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 |
| NEW.PR.D | SplitShare | Quote: 32.80 – 33.37 Spot Rate : 0.5700 Average : 0.4720 YTW SCENARIO |
| IFC.PR.A | FixedReset | Quote: 23.49 – 23.82 Spot Rate : 0.3300 Average : 0.2439 YTW SCENARIO |
| PWF.PR.P | FixedReset | Quote: 23.02 – 23.35 Spot Rate : 0.3300 Average : 0.2485 YTW SCENARIO |
| IAG.PR.A | Deemed-Retractible | Quote: 22.47 – 22.75 Spot Rate : 0.2800 Average : 0.1995 YTW SCENARIO |
| BAM.PR.G | FixedFloater | Quote: 22.75 – 23.00 Spot Rate : 0.2500 Average : 0.1718 YTW SCENARIO |