Adrian Walton is a Senior Economist in the Financial Markets Department at the Bank of Canada. His research focuses on how the rules and conventions that govern trading in financial assets affect market functioning, specifically in Canadian equity and fixed-income markets.
Price controls, or caps, can lead to shortages, as 1970’s gasoline price controls illustrate. One million trades show that the market for borrowing bonds in Canada has an implicit price cap: traders are willing to pay no more than the overnight interest rate to borrow a bond. This suggests the probability of a shortage increases when interest rates are very low.
This paper presents four blue-sky ideas for lowering the cost of the Government of Canada’s debt without increasing the debt’s risk profile. We argue that each idea would improve the secondary-market liquidity of government debt, thereby increasing the demand for government bonds and thus lowering their cost at issuance.
In 2015, TSX Alpha, a Canadian stock exchange, implemented a speed bump for marketable orders and an inverted fee structure as part of a redesign. We find no evidence that this redesign impacted market-wide measures of trading costs or contributed appreciably to segmenting retail order flow away from other Canadian venues with a maker-taker fee structure.
We study settlement fails for trades in the Government of Canada bond market. We find that settlement fails do not occur independently. Using a novel and comprehensive dataset, we examine three drivers of fails.
This paper investigates how a low or negative overnight interest rate might affect the Canadian repo markets. The main conclusion is that the repo market for general collateral will continue to function effectively.