The Bank for International Settlements has released a paper by Fabio Panetta, Thomas Faeh, Giuseppe Grande, Corrinne Ho, Michael King, Aviram Levy, Federico M Signoretti, Marco Taboga and Andrea Zaghini, An assessment of financial sector rescue programmes:
We analyse the wide array of rescue programmes adopted in several countries, following Lehman Brothers’ default in September 2008, in order to support banks and other financial institutions. We first provide an overview of the programmes, comparing their characteristics, magnitudes and participation rates across countries. We then consider the effects of the programmes on banks’ risk and valuation, looking at the behaviour of CDS premia and stock prices. We then proceed to analyse the issuance of government guaranteed bonds by banks, examining their impact on banks’ funding and highlighting undesired effects and distortions. Finally, we briefly review the recent evolution of bank lending to the private sector. We draw policy implications, in particular as regards the way of mitigating the distortions implied by such programmes and the need for an exit strategy
Paul Krugman wrote a piece in the New York Times titled Rewarding Bad Actors, which dealt in part with High Frequency Trading:
It’s hard to imagine a better illustration than high-frequency trading. The stock market is supposed to allocate capital to its most productive uses, for example by helping companies with good ideas raise money. But it’s hard to see how traders who place their orders one-thirtieth of a second faster than anyone else do anything to improve that social function.
…
And there’s a good case that such activities are actually harmful. For example, high-frequency trading probably degrades the stock market’s function, because it’s a kind of tax on investors who lack access to those superfast computers — which means that the money Goldman spends on those computers has a negative effect on national wealth. As the great Stanford economist Kenneth Arrow put it in 1973, speculation based on private information imposes a “double social loss”: it uses up resources and undermines markets.
Far be it from me to dismiss the thoughts of a Nobel-winning economist, but I fail to see his point here – at the very least, it needs elucidation.
Mr. Krugman implies that there is a lower limit to trading reaction speed, below which improvements in reaction time have deleterious effects on national wealth. I don’t see how you would go about defining such a thing. It should also be noted that High Frequency Trading does not necessarily have anything to do with Flash Orders; HFT is simply a method of arbitrage. If, for instance, there is a huge seller of SLF.PR.A, and I can arbitrage that by selling SLF.PR.E to buy it, surely this is a Good Thing for capital markets, and the faster the better? HFT deepens the markets by converting supply and demand for one particular financial instrument into supply and demand for related financial instruments; deepening the market and providing better liquidity for those who want it.
From the point of view of the original seller of SLF.PR.A, I’m doing him a favour … instead of taking trading costs of ten cents per share, he’s only spending nine cents. My nine-cent reward for executing the near-arbitrage (it’s not pure arbitrage since the two issues are not interconvertible) serves as a carrot for my competition … if they can do it faster, stronger, better, the original seller’s cost will drop to eight cents – and they’ll get to keep it all while I go back to the drawing board in an effort to make it seven cents.
But it looks like Flash Orders will be banned. I must say, I’m disappointed with the press coverage of the issue: I haven’t seen an interview anywhere with a supporter (or at least a user) of Flash Orders, willing to stand up on his hind legs and say ‘Flash Orders are Good because …’. But that’s modern journalism for you … all they do nowadays is copy things down from press releases and occasionally call the number at the bottom so they can claim they’ve got an exclusive.
A rip-roaring day for PerpetualDiscounts, with FixedResets doing quite well but trailing badly and shut out of the volume tables.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
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| 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 | 2.0893 % | 1,244.8 |
| FixedFloater | 7.11 % | 5.28 % | 42,111 | 16.90 | 1 | 0.3279 % | 2,160.6 |
| Floater | 3.66 % | 3.68 % | 72,454 | 18.10 | 2 | 2.0893 % | 1,555.1 |
| OpRet | 4.89 % | -6.03 % | 141,272 | 0.10 | 15 | 0.3218 % | 2,257.9 |
| SplitShare | 5.82 % | 6.63 % | 97,262 | 4.12 | 3 | 0.4891 % | 1,995.7 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.3218 % | 2,064.7 |
| Perpetual-Premium | 5.74 % | 5.58 % | 76,837 | 13.86 | 4 | -0.1885 % | 1,845.8 |
| Perpetual-Discount | 5.97 % | 6.04 % | 171,813 | 13.82 | 67 | 0.8545 % | 1,717.7 |
| FixedReset | 5.49 % | 4.04 % | 556,396 | 4.15 | 40 | 0.2404 % | 2,099.4 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| W.PR.J | Perpetual-Discount | -1.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 22.15 Evaluated at bid price : 22.43 Bid-YTW : 6.30 % |
| MFC.PR.C | Perpetual-Discount | 1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 19.06 Evaluated at bid price : 19.06 Bid-YTW : 6.00 % |
| PWF.PR.I | Perpetual-Discount | 1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 24.09 Evaluated at bid price : 24.40 Bid-YTW : 6.18 % |
| SLF.PR.F | FixedReset | 1.04 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-30 Maturity Price : 25.00 Evaluated at bid price : 27.30 Bid-YTW : 4.27 % |
| BMO.PR.K | Perpetual-Discount | 1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 23.09 Evaluated at bid price : 23.25 Bid-YTW : 5.75 % |
| W.PR.H | Perpetual-Discount | 1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 21.89 Evaluated at bid price : 22.25 Bid-YTW : 6.23 % |
| RY.PR.H | Perpetual-Discount | 1.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 24.39 Evaluated at bid price : 24.60 Bid-YTW : 5.75 % |
| IAG.PR.C | FixedReset | 1.07 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-01-30 Maturity Price : 25.00 Evaluated at bid price : 27.39 Bid-YTW : 4.03 % |
| SLF.PR.C | Perpetual-Discount | 1.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 18.51 Evaluated at bid price : 18.51 Bid-YTW : 6.10 % |
| CM.PR.J | Perpetual-Discount | 1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 18.98 Evaluated at bid price : 18.98 Bid-YTW : 5.98 % |
| RY.PR.X | FixedReset | 1.13 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-09-23 Maturity Price : 25.00 Evaluated at bid price : 27.78 Bid-YTW : 3.84 % |
| CIU.PR.A | Perpetual-Discount | 1.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 20.40 Evaluated at bid price : 20.40 Bid-YTW : 5.75 % |
| BAM.PR.M | Perpetual-Discount | 1.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 16.70 Evaluated at bid price : 16.70 Bid-YTW : 7.23 % |
| GWO.PR.I | Perpetual-Discount | 1.17 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 19.02 Evaluated at bid price : 19.02 Bid-YTW : 6.00 % |
| BNS.PR.K | Perpetual-Discount | 1.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 20.99 Evaluated at bid price : 20.99 Bid-YTW : 5.76 % |
| RY.PR.C | Perpetual-Discount | 1.32 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 20.02 Evaluated at bid price : 20.02 Bid-YTW : 5.76 % |
| BAM.PR.B | Floater | 1.33 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 10.70 Evaluated at bid price : 10.70 Bid-YTW : 3.71 % |
| ELF.PR.F | Perpetual-Discount | 1.35 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 19.46 Evaluated at bid price : 19.46 Bid-YTW : 6.89 % |
| ELF.PR.G | Perpetual-Discount | 1.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 17.65 Evaluated at bid price : 17.65 Bid-YTW : 6.81 % |
| HSB.PR.D | Perpetual-Discount | 1.41 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 20.80 Evaluated at bid price : 20.80 Bid-YTW : 6.10 % |
| NA.PR.L | Perpetual-Discount | 1.45 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 20.95 Evaluated at bid price : 20.95 Bid-YTW : 5.82 % |
| MFC.PR.B | Perpetual-Discount | 1.46 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 19.51 Evaluated at bid price : 19.51 Bid-YTW : 6.06 % |
| BNS.PR.O | Perpetual-Discount | 1.50 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 24.21 Evaluated at bid price : 24.42 Bid-YTW : 5.77 % |
| BNS.PR.N | Perpetual-Discount | 1.52 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 22.64 Evaluated at bid price : 22.78 Bid-YTW : 5.80 % |
| SLF.PR.E | Perpetual-Discount | 1.57 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 18.80 Evaluated at bid price : 18.80 Bid-YTW : 6.07 % |
| GWO.PR.F | Perpetual-Discount | 1.58 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 24.19 Evaluated at bid price : 24.48 Bid-YTW : 6.10 % |
| TD.PR.O | Perpetual-Discount | 1.60 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 21.60 Evaluated at bid price : 21.60 Bid-YTW : 5.66 % |
| BNA.PR.C | SplitShare | 1.63 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2019-01-10 Maturity Price : 25.00 Evaluated at bid price : 18.05 Bid-YTW : 8.93 % |
| TD.PR.P | Perpetual-Discount | 1.65 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 23.21 Evaluated at bid price : 23.38 Bid-YTW : 5.65 % |
| RY.PR.W | Perpetual-Discount | 1.89 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 21.61 Evaluated at bid price : 21.61 Bid-YTW : 5.69 % |
| SLF.PR.B | Perpetual-Discount | 1.90 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 19.88 Evaluated at bid price : 19.88 Bid-YTW : 6.12 % |
| MFC.PR.A | OpRet | 2.08 % | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2015-12-18 Maturity Price : 25.00 Evaluated at bid price : 26.07 Bid-YTW : 3.45 % |
| BAM.PR.J | OpRet | 2.15 % | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2018-03-30 Maturity Price : 25.00 Evaluated at bid price : 23.76 Bid-YTW : 6.27 % |
| PWF.PR.E | Perpetual-Discount | 2.24 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 21.96 Evaluated at bid price : 22.35 Bid-YTW : 6.18 % |
| SLF.PR.A | Perpetual-Discount | 2.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 19.79 Evaluated at bid price : 19.79 Bid-YTW : 6.09 % |
| BAM.PR.K | Floater | 2.86 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 10.80 Evaluated at bid price : 10.80 Bid-YTW : 3.68 % |
| HSB.PR.C | Perpetual-Discount | 2.88 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 21.47 Evaluated at bid price : 21.77 Bid-YTW : 5.92 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| SLF.PR.B | Perpetual-Discount | 182,531 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 19.88 Evaluated at bid price : 19.88 Bid-YTW : 6.12 % |
| RY.PR.B | Perpetual-Discount | 50,395 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 20.40 Evaluated at bid price : 20.40 Bid-YTW : 5.78 % |
| BAM.PR.B | Floater | 44,318 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 10.70 Evaluated at bid price : 10.70 Bid-YTW : 3.71 % |
| CM.PR.I | Perpetual-Discount | 39,083 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 19.65 Evaluated at bid price : 19.65 Bid-YTW : 6.03 % |
| BNS.PR.N | Perpetual-Discount | 33,803 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 22.64 Evaluated at bid price : 22.78 Bid-YTW : 5.80 % |
| CM.PR.H | Perpetual-Discount | 33,097 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-04 Maturity Price : 20.11 Evaluated at bid price : 20.11 Bid-YTW : 6.02 % |
| There were 44 other index-included issues trading in excess of 10,000 shares. | |||