PrefBlog

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	-0.3030 %	2,657.6
FixedFloater	4.18 %	3.43 %	26,307	18.50	1	-0.7417 %	4,154.7
Floater	2.90 %	3.02 %	48,420	19.67	4	-0.3030 %	2,748.2
OpRet	4.05 %	0.28 %	90,219	0.08	1	-0.1577 %	2,728.2
SplitShare	4.27 %	3.74 %	112,713	3.92	5	0.1488 %	3,162.1
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.1577 %	2,494.6
Perpetual-Premium	5.46 %	1.44 %	70,679	0.09	20	-0.0392 %	2,439.0
Perpetual-Discount	5.24 %	5.14 %	101,146	15.19	16	-0.4178 %	2,601.8
FixedReset	4.27 %	3.82 %	177,141	6.57	74	-0.1278 %	2,555.4
Deemed-Retractible	5.00 %	1.83 %	103,478	0.29	42	-0.0494 %	2,564.4
FloatingReset	2.63 %	1.44 %	75,661	0.16	6	-0.0590 %	2,524.4

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

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

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

Nothing happened today.

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

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	0.7074 %	2,665.7
FixedFloater	4.14 %	3.40 %	25,854	18.56	1	0.0000 %	4,185.8
Floater	2.89 %	3.03 %	46,407	19.65	4	0.7074 %	2,756.6
OpRet	4.04 %	-1.77 %	91,665	0.08	1	0.1975 %	2,732.5
SplitShare	4.28 %	3.72 %	110,343	3.92	5	0.0626 %	3,157.4
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.1975 %	2,498.6
Perpetual-Premium	5.46 %	1.75 %	70,587	0.09	20	0.0000 %	2,440.0
Perpetual-Discount	5.22 %	5.14 %	102,449	15.20	16	0.1583 %	2,612.7
FixedReset	4.26 %	3.80 %	177,882	6.49	74	-0.0329 %	2,558.7
Deemed-Retractible	5.00 %	1.90 %	102,068	0.29	42	0.0323 %	2,565.7
FloatingReset	2.63 %	1.92 %	75,135	0.08	6	-0.1048 %	2,525.9

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

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

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

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

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

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

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

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

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

Rule 4-701 Execution of Trades at the Opening

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

Amended (February 24, 2012)

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

(b) MBF orders.

(c) Repealed (October 15, 2012)

(d) Repealed (October 15, 2012)

Amended (October 15, 2012)

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

(b) limit orders at the opening price.

(c) Repealed (October 15, 2012)

Amended (October 15, 2012)

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

(b) all possible crosses shall be executed; then

(c) Repealed (August 7, 2001)

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

(5) Repealed (August 7, 2001)

(6) Repealed (August 7, 2001)

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

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

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

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

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

Remember the old adage?

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

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

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

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

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

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

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

10. How will Icebergs be treated at the opening?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

And now it’s time for PrefLetter!

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	-0.5244 %	2,647.0
FixedFloater	4.14 %	3.40 %	25,692	18.56	1	0.0436 %	4,185.8
Floater	2.91 %	3.03 %	46,759	19.66	4	-0.5244 %	2,737.2
OpRet	4.05 %	0.22 %	93,077	0.08	1	-0.1578 %	2,727.1
SplitShare	4.28 %	3.73 %	111,959	3.93	5	-0.0036 %	3,155.4
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.1578 %	2,493.7
Perpetual-Premium	5.46 %	0.43 %	71,673	0.09	20	-0.0530 %	2,440.0
Perpetual-Discount	5.23 %	5.14 %	106,577	15.19	16	-0.2382 %	2,608.5
FixedReset	4.26 %	3.81 %	181,959	6.58	74	-0.2101 %	2,559.5
Deemed-Retractible	5.00 %	1.87 %	103,420	0.20	42	-0.1509 %	2,564.9
FloatingReset	2.62 %	0.48 %	82,022	0.08	6	-0.1504 %	2,528.5

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

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

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

The loonie got hit today:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	0.7658 %	2,660.9
FixedFloater	4.15 %	3.40 %	26,018	18.56	1	0.0000 %	4,183.9
Floater	2.90 %	3.04 %	45,384	19.64	4	0.7658 %	2,751.6
OpRet	4.04 %	-1.83 %	96,820	0.08	1	0.1580 %	2,731.4
SplitShare	4.28 %	3.82 %	113,393	3.93	5	0.0874 %	3,155.6
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.1580 %	2,497.6
Perpetual-Premium	5.46 %	0.42 %	83,638	0.09	20	0.1729 %	2,441.3
Perpetual-Discount	5.22 %	5.11 %	106,214	15.24	16	0.2951 %	2,614.8
FixedReset	4.25 %	3.74 %	179,672	6.61	74	0.1284 %	2,564.9
Deemed-Retractible	4.99 %	0.60 %	99,809	0.20	42	0.1046 %	2,568.8
FloatingReset	2.62 %	-1.43 %	83,043	0.08	6	0.1178 %	2,532.3

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

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

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

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

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

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

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

Meanwhile, in Canada:

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

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

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

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

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

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

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

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

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

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

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	0.1108 %	2,640.7
FixedFloater	4.15 %	3.40 %	25,962	18.57	1	0.2626 %	4,183.9
Floater	2.90 %	3.07 %	45,069	19.47	4	0.1108 %	2,730.7
OpRet	4.05 %	-0.05 %	98,060	0.08	1	-0.0395 %	2,727.1
SplitShare	4.28 %	3.81 %	114,773	3.93	5	-0.0317 %	3,152.8
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0395 %	2,493.7
Perpetual-Premium	5.47 %	0.41 %	74,819	0.09	20	-0.0746 %	2,437.1
Perpetual-Discount	5.22 %	5.13 %	110,342	15.21	16	-0.1122 %	2,607.1
FixedReset	4.25 %	3.74 %	182,443	8.40	74	-0.1453 %	2,561.6
Deemed-Retractible	5.00 %	1.85 %	100,163	0.21	42	-0.0275 %	2,566.1
FloatingReset	2.62 %	1.92 %	80,212	0.16	6	-0.1438 %	2,529.4

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

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

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