type : Call Maturity Date : 2020-03-31 Maturity Price : 25.25 Evaluated at bid price : 25.80 Bid-YTW : 5.01 %
BAM.PF.F	FixedReset	136,300	Nesbitt crossed 125,000 at 25.45. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-24 Maturity Price : 23.29 Evaluated at bid price : 25.45 Bid-YTW : 4.21 %
GWO.PR.S	Deemed-Retractible	90,600	RBC crossed 84,700 at 25.60. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.56 Bid-YTW : 5.12 %
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.C	Deemed-Retractible	Quote: 22.89 – 23.30 Spot Rate : 0.4100 Average : 0.2493 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.89 Bid-YTW : 5.66 %
BAM.PR.G	FixedFloater	Quote: 22.81 – 23.81 Spot Rate : 1.0000 Average : 0.8542 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-24 Maturity Price : 22.86 Evaluated at bid price : 22.81 Bid-YTW : 3.40 %
IAG.PR.A	Deemed-Retractible	Quote: 23.20 – 23.68 Spot Rate : 0.4800 Average : 0.3518 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.20 Bid-YTW : 5.58 %
BNS.PR.B	FloatingReset	Quote: 25.37 – 25.62 Spot Rate : 0.2500 Average : 0.1463 YTW SCENARIO Maturity Type : Call Maturity Date : 2018-10-25 Maturity Price : 25.00 Evaluated at bid price : 25.37 Bid-YTW : 2.13 %
VNR.PR.A	FixedReset	Quote: 25.33 – 25.68 Spot Rate : 0.3500 Average : 0.2571 YTW SCENARIO Maturity Type : Call Maturity Date : 2017-10-15 Maturity Price : 25.00 Evaluated at bid price : 25.33 Bid-YTW : 3.97 %
MFC.PR.B	Deemed-Retractible	Quote: 23.40 – 23.70 Spot Rate : 0.3000 Average : 0.2073 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.40 Bid-YTW : 5.55 %

The SEC has announced:

The Securities and Exchange Commission today adopted amendments to the rules that govern money market mutual funds.
…
The new rules require a floating net asset value (NAV) for institutional prime money market funds, which allows the daily share prices of these funds to fluctuate along with changes in the market-based value of fund assets and provide non-government money market fund boards new tools – liquidity fees and redemption gates – to address runs.
…
With a floating NAV, institutional prime money market funds (including institutional municipal money market funds) are required to value their portfolio securities using market-based factors and sell and redeem shares based on a floating NAV. These funds no longer will be allowed to use the special pricing and valuation conventions that currently permit them to maintain a constant share price of $1.00. With liquidity fees and redemption gates, money market fund boards have the ability to impose fees and gates during periods of stress. The final rules also include enhanced diversification, disclosure and stress testing requirements, as well as updated reporting by money market funds and private funds that operate like money market funds.
…

• Liquidity Fees – Under the rules, if a money market fund’s level of “weekly liquid assets” falls below 30 percent of its total assets (the regulatory minimum), the money market fund’s board would be allowed to impose a liquidity fee of up to two percent on all redemptions. Such a fee could be imposed only if the money market fund’s board of directors determines that such a fee is in the best interests of the fund. If a money market fund’s level of weekly liquid assets falls below 10 percent, the money market fund would be required to impose a liquidity fee of one percent on all redemptions. However, such a fee would not be imposed if the fund’s board of directors determines that such a fee is not in the best interests of the fund or that a lower or higher (up to two percent) liquidity fee is in the best interests of the fund. Weekly liquid assets generally include cash, U.S. Treasury securities, certain other government securities with remaining maturities of 60 days or less, and securities that convert into cash within one week.
• Redemption Gates – Under the rules, if a money market fund’s level of weekly liquid assets falls below 30 percent, a money market fund’s board could in its discretion temporarily suspend redemptions (gate). To impose a gate, the board of directors would find that imposing a gate is in the money market fund’s best interests. A money market fund that imposes a gate would be required to lift that gate within 10 business days, although the board of directors could determine to lift the gate earlier. Money market funds would not be able to impose a gate for more than 10 business days in any 90-day period.

SEC Chair Mary Jo White’s statement inadvertently explains why these measures won’t work:

During the last financial crisis, institutional prime money market funds experienced an unprecedented run when the Reserve Primary Fund “broke the buck” and declared it would no longer redeem investors’ shares dollar-for-dollar. In one week, investors pulled approximately $300 billion from prime money market funds, or 14 percent of the assets in those funds. This phenomenon, together with other events in the fall of 2008, caused the short-term financing markets to dry up, severely limiting the ability of companies to borrow funds, manage cash, and continue fueling the American economy. As part of a program of extraordinary support across the financial system, a temporary guarantee program was provided through Treasury to stop the run on institutional prime funds, and the Federal Reserve established liquidity facilities.

OK, so you’ve got a tense situation and suddenly BANG! A blue-chip company defaults leading to a run on the entire industry. But this run is actually worse than was experienced before, because not only are corporate treasurers worried about whether or not there will be default in the fund(s) that they own, but they will also be worried that the run itself will trigger redemption gates and fees on their fund – and you don’t put your corporate cash assets in MMFs so that you can pay fees and be subject to gates.

Ms. White counters this with the party line:

While many strongly favor this reform, others have expressed a concern that it could do harm by potentially triggering destructive “pre-emptive” runs. This concern is important, but addressing it need not — and should not — mean foregoing an important reform. What we have done in response to this concern is to make significant modifications to the original proposal that, while preserving the fundamental utility of fees and gates, mitigate the pre-emptive run risk and dampen the effects if they were to occur.

• The recommendation, among other measures, increases the thresholds for imposing a fee or gate to a higher level of remaining liquid assets. A money market fund that imposes a fee or gate with substantial remaining internal liquidity is in a better position to bear those redemptions without a broader market impact because it can satisfy those redemption requests with cash, without selling assets, and this is less likely to generate a run in other funds.
• The recommendation makes the imposition of a fee or gate more discretionary, rather than the result of strict triggers. The absence of such triggers make it less likely that informed investors will be able to “front run” the exercise of a fee or gate, thereby precipitating a run.
• And the recommendation lessens the liquidity impact for investors of a fee or gate by, among other things, permitting only a short maximum gate. This change will also diminish the incentive of an investor to run in order to preserve liquidity.

Well, I guess we’ll just have to wait for the next crisis to see who’s right on this one. They come along every twenty years or so; it will give some interest to the twilight of my career. Until then I will argue that the only thing that has proved to be effective against a bank run is solvency backed up by central bank lending. And solvency in a crisis, when a certain proportion of holdings has either defaulting or is trading at stressed levels, requires capital. And these new rules ain’t got no capital.

Commissioner Kara M. Stein explained in her statement how solvency and liquidity were attained last time:

The Federal Reserve created several programs to support the liquidity of financial institutions, borrowers, and investors.[3] And the Treasury Department guaranteed nearly $2.4 trillion in money market fund assets through its Temporary Guarantee Program.[4]

[3] See, e.g., Commercial Paper Funding Facility (CPFF), Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), Money Market Investor Funding Facility (MMIF), and the Term Asset-Backed Securities Loan Facility (TALF). For descriptions of these programs, see http://www.federalreserve.gov/newsevents/reform_cpff.htm (reflecting $739 billion in CPFF loans and $738 billion in purchases of commercial paper), http://www.federalreserve.gov/newsevents/reform_amlf.htm (reflecting $217 billion in AMLF loans), http://www.federalreserve.gov/newsevents/reform_mmiff.htm (reflecting $0 in total loans as the MMIF facility was never used), and http://www.federalreserve.gov/newsevents/reform_talf.htm (reflecting $71.1 billion in TALF loans).

[4] See Press Release, Treasury Announces Temporary Guarantee Program for Money Market Funds (Sept. 29, 2008), available at http://www.treasury.gov/press-center/press-releases/Pages/hp1161.aspx.

Footnote [3] addresses liquidity, is an entirely normal feature of central bank crisis management and requires no apology or correction. Footnote [4] addresses solvency, is an unpleasant and unwelcome crisis measure by the government and reflects a situation that certainly should be corrected with new procedures and attitudes, but which is unaddressed by the new rules.

However, Ms. Stein makes some effort to redeem herself (at par):

However, after careful study, I am concerned that gates are the wrong tool to address this risk. As the chance that a gate will be imposed increases, investors will have a strong incentive to rush to redeem ahead of others to avoid the uncertainty of losing access to their capital. More importantly, a run in one fund could incite a system-wide run because investors in other funds likely will fear that they also will impose gates. I share the concerns of many commenters and economists that while a gate may be good for one fund because it stops a run in that fund, it could be very damaging to the financial system as a whole.[7]

Even further, while a run by investors in one fund may be halted when the gate for that fund is used, that does not mean the impact on the wholesale funding markets will stop. To the contrary, a fund that drops a gate likely would need to build liquidity to meet redemption requests when the gate is lifted. This means the fund is likely to stop re-investing maturing securities during the gated period, or will invest primarily in government securities, thereby cutting off funding to issuers. This effect could be amplified by investors, who likely will redeem assets from other funds if one fund imposes a gate. And if investors are not able to redeem before the gate comes down, they will be harmed as they are deprived of access to their capital.[8] Ultimately, this contagion could freeze the wholesale funding markets in much the same way as occurred during the recent financial crisis.

[7] See, e.g., Comment Letters from the Federal Reserve Bank of Boston (Sept. 12, 2013), The Systemic Risk Council (Sept. 16, 2013), Samuel Hanson, David Scharfstein, and Adi Sunderman (Sept. 16, 2013), Goldman Sachs Asset Management (Sept. 17, 2013 and July 21, 2014), Deutsche Investment Management Americas (Sept. 17, 2013), Committee on Capital Markets Regulation (Sept. 17, 2013), The Squam Lake Group (Sept. 17, 2013), and Americans for Financial Reform (Sept. 17, 2013). See also Federal Reserve Bank of New York, Staff Report No. 670, Gates, Fees, and Preemptive Runs (Apr. 2014).

See Kevin McCoy, Primary Fund Shareholders Put in a Bind, USA Today, Nov. 11, 2008 (discussing hardships faced by Reserve Primary Fund shareholders due to having their shareholdings frozen); John G. Taft, STEWARDSHIP: LESSONS LEARNED FROM THE LOST CULTURE OF WALL STREET (2012), at 2 (“Now that the Reserve Primary Fund had suspended redemptions of Fund shares for cash, our clients had no access to their cash. This meant, in many cases, that they had no way to settle pending securities purchases and therefore no way to trade their portfolios at a time of historic market volatility. No way to make minimum required distributions from retirement plans. No way to pay property taxes. No way to pay college tuition. It meant bounced checks and, for retirees, interruption of the cash flow distributions they were counting on to pay their day-to-day living expenses.”).

… and I will award Ms. Stein full marks for:

I also am not sufficiently persuaded by the argument that many investors with a low tolerance for gates will seek alternative financial products that are better aligned with their risk-return preferences. While this could happen, it seems just as likely that those same investors will continue to invest in money market funds because they believe they will be able to redeem before a gate is imposed, or that sponsor support will prevent the gate from ever being used. While the rule requires disclosure of sponsor support, it unfortunately does little to address the moral hazard that is created by it.

In addition to which, Ms. Stein is a whole lot younger and better looking than the average SEC commissioner. I wonder if she’s married, and if she’d like to meet a nice Canadian preferred share specialist.

Commissioner Michael S. Piwowar makes an argument I don’t buy:

As a threshold matter, there is no evidence that money market funds themselves pose any threat to the stability of the U.S. financial system. Rather, if there were any systemic risk related to the money markets, it would be over-reliance by financial institutions, particularly banks, on the money markets for short-term funding. In fact, it has been argued that the reason Treasury instituted the guarantee program in 2008 was to reduce financial pressure on banks that had guaranteed the commercial paper of off-balance sheet conduits established by the banks with the approval of the Federal Reserve.[5] As I have said before, if the banking regulators are concerned by banks’ over-reliance on short-term funding from money market funds, then they have the authority to address this bank regulatory shortcoming directly. Nothing in the Dodd-Frank Act weakened or repealed this authority.

[5] See Peter Wallison, Money Market Funds Were a Victim, Not a Cause, Of the Financial Crisis (May 2, 2014) available at [LINK]

Wallison’s linked article states:

It was always a bit implausible that Treasury would set up an insurance system just to protect the shareholders of MMFs against what many were calling a “run.” What interest could Treasury possibly have in whether MMF shareholders suffer losses?
…
But there’s another and more plausible reason for what Treasury did. By the mid-2000s, MMFs were a major financing source for $1.3 trillion in commercial paper that had been issued by off-balance sheet entities established and guaranteed by the largest U.S. banks. These entities, known as asset backed commercial paper conduits (ABCP conduits) had been set up with the approval of the Fed and had invested in prime and subprime mortgage-backed securities. Supporting long term assets like mortgages with short term commercial paper is profitable, but risky. If the mortgages begin to lose value, the financing sources may not roll over, and what would the banks do then?
…
These facts provide a completely different perspective than the conventional view of the of the Treasury’s action. It was not to save the shareholders of the MMFs — there was literally no reason for the Treasury to do that — but to ease the financial pressures on the banks that had guaranteed the commercial paper of their off-balance sheet conduits. It follows that in any future crisis — unless the banks are again allowed by the Fed to establish ABCP conduits — there is no likelihood that the Treasury will seek to use taxpayer funds to protect the shareholders of MMFs, even if one or more of those MMFs break the buck.

I don’t buy it. There’s been considerable commentary – reported at various times on PrefBlog, like f’rinstance in the post BIS Releases March 2009 Quarterly Review – that it was the European banks that were put at risk by a US MMF collapse, which in turn could have fed into global systemic collapse; or, if not collapse, then perhaps something even worse than what actually happened. So let’s just ignore Piwowar and his threshold matters.

And even PrefBlog’s favourite whipping boy, Commissioner Luis A. Aguilar, had a useful link, although I can’t say he actually proved his point:

Some observers, including staff at the Federal Reserve Bank of New York, have suggested the possibility that fees and gates may themselves cause pre-emptive runs, by encouraging investors to redeem their shares before fees and gates are imposed.[29] However, as discussed at length in today’s release, the Federal Reserve staff’s conclusion that fees and gates may cause pre-emptive runs is based on a model whose assumptions and features are different than the reforms we are adopting today.[30] Accordingly, as noted in the release, the Federal Reserve paper’s findings regarding the risks of pre-emptive redemptions are not likely to apply.[31]

[29] See, e.g., Federal Reserve Bank of New York Staff Report, Gates, Fees, and Preemptive Runs (Apr. 2014), available at http://www.newyorkfed.org/research/staff_reports/sr670.html.

[30] Id. For example, the Federal Reserve Bank of New York Staff Report relies upon a model that assumes that fees or gates are imposed only when a fund’s liquid assets are fully depleted. In contrast, under today’s reforms, fees or gates may be imposed while the fund still has substantial liquid assets, and thus investors may be dissuaded from pre-emptively redeeming from funds with substantial internal liquidity because the fund is more likely to be able to readily satisfy redemptions without adversely impacting the fund’s pricing. Adopting Release, supra note 1, at 63-66. Another important difference is that our reforms include a floating NAV for a significant portion of money market funds, which may have the effect of altering the behavior of investors under a model that took such a combination of effects into account. Id. at 65. Another significant difference is that our reforms include a floating NAV for institutional prime money market funds, which constitute a sizeable portion of all money market funds, but the model assumes a stable NAV. The floating NAV requirement may encourage those investors who are least able to bear risk of loss to redirect their investments to other investment opportunities (e.g., government money market funds), and this may have the secondary effect of removing from the funds those investors most prone to redeem should a liquidity event occur for which fees or gates could be imposed.

[31] Adopting Release, supra note 1, at 65-66.

Isn’t the US system great? You never see anything like this in Canadian regulatory discussion. The banks wouldn’t approve.

There has been a mass rebranding of the DEX bond indices to FTSE TMX Canada bond indices.

Has anyone here ever seen anything like this? Concrete paviors with a 3:1 plan ratio. I took this picture on Yorkville Avenue between Yonge and Bay.

All the stuff I can find on the internet merely talks about the aspect ratio – that is, the longest dimension divided by the vertical length, what I would call the depth, but what they call the thickness, noting only that 3:1 or less is required for vehicular traffic.

All I can find regarding the plan ratio simply notes that 2:1 or 3:1 can be set in an interlocking herringbone pattern … fine, but why not a 4:1 plan ratio? Would that make the aspect ratio silly, or unsafe, or uneconomic, or what? Certainly if a plan ratio of 4:1 was to be used for vehicular traffic, and therefore requiring a maximum 3:1 aspect ratio, then the depth would be greater than width and the installers would feel pretty silly. But are there other reasons?

And are there any advantages or disadvantages to a 3:1 plan ratio relative to a 2:1 plan ratio?

It was a good day for the Canadian preferred share market, with PerpetualDiscounts up 10bp and both FixedResets and DeemedRetractibles gaining 7bp. Volatility was anemic. Volume was average.

PerpetualDiscounts now yield 5.09%, equivalent to 6.62% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.2%, so the pre-tax interest-equivalent spread is now about 240bp, unchanged from July 9.

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	3.07 %	3.06 %	19,911	19.52	1	0.0000 %	2,584.9
FixedFloater	4.19 %	3.41 %	30,232	18.61	1	1.4752 %	4,145.6
Floater	2.85 %	2.94 %	46,485	19.87	4	0.3412 %	2,785.5
OpRet	4.00 %	-9.33 %	80,344	0.08	1	0.0000 %	2,733.9
SplitShare	4.25 %	4.00 %	48,216	4.01	6	0.1197 %	3,120.5
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0000 %	2,499.9
Perpetual-Premium	5.52 %	-4.81 %	83,982	0.09	17	-0.0139 %	2,429.9
Perpetual-Discount	5.23 %	5.09 %	109,792	15.21	20	0.0958 %	2,584.9
FixedReset	4.40 %	3.59 %	203,446	8.57	77	0.0702 %	2,559.6
Deemed-Retractible	4.98 %	-0.29 %	123,904	0.09	43	0.0713 %	2,554.3
FloatingReset	2.66 %	2.12 %	95,384	3.82	6	-0.1834 %	2,520.8

Performance Highlights
Issue	Index	Change	Notes
MFC.PR.F	FixedReset	1.17 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.29 Bid-YTW : 4.00 %
BAM.PR.G	FixedFloater	1.48 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-23 Maturity Price : 22.78 Evaluated at bid price : 22.70 Bid-YTW : 3.41 %

Volume Highlights
Issue	Index	Shares Traded	Notes
TD.PF.A	FixedReset	97,601	RBC crossed 25,000 at 25.36. Nesbitt bought 10,000 from TD at 25.30. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-23 Maturity Price : 23.24 Evaluated at bid price : 25.30 Bid-YTW : 3.61 %
ENB.PF.E	FixedReset	57,200	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-23 Maturity Price : 23.10 Evaluated at bid price : 24.97 Bid-YTW : 4.11 %
GWO.PR.P	Deemed-Retractible	53,510	TD crossed 50,000 at 25.80. YTW SCENARIO Maturity Type : Call Maturity Date : 2020-03-31 Maturity Price : 25.25 Evaluated at bid price : 25.72 Bid-YTW : 5.07 %
BNS.PR.Q	FixedReset	47,000	RBC crossed 29,900 at 25.45. Desjardins crossed 15,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2018-10-25 Maturity Price : 25.00 Evaluated at bid price : 25.43 Bid-YTW : 3.17 %
PVS.PR.D	SplitShare	35,234	Recent new issue and ticker change. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2021-10-08 Maturity Price : 25.00 Evaluated at bid price : 24.40 Bid-YTW : 4.95 %
BNS.PR.P	FixedReset	33,400	RBC crossed 30,000 at 25.48. YTW SCENARIO Maturity Type : Call Maturity Date : 2018-04-25 Maturity Price : 25.00 Evaluated at bid price : 25.45 Bid-YTW : 2.83 %
There were 30 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
BAM.PR.G	FixedFloater	Quote: 22.70 – 23.70 Spot Rate : 1.0000 Average : 0.6944 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-23 Maturity Price : 22.78 Evaluated at bid price : 22.70 Bid-YTW : 3.41 %
FTS.PR.F	Perpetual-Discount	Quote: 24.52 – 24.82 Spot Rate : 0.3000 Average : 0.2092 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-23 Maturity Price : 24.23 Evaluated at bid price : 24.52 Bid-YTW : 5.06 %
FTS.PR.H	FixedReset	Quote: 21.45 – 21.82 Spot Rate : 0.3700 Average : 0.2874 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-23 Maturity Price : 21.45 Evaluated at bid price : 21.45 Bid-YTW : 3.51 %
GWO.PR.H	Deemed-Retractible	Quote: 24.10 – 24.40 Spot Rate : 0.3000 Average : 0.2263 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.10 Bid-YTW : 5.37 %
PWF.PR.G	Perpetual-Premium	Quote: 25.40 – 25.58 Spot Rate : 0.1800 Average : 0.1132 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-22 Maturity Price : 25.00 Evaluated at bid price : 25.40 Bid-YTW : -14.46 %
IFC.PR.C	FixedReset	Quote: 25.77 – 25.94 Spot Rate : 0.1700 Average : 0.1103 YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.77 Bid-YTW : 2.88 %