Market fragmentation is being suggested as the cause of yesterday’s bungee jump:
Federal regulators reviewing yesterday’s stock plunge will try to determine if the fivefold increase in the number of American equity exchanges has left them unable to manage the biggest surges in volume.
…
The rout showed how the fragmentation of the U.S. equity market may suppress demand when it’s needed most, especially when the New York Stock Exchange attempts to calm trading, said James Angel, a finance professor at Georgetown University in Washington. NYSE Euronext Chief Operating Officer Larry Leibowitz said the Big Board prevented a bigger decline.
…
Rapid-fire orders trigger what the NYSE calls liquidity replenishment points, or LRPs, shifting the market into auctions. While the system is designed to restore order on the Big Board, trading is so fast during times of panic that orders routed past the exchange may swamp other venues and exhaust buy orders, said Angel at Georgetown.That’s when prices may plummet as orders execute against so-called stub quotes from market makers. Brokers can set the quotes as low as a penny a share because they’re never expected to be used.
…
Computer programs that increase sell orders when stocks are falling may have exacerbated yesterday’s plunge, said Nick Colas, chief market strategist at BNY ConvergEx Group LLC in New York. Programs that may have smoothed out trading during periods of low volatility can “make market moves a lot worse” when equities are plunging, he said.
I beg to differ. Market fragmentation did not cause the bungee jump. Stupid dumb trading triggered the bungee jump. What kind of idiot sends in a market order to sell Accenture when it’s down 99.9% on the day on no news?
The way to eliminate stupid dumb trading is to ensure that stupid dumb traders lose all their money, go bankrupt and die.
There’s trouble in the German real-estate mutual fund sector:
Two German real estate mutual funds with properties worth 10.5 billion euros ($13 billion) closed for redemptions yesterday after government proposals to impose an industrywide writedown of assets spooked investors.
SEB Asset Management AG closed its ImmoInvest fund and KanAm Grund KAG closed Grundinvest Fonds after German Finance Minister Wolfgang Schaeuble released a draft bill May 3 that proposed to introduce a 10 percent cut in asset values.
In the past five years, Germany’s 89 billion-euro real estate mutual-fund industry has been rocked by unprecedented waves of redemptions by investors. The writedown proposal is accompanied by a mechanism to smooth out violent swings in appraisal values, which the government blames for the surge in redemptions.
…
Investors fled German property funds after Lehman Brothers Holdings Inc.’s bankruptcy in September 2008, which forced 12 to close for redemptions. That was only the second time in half a century that German funds had shut for redemptions.Three closed in December 2005 and January 2006 after probes by Germany’s financial regulator and a Frankfurt prosecutor raised concern that property valuations had been inflated and led to the eventual withdrawal of 11.6 billion euros from all of the funds.
TMW Immobilien Weltfonds halted redemptions Feb. 8, just two months after reopening. That followed a 21 percent writedown in the assets of Aberdeen Asset Management’s DEGI Global Business, which also halted redemptions in November.
The New York Fed has released its Quarterly Research Review.
The SEC & CFTC have issued a joint statement:
Thursday’s unusual trading activity included extreme volatility for a number of individual securities. This is inconsistent with the effective functioning of our capital markets and we will make whatever structural or other changes are needed.
Extreme volatility is a good thing for long term investors, but I suppose that doesn’t matter when you’ve got to prove you’re Doing Something.
The Euro’s defense may include trading restrictions:
European leaders agreed to set up an emergency fund to halt the spread of Greece’s fiscal woes, seeking to prevent a sovereign debt crisis from shattering confidence in the 11-year-old euro.
…
European officials declined to disclose the size of the stabilization fund, to be made up of money borrowed by the European Union’s central authorities with guarantees by national governments. Finance ministers will meet at 4 p.m. tomorrow in Brussels to flesh out the details.“It will be a very clear signal against those who want to speculate against the euro,” German Chancellor Angela Merkel said.
Asked whether steps against speculation would include restrictions on short sales or credit default swaps, [European Commission President Jose] Barroso said “some of the points you have mentioned will be contemplated.”
…
The extra yield that investors demand to hold Greek, Portuguese and Spanish debt instead of safer German bonds rose to euro-era highs yesterday. The premium on 10-year government bonds jumped as high as 973 basis points for Greece, 354 basis points for Portugal and 173 basis points for Spain.
Maybe Barroso can bring back the old Iron Curtain crimes of “economic sabotage” for trading foreign currency on the black market!
PerpetualDiscounts got whacked again, losing 30bp on continued heavy volume, while FixedResets fared better and lost only 5bp on the day.
| 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 | 2.58 % | 2.66 % | 46,657 | 20.92 | 1 | 0.0000 % | 2,143.0 |
| FixedFloater | 4.94 % | 3.00 % | 43,474 | 20.34 | 1 | 0.0000 % | 3,237.9 |
| Floater | 2.07 % | 2.33 % | 104,673 | 21.52 | 3 | -1.0231 % | 2,347.0 |
| OpRet | 4.93 % | 4.10 % | 96,051 | 2.89 | 11 | -0.1533 % | 2,291.1 |
| SplitShare | 6.48 % | 6.95 % | 129,470 | 3.54 | 2 | -0.4674 % | 2,104.6 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1533 % | 2,095.0 |
| Perpetual-Premium | 5.53 % | 4.77 % | 23,937 | 15.84 | 1 | 0.0000 % | 1,823.5 |
| Perpetual-Discount | 6.32 % | 6.37 % | 217,182 | 13.35 | 77 | -0.3040 % | 1,691.6 |
| FixedReset | 5.54 % | 4.47 % | 511,650 | 3.59 | 44 | -0.0458 % | 2,138.7 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| GWO.PR.H | Perpetual-Discount | -3.95 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-07 Maturity Price : 18.49 Evaluated at bid price : 18.49 Bid-YTW : 6.66 % |
| BAM.PR.K | Floater | -1.79 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-07 Maturity Price : 17.00 Evaluated at bid price : 17.00 Bid-YTW : 2.33 % |
| BAM.PR.B | Floater | -1.73 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-07 Maturity Price : 17.00 Evaluated at bid price : 17.00 Bid-YTW : 2.33 % |
| PWF.PR.O | Perpetual-Discount | -1.73 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-07 Maturity Price : 22.02 Evaluated at bid price : 22.11 Bid-YTW : 6.62 % |
| GWO.PR.M | Perpetual-Discount | -1.66 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-07 Maturity Price : 22.46 Evaluated at bid price : 22.57 Bid-YTW : 6.56 % |
| PWF.PR.G | Perpetual-Discount | -1.27 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-07 Maturity Price : 22.12 Evaluated at bid price : 22.56 Bid-YTW : 6.58 % |
| GWO.PR.F | Perpetual-Discount | -1.22 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-07 Maturity Price : 22.32 Evaluated at bid price : 22.72 Bid-YTW : 6.57 % |
| ELF.PR.G | Perpetual-Discount | -1.18 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-07 Maturity Price : 16.70 Evaluated at bid price : 16.70 Bid-YTW : 7.21 % |
| BAM.PR.H | OpRet | -1.18 % | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2012-03-30 Maturity Price : 25.00 Evaluated at bid price : 25.15 Bid-YTW : 5.76 % |
| BAM.PR.P | FixedReset | 1.17 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-30 Maturity Price : 25.00 Evaluated at bid price : 26.75 Bid-YTW : 5.45 % |
| TD.PR.Y | FixedReset | 1.19 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-07 Maturity Price : 25.38 Evaluated at bid price : 25.43 Bid-YTW : 4.56 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| TRP.PR.A | FixedReset | 163,789 | Nesbitt crossed 40,000 at 25.25. RBC crossed 50,000 at the same price. Scotia crossed 43,100 at the same price again. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-01-30 Maturity Price : 25.00 Evaluated at bid price : 25.23 Bid-YTW : 4.52 % |
| RY.PR.X | FixedReset | 76,202 | Desjardins bought 52,700 from CIBC at 26.70. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-09-23 Maturity Price : 25.00 Evaluated at bid price : 26.70 Bid-YTW : 4.53 % |
| RY.PR.D | Perpetual-Discount | 75,665 | RBC crossed blocks of 25,000 and 18,300 at 18.55. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-07 Maturity Price : 18.55 Evaluated at bid price : 18.55 Bid-YTW : 6.09 % |
| MFC.PR.E | FixedReset | 69,715 | RBC crossed blocks of 12,300 and 12,800 at 26.25; bought 25,000 from anonymous at the same price; and crossed 12,500 at the same price again. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-19 Maturity Price : 25.00 Evaluated at bid price : 26.26 Bid-YTW : 4.57 % |
| TD.PR.G | FixedReset | 65,685 | TD crossed 20,000 at 26.70; Desjardins crossed 26.75 at the same price; TD crossed 20,000 at 26.70. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 26.65 Bid-YTW : 4.57 % |
| TD.PR.S | FixedReset | 61,557 | TD crossed 50,000 at 25.60. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-08-30 Maturity Price : 25.00 Evaluated at bid price : 25.60 Bid-YTW : 4.27 % |
| There were 42 other index-included issues trading in excess of 10,000 shares. | |||