October 8, 2010

Not much time to write, but here are a couple of quick links: Market structure is causing the IPO crisis — and more and Equity Trading in the 21st Century. That should keep you guys busy for a while!

More nonsense about the Flash Crash – this time from Barron’s:

HERE’S WHERE THE REGULATORS’ story starts to fall apart. CME Group, owner of the exchange where the E-minis trade, said the sell order was consistent with market practices. Furthermore, only half the order had been entered as the market fell. And it had been broken up into small orders—nine out of every 100 coming into the market. In any event, this one trade couldn’t have spooked investors because the market is anonymous. Traders didn’t see a single, large seller. What they saw was continuous action.

What this proves is that the writer, Jim McTague, hasn’t the slightest concept of how market-makers make money.

Yes, the traders didn’t see a single, large seller. If they had, they might have bought more, knowing that it was only one cowboy with an itchy trigger finger causing the price change. What they saw was, in fact, that their position limits had been reached and they were losing money. So they decided to eat the loss – your first loss is your best loss – and square their positions. There is nothing nefarious about that.

The brokerage firms’ behavior was particularly galling, though by no means illegal. They stopped automatic execution of customer orders, also known as internalization, which on most days accounts for nearly 100% of retail trades.

On May 6 when the market fell out of bed, the report says blandly, some of these players reduced executions of sell orders but continued to execute buy orders. In other words, they’d sell stock to a retail customer but wouldn’t buy stock from a retail customer. They wanted to get rid of their own inventories, not accumulate more shares. So they sent the customer sell orders onto the swamped stock exchanges.

I fail to see anything nefarious about this. It is not the job of market makers to take everything that’s thrown at them, even if it costs them billions of dollars and sinks their firms, requiring Son of TARP to repair the damage.

If Jim McTague every opens a brokerage firm, remind me not to put any money in it.

Nest time a politician or one of his robo-parrots pontificates about productivity, I’ll remember this:

The UAE has complained that its two airlines have only six flights a week to Toronto, ferrying passengers from Dubai and Abu Dhabi. And with 27,000 Canadians living in the UAE, al Ghafli has argued there is a need for greater air service between the two countries.

Air Canada, however, has protested expanding the landing rights of UAE carriers, arguing that few people fly from the UAE over to Canada. Air Canada claims that UAE carriers are taking Canadians to other places, while making stopovers in Dubai and Abu Dhabi.

Canadians are among the most productive and energetic whiners and lobbyists in the world! So much so that the Ontario Health Ministry has declared it a core competency for hospitals and demanded the function be brought in-house!

This post is very late because of (i) PrefLetter and (ii) downtime on the TMX Electric Abacus. Sorry about that!

It was a good day for the Canadian preferred share market, with PerpetualDiscounts up 14bp and FixedResets winning 9bp. Volumer was merely OK.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
(at bid)
Mod Dur
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.1099 % 2,170.3
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.1099 % 3,287.7
Floater 2.88 % 3.23 % 78,742 19.19 3 0.1099 % 2,343.3
OpRet 4.91 % 3.22 % 76,549 0.14 9 0.0431 % 2,373.0
SplitShare 5.90 % -33.25 % 65,201 0.09 2 0.1222 % 2,386.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0431 % 2,169.9
Perpetual-Premium 5.73 % 5.21 % 129,579 5.38 19 0.1659 % 2,003.2
Perpetual-Discount 5.46 % 5.45 % 227,475 14.67 58 0.1380 % 1,996.7
FixedReset 5.28 % 3.15 % 317,006 3.29 47 0.0926 % 2,266.5
Performance Highlights
Issue Index Change Notes
NA.PR.L Perpetual-Discount 1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-10-08
Maturity Price : 22.79
Evaluated at bid price : 23.00
Bid-YTW : 5.26 %
Volume Highlights
Issue Index Shares
TRP.PR.A FixedReset 100,690 RBC crossed three blocks, of 50,000 shares, 25,000 and 20,000, all at 26.26.
Maturity Type : Call
Maturity Date : 2015-01-30
Maturity Price : 25.00
Evaluated at bid price : 26.22
Bid-YTW : 3.42 %
SLF.PR.D Perpetual-Discount 56,685 Nesbitt crossed 50,000 at 20.30.
Maturity Type : Limit Maturity
Maturity Date : 2040-10-08
Maturity Price : 20.27
Evaluated at bid price : 20.27
Bid-YTW : 5.53 %
RY.PR.P FixedReset 55,960 RBC bought 21,100 from Canaccord at 27.70, then crossed 25,000 at 27.72.
Maturity Type : Call
Maturity Date : 2014-03-26
Maturity Price : 25.00
Evaluated at bid price : 27.75
Bid-YTW : 3.11 %
SLF.PR.C Perpetual-Discount 50,600 Nesbitt crossed 50,000 at 20.30.
Maturity Type : Limit Maturity
Maturity Date : 2040-10-08
Maturity Price : 20.25
Evaluated at bid price : 20.25
Bid-YTW : 5.54 %
BNS.PR.N Perpetual-Discount 50,377 Nesbitt crossed 19,700 at 24.50.
Maturity Type : Limit Maturity
Maturity Date : 2040-10-08
Maturity Price : 24.27
Evaluated at bid price : 24.50
Bid-YTW : 5.36 %
TRP.PR.B FixedReset 46,100 RBC crossed 20,000 at 25.35 and bought 18,000 from TD at the same price.
Maturity Type : Limit Maturity
Maturity Date : 2040-10-08
Maturity Price : 25.20
Evaluated at bid price : 25.25
Bid-YTW : 3.29 %
There were 33 other index-included issues trading in excess of 10,000 shares.

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