either do not know enough about fixed-income markets or are too timid to venture into them is the lack of transparency of this giant market. As we have discussed, there is no central location for the bond market. Instead, it operates on an over-the-counter, decentralized basis. There is no ticker tape showing trades as they take place, nor is it easy to obtain a quotation. In other words, most of the bond market is opaque, not transparent. Whether transparency is the proper word or not is debatable. Prices of the most liquid bonds, Government of Canadas, are highly visible and widely quoted on a number of websites (www.candeal.ca and canadianfixedincome.ca are two). I feature Perimeter CBID’s live quotes on my website, www.inyourbestinterest.ca, and there are many provincial and corporate prices in addition to the benchmark Canadas. Of course, they represent a tiny percentage of all the bonds outstanding (some 60,000 issues) but at least it is a start. Regulators are pushing for more transparency and I am on a committee of IIROC that is exploring improvements in this area. By now, most clients can see the yields of the bonds that they have traded on their transaction statements. There is a strong push to reveal the commissions charged on each fixed-income transaction. Although most fellow committee members oppose this, I am in favour of it. Investors know how much they are charged for equity trades, so why would they not get to see how much they are paying for a bond trade? There really is not much to hide, as the fees charged on bond transactions are generally fair and do not vary significantly from equity commissions.
Policy 5 is a code of conduct for IDA member firms trading in wholesale domestic debt markets. It was developed at the behest of the Department of Finance and the Bank of Canada. Its purpose is to “ensure the integrity of Canadian debt markets and thereby to encourage liquidity, efficiency and the maintenance of active trading and lending and promote public confidence in such debt markets.” You can read the entire policy at www.iiroc.ca.
In recent years, Policy 5B was added. This was aimed directly at the retail fixed-income markets. It requires all investment dealers to have written policies and procedures in place for dealings with individual investors in the Canadian retail debt market. In particular, each investment dealer must have in place a recommended commission or markup for each fixed-income product that they trade. Such a grid would look like this.
While not generally available, you can ask for and expect to receive a copy of your FI’s grid. At the very least, your IA should be able to tell you what the grid is. As you can see, these are fair commissions (generally, the longer the term, the higher the commissions). This is for two reasons. First, the longer the maturity the less the yield is affected for a given commission, and second, it rewards the IA, as most bonds, especially strips, are buy and hold securities.
Other proposals are being pushed forward that would require retail bond-trading desks to maintain records demonstrating that their dealing prices are fair. This is a long way from implementation, but it is clear that the push is on to ensure that the retail fixed-income investor will be assured of getting a fair shake.
A huge hurdle facing bond market transparency has to do with the fact that IAs and their clients are captive to their firm’s bond-trading desk. The Big Six — RBCDS, TD Securities, Scotia Capital, BMO Nesbitt, CIBCWM, and National Bank Financial — are loath to give up their monopoly and trade flow. I am positive that they will not do so unless legislation is enacted requiring them to participate in a commingled marketplace for bonds. It seems to me that if every dealer who wanted to could provide their bids and offerings to a centralized system, and also allow their clients access to the same system, that would solve the transparency debate once and for all. I am also positive that this is going to be snail-like in its progress, as the Big Six have nothing to gain from it; the whole retail fixed-income business is not a very high priority for them. Regulators do run the risk of imposing so many costs and rules on the investment dealers that the dealers will move their clients away from this already expensive business.
The retail fixed-income business has shrunk dramatically as a percentage of investment dealers’ revenues as a result of plummeting nominal yields and the surge in (alas) structured products. Sadly, these products (chronicled in the product chapter) are not created in your best interest, but rather are designed to put big fees into the hands of the investment banking groups and big commissions in the hands of the IAs. As I stress, to be a do-it-yourselfer in the world of bonds, you will need to find a knowledgeable IA with a large book of business such that he/she does not need to do a lot of transactions with you to make a living. Otherwise, and I have heard from many of you, you can open an online account with a discount broker. To assist you, I have conducted my own hands-on survey of the various online fixed-income suppliers, which you will find on page 58.
The investment dealers make their markets in bonds using their own capital, unlike the stock market, where most trades occur on an agency basis (buyer and seller meet and a transaction takes place without the investment dealer needing to use capital).
Why does this difference exist, and what is being done about it? First of all, the majority of the outstanding fixed-income issues do not trade every day, with the noticeable exception of the very liquid Government of Canada benchmark issues. The reason they do not trade more frequently is that a provincial government or a corporation issue bonds of various types, maturities, and amounts. Some issues end up being owned by a few large investing institutions, leaving no “float” (refer back to the TRP example on page 29) Others may be stripped and sold as zero coupon securities. Also, some issues are too small. Foreign investors may acquire a large percentage of an issue.
Конец ознакомительного фрагмента.
Текст предоставлен ООО «ЛитРес».
Прочитайте эту книгу целиком, купив полную легальную версию на ЛитРес.
Безопасно оплатить книгу можно банковской картой Visa, MasterCard, Maestro, со счета мобильного телефона, с платежного терминала, в салоне МТС или Связной, через PayPal, WebMoney, Яндекс.Деньги, QIWI Кошелек, бонусными картами или другим удобным Вам способом.
