To nobody’s surprise, the banks are starting to harness the hysteria over bonuses to alter the balance of power with their traders:
Canada’s biggest bank, Royal Bank of Canada, is changing the way its investment bankers and traders are paid, according to a memo it sent to employees Tuesday.
…
The bank’s aim is not to decrease the amount its employees are paid, but rather to ensure that their pay packages are structured in a way that does not encourage them to take excessive risks.
That last paragraph should have been published as “The Morning Smile”.
For instance, a greater proportion of Royal Bank employees’ compensation will now be deferred, and managing directors will be required to own a certain amount of shares in the bank.
So RBC gets to slap the golden handcuffs on their traders for free, and managing directors will have their pay dependent on whether or not some bozo in the president’s office has lent $20-billion to Argentina. Cross your fingers, boys!
When it comes to calculating bonuses, the bank intends to pay more attention to how employees reached their results, not just what their results were. The bank is paying more attention to non-financial measures in part so it can take into account the amount of risk employees take on to achieve their financial goals.
Non-financial measures like ‘Did you suck enough management arse?’
ln addition, RBC told employees it is in the process of finalizing a claw back policy, for cases where misconduct or a failure to abide by proper procedures results in a loss or the need to restate financial results.
Opening up the gates for more abuse of the regulatory process. David Berry can tell you all about that one.
The paper also mentions changes at Scotia, but I haven’t heard much about that. The last major round of compensation rejigging I know of was at CIBC, where changes resulted in a flood of resumes hitting the streets and the institutional sales desks hastily restaffed by high school students.
All this, by the way, is just after the relevation (to me) that RBC routinely spies on its employees:
She accused another of using the made-up word “sensy” rather than “sexy” so that RBC’s monitoring system would not pick up his language.
What a charming example of the Thought Police kicking out any manager with a rational world view.
But where are the RBC guys going to go? Thanks to the Canadian oligarchy, there are very few opportunities to work as a prop trader – with good capital availability and good order flow – at a non-bank trading firm. I continue to believe that the Achilles heel of the Canadian banking sector is the potential for contagion between vanilla banking, wealth management and trading … and we’ll just have to hope it never takes effect, because OSFI won’t do anythng useful about it.
The CME is introducing a new US long bond futures contract, which will have a lower negative convexity that the current contract:
The “ultra” Treasury bond future will begin trading in the first quarter of next year, Chicago-based CME said today in a statement. The contract, designating Treasuries with maturities of 25 years or more for delivery, won’t replace the current 30-year bond future, which allows government bonds that mature in 15 years or more.
…
“With the increased issuance because of the deficit over the last year and a half we now have an ample deliverable basket” of long-term bonds to underpin the futures contract, [CME managing director of interest-rate products Robin] Ross said. Two to three years ago there wasn’t enough supply of U.S. bonds maturing in 25 years or more to make the futures contract deliverable, she said.
The big excitement today was the new TRP 4.60+192 FixedReset; PerpetualDiscounts gained 3bp total return on the day while FixedResets were down about 22bp. Floaters continued yesterday‘s pop. There were no huge volume outliers, but volume was quite good across the board.
| 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 | 0.6834 % | 1,508.7 |
| FixedFloater | 5.77 % | 4.02 % | 53,580 | 18.57 | 1 | -0.7368 % | 2,663.4 |
| Floater | 2.43 % | 2.08 % | 29,451 | 22.24 | 4 | 0.6834 % | 1,884.8 |
| OpRet | 4.85 % | -12.75 % | 133,357 | 0.09 | 15 | 0.0611 % | 2,294.7 |
| SplitShare | 6.38 % | 6.55 % | 895,945 | 4.03 | 2 | 0.4198 % | 2,072.6 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0611 % | 2,098.3 |
| Perpetual-Premium | 5.76 % | 5.63 % | 151,985 | 2.53 | 12 | -0.1676 % | 1,882.3 |
| Perpetual-Discount | 5.71 % | 5.76 % | 206,344 | 14.19 | 59 | 0.0263 % | 1,802.8 |
| FixedReset | 5.49 % | 4.03 % | 455,994 | 4.06 | 40 | -0.2179 % | 2,111.4 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| RY.PR.W | Perpetual-Discount | -1.53 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-09-22 Maturity Price : 22.40 Evaluated at bid price : 22.56 Bid-YTW : 5.49 % |
| BNS.PR.X | FixedReset | -1.11 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-25 Maturity Price : 25.00 Evaluated at bid price : 27.65 Bid-YTW : 4.03 % |
| ELF.PR.F | Perpetual-Discount | -1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-09-22 Maturity Price : 21.03 Evaluated at bid price : 21.03 Bid-YTW : 6.44 % |
| BAM.PR.K | Floater | 1.37 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-09-22 Maturity Price : 13.30 Evaluated at bid price : 13.30 Bid-YTW : 2.95 % |
| BAM.PR.B | Floater | 1.89 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-09-22 Maturity Price : 13.50 Evaluated at bid price : 13.50 Bid-YTW : 2.91 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| PWF.PR.M | FixedReset | 50,300 | RBC bought two blocks from (the same?) anonymous, 20,000 and 15,500 shares, both at 27.10. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-02 Maturity Price : 25.00 Evaluated at bid price : 27.10 Bid-YTW : 4.13 % |
| MFC.PR.E | FixedReset | 50,125 | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-19 Maturity Price : 25.00 Evaluated at bid price : 26.41 Bid-YTW : 4.40 % |
| TD.PR.Q | Perpetual-Premium | 48,175 | RBC crossed 28,800 at 25.00. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-09-22 Maturity Price : 24.78 Evaluated at bid price : 25.01 Bid-YTW : 5.68 % |
| CIU.PR.B | FixedReset | 48,025 | RBC crossed two blocks, 19,900 and 20,000, both at 28.25. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-01 Maturity Price : 25.00 Evaluated at bid price : 28.05 Bid-YTW : 4.02 % |
| RY.PR.X | FixedReset | 45,750 | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-09-23 Maturity Price : 25.00 Evaluated at bid price : 27.72 Bid-YTW : 4.00 % |
| CM.PR.L | FixedReset | 38,307 | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 27.91 Bid-YTW : 4.03 % |
| There were 48 other index-included issues trading in excess of 10,000 shares. | |||