June 7, 2018
G20 - General
-
-
How do Canadian Corporate Bond Mutual Funds Meet Investor Redemptions?
When investors redeem their fund shares for cash, fixed-income fund managers can choose whether to draw on their liquid holdings or sell bonds in the secondary market. We analyze the liquidity-management decisions of Canadian corporate bond mutual funds, focusing on the strategies they use to meet investor redemptions. -
Customer Liquidity Provision in Canadian Bond Markets
This analytical note assesses the prevalence of liquidity provision by institutional investors in Canadian bonds. We find that the practice is not prevalent in Canada. Customer liquidity provision is more prevalent for less liquid bonds, on days when liquidity is already expensive or when there are larger trading volumes. In our interpretation, Canadian dealers draw on customer liquidity as a supplementary source of liquidity and only when necessary, given its cost. -
Did Canadian Corporate Bond Funds Increase their Exposures to Risks?
Canadian corporate bond mutual funds have rapidly increased in number and size in recent years. Their holdings have also become riskier, increasing their exposures to credit risk, interest rate risk and liquidity risk. We also briefly discuss financial stability implications. -
High-Frequency Trading and Institutional Trading Costs
Using data on Canadian bond futures, we examine how high-frequency traders (HFTs) interact with institutions building large positions. In contrast to recent findings, we find HFTs in the data act as small-sized liquidity suppliers, and we reject the hypothesis that they engage in back running, a predatory trading strategy. -
Adverse Selection with Heterogeneously Informed Agents
A model of over-the-counter markets is proposed. Some asset buyers are informed in that they can identify high quality assets. Heterogeneous sellers with private information choose what type of buyers they want to trade with. -
Optimal Interbank Regulation
Recent years have seen renewed interest in the regulation of interbank markets. A review of the literature in this area identifies two gaps: first, the literature has tended to make ad hoc assumptions about the interbank contract space, which makes it difficult to generate convincing policy prescriptions; second, the literature has tended to focus on ex-post interventions that kick in only after an interbank disruption has come underway (e.g., open-market operations, lender-of-last-resort interventions, bail-outs), rather than ex-ante prudential policies. -
Do Canadian Broker-Dealers Act as Agents or Principals in Bond Trading?
Technology, risk tolerance and regulation may influence dealers to reduce their trading as principals (using their own balance sheets for sales and purchases of securities) in favour of agency trading (matching client trades). -
May 11, 2017
Wholesale Funding of the Big Six Canadian Banks
The Big Six Canadian banks are a dominant component of the Canadian financial system. How they finance their business activities is fundamental to how effective they are. Retail and commercial deposits along with wholesale funding represent the two major sources of funds for Canadian banks. What wholesale funding instruments do the Big Six banks use? How do they choose between different funding sources, funding strategies and why? How have banks changed their funding mix since the 2007–09 global financial crisis? -
Strategic Complementarities and Money Market Fund Liquidity Management
Following the financial crisis, there has been increased regulatory focus on the management of liquidity in mutual funds and, specifically, whether funds hold enough liquidity to guard against the potential for investor runs.