I have mentioned before my admiration of the US regulatory governance model in which dissent is encouraged and publicized. SEC Commissioner Daniel M. Gallagher is outraged that the Volcker Rule has been finalized:
Regulators, including those that, like the SEC, are purportedly independent, have been commanded to “err on the side of doing a little more, and then correct it if you’ve gone too far” in implementing the mandates of Dodd-Frank.[3]
The nonchalant suggestion to “err on the side of” overregulation is fully in line with the staggering level of hubris reflected throughout this joint rulemaking process, which has culminated with a purely political insistence on a pre-year end vote. In contradiction of our procedural rules for voting on major rule releases, including the longstanding guideline that Commissioners should be given thirty days to review a draft before a vote, we were given in early November not the draft final rule itself, but 18 separate documents that we were told would make up the final rule, along with two lists of “interagency staff-level open issues.” On the evening of November 27th, the night before Thanksgiving and less than two weeks before today’s vote, we were presented with revised versions of those documents as well as a reminder that the “back-end” sections were still being negotiated and would be sent separately. Not until five days ago did we have anything even resembling a voting draft, giving us less than a week to review the nearly one thousand pages of the adopting rule. In short, under intense pressure to meet an utterly artificial, wholly political end-of-year deadline, this Commission is effectively being told that we have to vote for the final rule so we can find out what’s in it.
…
Even in the era of never letting a serious crisis go to waste, however, the mere fact that proprietary trading makes a segment of our policy establishment nervous[7] surely is not sufficient justification to potentially destroy the market-making system central to the liquidity and proper functioning of our capital markets. Years from now, I fear, financial historians will marvel at how the Dodd-Frank Act forced regulators to proactively disadvantage American financial institutions as well as the strength and integrity of our capital markets to address such tangential – at best – matters as conflict minerals, resource extraction, and proprietary trading, but gave a complete pass to the main cause of the financial crisis — decades worth of disastrous federal housing policy.
Meanwhile, Commissioner Luis A. Aguilar demontrated again his complete lack of comprehension of the concept of principal trading:
Moreover, proprietary trading by banks poses investor protection risks. For example, as highlighted by Senator Merkley and Senator Levin, banks that engage in proprietary trading may gather information from their clients’ investment activities and exploit them.[5] Indeed, banks have, in the past, created and marketed products that were secretly designed to fail;[6] or used client trading information against client interests.[7]
S&P has a nice monograph out titled Digging Deeper Into The U.S. Preferred Market.
Exhibit 4 charts the 10-year correlation of preferred securities, as represented by the S&P U.S Preferred Stock Index, to other asset classes. It is important to note that preferred securities exhibit higher correlation with high-yield bonds and equities, which are more sensitive to credit, and lower correlation with investment-grade corporate and municipal bonds, which are more sensitive to interest rate risk. … Data from Sept. 30, 2003 to Sept. 30, 2013.
Correlations can vary greatly over time; it would have been more useful to provide rolling five-year correlations. The US preferred share index is about 85% financials. They consider slightly over half of the index to be investment grade.
It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 9bp, FixedResets gaining 19bp and DeemedRetractibles down 21bp. The Performance Highlights index is fairly lengthy, with numerous bounce-backs from yesterday’s excesses – particularly BAM issues, which dominated both the winning side of the Performance Highlights table and the volume highlights. Volume was very high.
| 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 | -0.3549 % | 2,513.0 |
| FixedFloater | 4.41 % | 3.68 % | 40,301 | 17.94 | 1 | -0.9651 % | 3,807.6 |
| Floater | 2.95 % | 2.98 % | 62,551 | 19.71 | 3 | -0.3549 % | 2,713.4 |
| OpRet | 4.62 % | -2.30 % | 77,591 | 0.08 | 3 | 0.0642 % | 2,662.0 |
| SplitShare | 4.90 % | 4.76 % | 75,444 | 4.52 | 5 | 0.3005 % | 2,986.7 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0642 % | 2,434.1 |
| Perpetual-Premium | 5.62 % | 5.46 % | 136,268 | 4.32 | 13 | -0.1313 % | 2,299.3 |
| Perpetual-Discount | 5.66 % | 5.69 % | 167,759 | 14.31 | 25 | -0.0898 % | 2,320.7 |
| FixedReset | 5.00 % | 3.53 % | 231,908 | 3.29 | 82 | 0.1871 % | 2,471.8 |
| Deemed-Retractible | 5.13 % | 4.24 % | 193,678 | 1.40 | 42 | -0.2135 % | 2,401.4 |
| FloatingReset | 2.62 % | 2.32 % | 328,381 | 4.42 | 5 | 0.0870 % | 2,465.7 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| IAG.PR.A | Deemed-Retractible | -1.62 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.30 Bid-YTW : 6.49 % |
| BAM.PF.B | FixedReset | -1.61 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-12-10 Maturity Price : 22.93 Evaluated at bid price : 24.40 Bid-YTW : 4.46 % |
| GWO.PR.I | Deemed-Retractible | -1.56 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.41 Bid-YTW : 6.32 % |
| POW.PR.B | Perpetual-Discount | -1.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-12-10 Maturity Price : 23.33 Evaluated at bid price : 23.61 Bid-YTW : 5.75 % |
| ELF.PR.G | Perpetual-Discount | -1.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-12-10 Maturity Price : 20.65 Evaluated at bid price : 20.65 Bid-YTW : 5.85 % |
| BNS.PR.Z | FixedReset | -1.00 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.66 Bid-YTW : 4.17 % |
| ENB.PR.B | FixedReset | 1.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-12-10 Maturity Price : 22.98 Evaluated at bid price : 24.15 Bid-YTW : 4.27 % |
| RY.PR.T | FixedReset | 1.10 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-24 Maturity Price : 25.00 Evaluated at bid price : 25.65 Bid-YTW : 2.95 % |
| MFC.PR.I | FixedReset | 1.18 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2017-09-19 Maturity Price : 25.00 Evaluated at bid price : 25.62 Bid-YTW : 3.68 % |
| BAM.PR.N | Perpetual-Discount | 1.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-12-10 Maturity Price : 19.29 Evaluated at bid price : 19.29 Bid-YTW : 6.29 % |
| BAM.PF.C | Perpetual-Discount | 1.30 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-12-10 Maturity Price : 19.50 Evaluated at bid price : 19.50 Bid-YTW : 6.36 % |
| ENB.PR.D | FixedReset | 1.40 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-12-10 Maturity Price : 22.81 Evaluated at bid price : 23.95 Bid-YTW : 4.27 % |
| BAM.PF.D | Perpetual-Discount | 1.55 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-12-10 Maturity Price : 19.65 Evaluated at bid price : 19.65 Bid-YTW : 6.37 % |
| TRP.PR.A | FixedReset | 2.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-12-10 Maturity Price : 23.48 Evaluated at bid price : 24.00 Bid-YTW : 3.89 % |
| GWO.PR.N | FixedReset | 2.15 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.40 Bid-YTW : 4.91 % |
| SLF.PR.G | FixedReset | 2.45 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.15 Bid-YTW : 4.71 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BAM.PR.M | Perpetual-Discount | 117,043 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-12-10 Maturity Price : 19.16 Evaluated at bid price : 19.16 Bid-YTW : 6.34 % |
| BAM.PR.N | Perpetual-Discount | 90,807 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-12-10 Maturity Price : 19.29 Evaluated at bid price : 19.29 Bid-YTW : 6.29 % |
| BAM.PF.C | Perpetual-Discount | 85,702 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-12-10 Maturity Price : 19.50 Evaluated at bid price : 19.50 Bid-YTW : 6.36 % |
| BAM.PF.D | Perpetual-Discount | 75,382 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-12-10 Maturity Price : 19.65 Evaluated at bid price : 19.65 Bid-YTW : 6.37 % |
| FTS.PR.H | FixedReset | 64,580 | Nesbitt crossed 35,000 at 21.15. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-12-10 Maturity Price : 21.01 Evaluated at bid price : 21.01 Bid-YTW : 3.99 % |
| ENB.PR.T | FixedReset | 63,816 | Nesbitt crossed 12,400 at 24.00. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-12-10 Maturity Price : 22.70 Evaluated at bid price : 23.88 Bid-YTW : 4.37 % |
| There were 54 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| ELF.PR.F | Perpetual-Discount | Quote: 22.66 – 23.14 Spot Rate : 0.4800 Average : 0.3437 YTW SCENARIO |
| GWO.PR.I | Deemed-Retractible | Quote: 21.41 – 21.78 Spot Rate : 0.3700 Average : 0.2516 YTW SCENARIO |
| PWF.PR.F | Perpetual-Discount | Quote: 23.35 – 23.67 Spot Rate : 0.3200 Average : 0.2170 YTW SCENARIO |
| CM.PR.G | Perpetual-Premium | Quote: 25.02 – 25.23 Spot Rate : 0.2100 Average : 0.1309 YTW SCENARIO |
| POW.PR.B | Perpetual-Discount | Quote: 23.61 – 23.89 Spot Rate : 0.2800 Average : 0.2017 YTW SCENARIO |
| POW.PR.D | Perpetual-Discount | Quote: 22.48 – 22.76 Spot Rate : 0.2800 Average : 0.2025 YTW SCENARIO |