July 14, 2015

Many will have heard of the recent attempt to justify the existence of the Senate, a report titledCountering the Terrorist Threat in Canada. This report has attracted some attention for its disgraceful recommendation that “The federal government work with the provinces and the Muslim communities to investigate the options that are available for the training and certification of imams in Canada”, but there was one point of great interest in the report that should be of interest to PrefBlog readers:

The Committee is concerned about the lack of prosecutions in the area of terrorist financing. The Committee learned that between 2009 and 2014, the Financial Transactions and Reports Analysis Centre of Canada identified 683 terrorist financing incidences and we have yet to have any prosecutions under the relevant sections of the criminal code.

Not surprising, really, since the purpose of the terrorist financing laws is to create the illusion of government oversight and create jobs for the otherwise unemployable.

Speaking of job creation for box-tickers:

The Ontario Ministry of Finance has circulated a new consultation document that proposes to overhaul the province’s system of oversight for financial advisers and planners as investors and people saving for retirement trade in a more risky, complex financial system.

There is no general legal framework regulating the titles and designations of people offering financial planning, advice and services, leading to many professionals calling themselves planners or advisers. The Ontario finance ministry’s consultation document, released this month, said the absence of a framework raises questions about “proficiency, quality standards and potential conflicts of interest.”

Ontario is looking at a range of possible changes, including a new legal standard governing conflicts of interest, licensing and registration requirements, the regulation of titles, the possibility of a new oversight body, and a central registry of financial planners and advisers.

The SEC continues to protect the incompetent:

The U.S. Securities and Exchange Commission is looking into possible market manipulation over a fake news article that led to a brief spike in Twitter Inc. shares, said a person familiar with the matter.

Twitter rose more than 8 percent in the late morning after the appearance of the article, which claimed the company had received a takeover offer, before losing most of those gains within 20 minutes.

The report, which imitated the form of a Bloomberg News article, appeared on a site called bloomberg.market.

I was taken aback today by a report that Royal LePage is lobbying against a policy rate cut. Royal LePage?:

One of Canada’s major real estate firms is urging the Bank of Canada not to cut interest rates tomorrow.

Royal LePage says it’s worried that a cut in the central bank’s benchmark rate could “over-stimulate” already high-flying markets such as Toronto and Vancouver.

Those are the two Canadian cities deemed the most frothy, with prices running up sharply as consumers add to already swollen debt levels in a low-rate environment.

“While the oil shock has been a troublesome drag on our economy this year, it seems premature to ring the recession alarm bells now, injecting further monetary stimulus,” said LePage chief executive officer Phil Soper.

SEC Commissioner Luis A. Aguilar sees an opportunity to hire more regulators:

Yesterday, staff members of the federal agencies that comprise the Interagency Working Group for Treasury Market Surveillance (“Working Group”)[3] issued a joint report concerning the so-called “flash crash” that occurred in the U.S. Treasury market on October 15, 2014 (the “Report”).

First, the Commission should consider revising Regulation ATS to make it applicable to alternative trading systems that trade Treasuries exclusively.[54] In addition, the Commission should consider how Regulation ATS may need to be tailored to the activities of alternative trading systems that handle Treasuries. Currently, BrokerTec and eSpeed are the two electronic platforms that handle the majority of the dealer-to-dealer trade flow in on-the-run Treasuries.[55] I note that BrokerTec, which trades securities in addition to Treasuries, has filed a Form ATS with the Commission.[56]
• Second, in addition to expanding Reg ATS, the Commission should consider revising Regulation Systems Compliance and Integrity (Reg SCI) to make it applicable to trading platforms that handle Treasuries exclusively.[57] As the Report makes clear, the majority of dealer-to-dealer trading in the Treasury market is now driven by computer algorithms. In light of this new environment, it is appropriate for the Commission to examine whether additional safeguards are warranted to ensure that the technology used by these entities has sufficient integrity, capacity, safety, and resiliency.
• Third, the Report and other sources indicate that regulators presently lack a comprehensive source of trade data for the Treasury market.[58]

• Fifth, the Commission, as well as the Working Group, should consider ways to enhance oversight of market participants in the Treasury market.[64] For example, some of the most active participants in the Treasury cash market are not registered with the Commission.[65] This hinders the Commission’s ability to monitor and regulate this market effectively. In the context of equity market reform, the Chair called last year for the staff to prepare a rule clarifying that high frequency traders are dealers, and must therefore register with the Commission.[66] In preparing that rule, the staff should consider how it can be made applicable to Treasury market participants, as well.

Meanwhile, in Chinese equities:

China’s stocks fell for a second day after better-than-expected economic data failed to boost investor confidence in the world’s worst-performing equity market over the past month.

The Shanghai Composite Index tumbled 4.2 percent to 3,758.50 at 1:36 p.m. local time. With 689 stocks halted on mainland exchanges and another 790 falling by the 10 percent daily limit, sellers were locked out of about 50 percent of the the Chinese market. The two-day losses pared the gauge’s rebound from its July 8 low to 7.7 percent.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 7bp, FixedResets gaining 2bp and DeemedRetractibles off 20bp. Floaters were smacked. The Performance Highlights table is as lengthy as we have come to expect. Volume was on the high side of average.

Regrettably, charts of Implied Volatility and Break-Even rates are not prepared today due to problems with the downloading of prices – a separate system from the download used for HIMIPref™ and I don’t have time to input the prices manually.

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 -3.2814 % 2,090.1
FixedFloater 0.00 % 0.00 % 0 0.00 0 -3.2814 % 3,654.4
Floater 3.71 % 3.72 % 60,892 18.05 3 -3.2814 % 2,221.9
OpRet 0.00 % 0.00 % 0 0.00 0 0.0939 % 2,771.4
SplitShare 4.59 % 4.87 % 68,602 3.21 3 0.0939 % 3,248.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0939 % 2,534.2
Perpetual-Premium 5.51 % 2.79 % 69,673 0.30 13 -0.0305 % 2,513.1
Perpetual-Discount 5.43 % 5.41 % 92,688 14.81 21 0.0724 % 2,640.3
FixedReset 4.68 % 3.84 % 222,078 15.89 88 0.0204 % 2,247.4
Deemed-Retractible 5.04 % 4.86 % 112,430 3.13 34 -0.2039 % 2,607.9
FloatingReset 2.53 % 3.23 % 51,582 6.06 10 -0.0236 % 2,277.1
Performance Highlights
Issue Index Change Notes
BAM.PR.K Floater -5.45 % Misleading, since the low for the day was 13.68 on five trades totalling 500 shares, which I suppose overwhelmed the systems. I have not checked whether this is due to inadequate Toronto Stock Exchange reporting or inadequate Toronto Stock Exchange supervision of market-makers.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 13.00
Evaluated at bid price : 13.00
Bid-YTW : 3.86 %
BAM.PR.C Floater -3.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 13.50
Evaluated at bid price : 13.50
Bid-YTW : 3.72 %
FTS.PR.H FixedReset -2.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 16.40
Evaluated at bid price : 16.40
Bid-YTW : 3.56 %
IFC.PR.C FixedReset -2.25 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.75
Bid-YTW : 5.36 %
HSE.PR.A FixedReset -2.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 15.51
Evaluated at bid price : 15.51
Bid-YTW : 4.25 %
BAM.PR.T FixedReset -2.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 18.45
Evaluated at bid price : 18.45
Bid-YTW : 4.44 %
ENB.PR.B FixedReset -1.83 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 16.06
Evaluated at bid price : 16.06
Bid-YTW : 5.19 %
TRP.PR.A FixedReset -1.69 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 18.59
Evaluated at bid price : 18.59
Bid-YTW : 3.85 %
TRP.PR.C FixedReset -1.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 15.55
Evaluated at bid price : 15.55
Bid-YTW : 3.83 %
POW.PR.D Perpetual-Discount -1.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 23.03
Evaluated at bid price : 23.30
Bid-YTW : 5.38 %
PWF.PR.L Perpetual-Discount -1.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 23.91
Evaluated at bid price : 24.18
Bid-YTW : 5.28 %
GWO.PR.S Deemed-Retractible -1.24 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.48
Bid-YTW : 5.05 %
BAM.PR.X FixedReset -1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 16.20
Evaluated at bid price : 16.20
Bid-YTW : 4.36 %
SLF.PR.G FixedReset -1.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.28
Bid-YTW : 7.45 %
IFC.PR.A FixedReset -1.13 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.30
Bid-YTW : 7.02 %
SLF.PR.I FixedReset -1.07 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.00
Bid-YTW : 4.22 %
BAM.PR.B Floater -1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 13.88
Evaluated at bid price : 13.88
Bid-YTW : 3.61 %
HSB.PR.D Deemed-Retractible -1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.66
Bid-YTW : 5.31 %
TRP.PR.D FixedReset -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 21.27
Evaluated at bid price : 21.27
Bid-YTW : 3.93 %
CU.PR.G Perpetual-Discount 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 21.89
Evaluated at bid price : 22.20
Bid-YTW : 5.12 %
CU.PR.D Perpetual-Discount 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 23.14
Evaluated at bid price : 23.50
Bid-YTW : 5.27 %
ENB.PF.E FixedReset 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 18.65
Evaluated at bid price : 18.65
Bid-YTW : 5.05 %
CM.PR.O FixedReset 1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 21.82
Evaluated at bid price : 22.19
Bid-YTW : 3.67 %
CM.PR.P FixedReset 1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 21.35
Evaluated at bid price : 21.64
Bid-YTW : 3.69 %
ENB.PR.F FixedReset 1.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 17.05
Evaluated at bid price : 17.05
Bid-YTW : 5.09 %
RY.PR.Z FixedReset 1.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 21.94
Evaluated at bid price : 22.35
Bid-YTW : 3.59 %
ENB.PR.Y FixedReset 1.60 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 17.11
Evaluated at bid price : 17.11
Bid-YTW : 4.99 %
NA.PR.S FixedReset 1.79 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 22.21
Evaluated at bid price : 22.76
Bid-YTW : 3.65 %
NA.PR.W FixedReset 1.89 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 21.55
Evaluated at bid price : 21.55
Bid-YTW : 3.76 %
ENB.PF.A FixedReset 2.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 18.60
Evaluated at bid price : 18.60
Bid-YTW : 5.03 %
HSE.PR.E FixedReset 3.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 22.54
Evaluated at bid price : 23.45
Bid-YTW : 4.67 %
Volume Highlights
Issue Index Shares
Traded
Notes
ENB.PR.B FixedReset 199,101 RBC crossed 156,000 at 16.35.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 16.06
Evaluated at bid price : 16.06
Bid-YTW : 5.19 %
RY.PR.A Deemed-Retractible 54,134 RBC crossed 49,300 at 25.24.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-08-13
Maturity Price : 25.00
Evaluated at bid price : 25.23
Bid-YTW : 0.81 %
BNS.PR.M Deemed-Retractible 54,095 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-08-26
Maturity Price : 25.25
Evaluated at bid price : 25.32
Bid-YTW : 0.34 %
PWF.PR.L Perpetual-Discount 53,100 Scotia crossed 50,000 at 24.48.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 23.91
Evaluated at bid price : 24.18
Bid-YTW : 5.28 %
RY.PR.N Perpetual-Premium 36,006 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 24.60
Evaluated at bid price : 24.99
Bid-YTW : 4.94 %
BNS.PR.Z FixedReset 35,743 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.80
Bid-YTW : 3.85 %
There were 37 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BMO.PR.T FixedReset Quote: 21.92 – 23.00
Spot Rate : 1.0800
Average : 0.6365

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 21.62
Evaluated at bid price : 21.92
Bid-YTW : 3.69 %

BAM.PR.K Floater Quote: 13.00 – 13.70
Spot Rate : 0.7000
Average : 0.5381

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 13.00
Evaluated at bid price : 13.00
Bid-YTW : 3.86 %

FTS.PR.G FixedReset Quote: 21.41 – 21.85
Spot Rate : 0.4400
Average : 0.3053

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 21.41
Evaluated at bid price : 21.41
Bid-YTW : 3.64 %

GWO.PR.R Deemed-Retractible Quote: 23.71 – 24.10
Spot Rate : 0.3900
Average : 0.2601

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.71
Bid-YTW : 5.56 %

HSE.PR.C FixedReset Quote: 22.00 – 22.57
Spot Rate : 0.5700
Average : 0.4489

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 21.66
Evaluated at bid price : 22.00
Bid-YTW : 4.64 %

ENB.PR.B FixedReset Quote: 16.06 – 16.50
Spot Rate : 0.4400
Average : 0.3214

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-14
Maturity Price : 16.06
Evaluated at bid price : 16.06
Bid-YTW : 5.19 %

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