U.S. Securities and Exchange Commission member Daniel Gallagher is favourably disposed towards a floating NAV for money-market funds:
Requiring money funds to have a fluctuating share price “is an attractive option that I am likely to support,” Gallagher, a Republican, said in an interview.
…
Gallagher said he couldn’t vote for Schapiro’s plan because its centerpiece was to make the funds hold extra capital. The cushion was too small to protect investors, Gallagher said, leading him to believe the money would be used as collateral in case the funds needed to borrow from the Federal Reserve.
…
Schapiro has argued that the funds’ $1 share price encourages investors to flee at the first sign of trouble. That’s because those who react quickly can sell their shares at $1 each even if the net asset value has dropped below that level.The industry has maintained that a floating share price would make money funds unworkable for many investors by saddling them with new accounting and tax obligations. In addition, insurers, municipalities and other large users of money funds are often legally bound to invest assets they account for as cash in funds with a stable share price.
Schapiro gave up on her plan on Aug. 22 after three of the five commissioners — Republicans Gallagher and Troy Paredes, joined by Democrat Luis Aguilar — told her they wouldn’t vote to issue it for public comment. Her proposal spelled out two options, the capital cushion coupled with some restrictions on redemptions, or the floating share price.
…
On Aug. 28, Gallagher and Paredes said they supported an alternative that would allow firms running money funds to prohibit withdrawals to stop investor flight in the event of a run. They backed Aguilar’s call for further study on whether new rules could cause investors to move money from money-market funds to other unregulated investments.In the interview, Gallagher said his support of a floating share price was contingent on the SEC “fully understanding and addressing” the tax and accounting issues that could arise with the change. Gallagher said a fluctuating share price may need to be coupled with other protections, such as the freezing redemptions option that he and Paredes had suggested.
If anybody knows what the ‘capital used as collateral’ idea is all about, please let me know, because I haven’t the faintest notion regarding what is being implied. I think the redemption freeze idea is just plain stupid.
I am advised of a government checklist for choosing investment advisors:
Does your financial professional try to “time” the market?
•Financial professionals cannot forecast market changes successfully on a consistent basis. For most people, changing strategies or buying and selling investments frequently will just result in higher costs and more losses. The right financial strategy should do well without frequent changes, in good markets and bad.
Now, I’m not much of a fan of market timing, but nevertheless this seems a bit overreaching to me. We have a government agency pronouncing officially on the relative merits of investment strategies? It’s actually a little scary!
Good fiscal news federally, not so much provincially:
Ottawa’s cost-cutting measures have put it on a sound fiscal track for the future, but the provinces are left holding the bag, says Canada’s budget watchdog.
…
Mr. Page also judges the Canada Pension Plan and Quebec Pension Plan fiscally sound.But the report, released Thursday, shows provinces and municipalities adding so much debt over the next 70 years or so they would resemble Greece and Italy if something is not done.
The report calculates that provinces and their municipalities have a fiscal gap of about 2 per cent of gross domestic product now – or $36-billion – and by 2086 will have debt worth 350 per cent of GDP. Meanwhile, Ottawa will be in a structural surplus.
…
While he has been critical of the Harper government in the past for failing to acknowledge it was in a structural deficit several years ago – for which he took personal blow-back – Mr. Page said Ottawa has acted to rectify the situation.In the past two years, Finance Minister Jim Flaherty put a limit to growth on health transfers to provinces, essentially froze program spending for five years, and raised the age of eligibility for benefits under Old Age Security to 67 from 65.
The change in health transfers alone is responsible for about three-quarters of the provincial fiscal gap, Mr. Page says, or about $25-billion in fiscal room.
It was a good day for the Canadian preferred share market, with PerpetualPremiums gaining 4bp, FixedResets winning 19bp and DeemedRetractibles up 12bp. Volatility was muted. Volume was average.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0567 % | 2,461.6 |
| FixedFloater | 4.42 % | 3.80 % | 36,221 | 17.68 | 1 | 0.7977 % | 3,599.6 |
| Floater | 2.98 % | 2.99 % | 54,840 | 19.73 | 3 | -0.0567 % | 2,657.9 |
| OpRet | 4.65 % | 3.25 % | 54,039 | 0.71 | 4 | 0.3561 % | 2,554.8 |
| SplitShare | 5.44 % | 4.90 % | 73,181 | 4.56 | 3 | 0.0000 % | 2,818.6 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.3561 % | 2,336.1 |
| Perpetual-Premium | 5.29 % | 2.45 % | 94,382 | 1.02 | 28 | 0.0414 % | 2,295.8 |
| Perpetual-Discount | 4.92 % | 4.91 % | 105,571 | 15.67 | 3 | 0.0783 % | 2,572.0 |
| FixedReset | 4.95 % | 3.06 % | 173,154 | 4.03 | 72 | 0.1882 % | 2,435.0 |
| Deemed-Retractible | 4.93 % | 3.54 % | 122,425 | 1.12 | 46 | 0.1197 % | 2,375.2 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| MFC.PR.I | FixedReset | 1.34 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2017-09-19 Maturity Price : 25.00 Evaluated at bid price : 25.76 Bid-YTW : 3.77 % |
| GWO.PR.N | FixedReset | 2.38 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.06 Bid-YTW : 3.51 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| ENB.PR.P | FixedReset | 237,088 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-09-27 Maturity Price : 23.11 Evaluated at bid price : 25.05 Bid-YTW : 3.75 % |
| PWF.PR.P | FixedReset | 144,644 | TD crossed 129,400 at 25.20; Scotia crossed 10,600 at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-09-27 Maturity Price : 23.39 Evaluated at bid price : 25.19 Bid-YTW : 3.02 % |
| BNS.PR.Y | FixedReset | 46,279 | TD bought 38,400 from Nesbitt at 25.21. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.20 Bid-YTW : 2.76 % |
| BNS.PR.X | FixedReset | 43,981 | RBC sold 20,000 to Scotia at 26.94, then crossed 20,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-04-25 Maturity Price : 25.00 Evaluated at bid price : 26.92 Bid-YTW : 1.91 % |
| RY.PR.H | Deemed-Retractible | 36,262 | RBC crossed 34,300 at 26.88. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-05-24 Maturity Price : 26.00 Evaluated at bid price : 26.86 Bid-YTW : 1.10 % |
| CM.PR.P | Deemed-Retractible | 33,275 | Called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2012-10-29 Maturity Price : 25.00 Evaluated at bid price : 24.98 Bid-YTW : 0.74 % |
| There were 29 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| MFC.PR.E | FixedReset | Quote: 26.25 – 26.59 Spot Rate : 0.3400 Average : 0.2225 YTW SCENARIO |
| ELF.PR.F | Perpetual-Premium | Quote: 24.75 – 24.99 Spot Rate : 0.2400 Average : 0.1560 YTW SCENARIO |
| W.PR.J | Perpetual-Premium | Quote: 25.35 – 25.70 Spot Rate : 0.3500 Average : 0.2673 YTW SCENARIO |
| FTS.PR.G | FixedReset | Quote: 25.27 – 25.45 Spot Rate : 0.1800 Average : 0.1190 YTW SCENARIO |
| RY.PR.D | Deemed-Retractible | Quote: 25.64 – 25.84 Spot Rate : 0.2000 Average : 0.1440 YTW SCENARIO |
| MFC.PR.G | FixedReset | Quote: 25.67 – 25.86 Spot Rate : 0.1900 Average : 0.1404 YTW SCENARIO |