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Assured Guaranty Ltd. Message Board

  • bottomsupinvestor bottomsupinvestor Oct 16, 2009 1:48 PM Flag

    This is crazy!!! - FSA debt

    How can they take exchange traded debt which is meant to be traded like a stock and now trade it like a bond??? Does that mean this will happen to all exchanged traded debt??? Who made this decision and why wasn't it communicated before hand??? The reason I like these instruments is because they are not traded like bonds.

    We need to find where to place some blame and go at them.

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    • Bond commissions are always pretty small. They kill you on the spread, not the commission.

    • The Interactive Broker trade would at best be held in their own system and compared against a very bad price presented by Bond Desk. You are still subject to an awful bid ask spread and your quote still is not being presented to a wider marketplace.

      When I call Interactive Broker brokers they sound a lot more pessimistic about Bond Desk and their own capabilities than you do.

    • I'm glad to know about your experience with IB. I am curious to know if the way FSA institutional bonds are traded will apply in the same way to the baby bonds. For example, will commisions be based on $1000 be equal to $1000 derived from 40 bonds times the $25 par value? Some bond commissions also factor the number of bonds. Here too, I am assuming that 40 of the baby bonds will count as 1 institutional bond. I'm just trying to work through the commission considerations.

    • I have placed GTC (good til cancelled) orders for buying and selling bonds with IB, and seen them execute days later when the price I specified becomes available. You don't have to do fill or kill.

    • Not to puncture their marketing, but Interactive Brokers suffers the way most brokers do because their bond trading operation relies on an application named Bond Desk to give them the best offer. The long and short of it is that Bond Desk is a black box application that does *not* show the full market, only the selected bottom and top (bid and ask), nor does it even cover all of the desks that trade bonds.

      The essential problem with bonds is there is no exchange for them to trade in. If you have a bond that trades at a huge spread of $14 to $17 (or worse), and you want to put in a limit offer to sell at $18, there is no way to do it. There is no electronic place to match all the buyers and sellers, and that's exactly the way that the big New York banks that control the order flow of this market want it.

      The reason this system favors the rich person or company is that if you want to do that same order for $18 but for $1M face value of bonds, the broker has enough profit in the deal that they can afford to give a trader half a day to call around the world manually advertising your trade and trying to find you a partner. If you are trading $50K face value, you just aren't very important in their eyes. They will open up Bond Desk, read the two numbers at the top and bottom, and that's all the consideration you get.

      Interactive Brokers would go to Bond Desk, see the spread, and make you the offer to sell at $14. Take it or leave it. Right now. All or nothing. If you don't like the price, call back tomorrow.

      For such an important marketplace to be so uncompetitive - and in the US of all places - is criminal. But that's about how primitive over the counter bonds are.

      * There is no marketplace where any limit can be dropped.

      * For a small order your broker simply doesn't have the resources to go calling every one of 100 bond desks helping you to find the other side of the trade.

      No matter how pretty the user interface might be, Interactive Brokers may be creating an illusion about the underlying marketplace that simply are not there. The bottom line is you are subject to huge spreads, bad dissemination of market information (poor liquidity), and huge inconvenience in getting a trade at a good price.

    • It seems too early to me to be hyperventilating. Preferreds on the NYSE tend to trade at a discount to the underlying bonds. With the FSA pfds now trading as bonds perhaps this discount will disappear (to our benefit). Also, InteractiveBrokers has a great platform for trading bonds. I still see FSAH listed as being on the pink sheets in my IB account, but hopefully in just a few days they will switch it over to FSB.GC / CUSIP: 31769P506.

    • I don't like to be negative about things or jump to conclusions, but I firmly believe AGO may have opened themselves up to a class action lawsuit over this.

      AGO published news releases indicating that the FSA bonds would have a pink list market (which they did for a time). Then suddenly without notice the FSA bonds are removed from the pink sheets. Some investors may have online accounts with brokers that do not offer bond trading. If the value of the bonds were to rapidly collapse and investors do not have an opportunity to exit, that would definitely form a solid basis for a punative lawsuit. Even if the value of the bonds hold up, there may be a valid basis for a lawsuit. IMHO, eliminating or dramatically reducing an investors liquidity without significant advance notice is a breach of responsibility by the security issuer/responsibility party. It's going to be interesting to see how this turns out.

      • 1 Reply to prophet43m
      • I'm not going to defend FSA here, but this is the FSA side of the story:

        1) FSA delisted the bonds from the NYSE. They had NO PLAN to trade these securities on the pink sheets. This simply happened on its own accord, brokers taking their own initiative. FSA claims they were supportive of this.

        2) FSA is claiming that FINRA acted on its own initiative on Wednesday night to remove the symbols from pink sheets and to relist them on the over the counter bond market.

        Who is FINRA? FINRA is a financial market "regulator" that gets all of its revenue from the banks it "regulates". So it's no surprise to anyone that FINRA represents the interests of big banks.

        Why would big banks want to have bonds trade on the bond market instead of on the pink sheets? That one is very easy: they get to hide most of the important details of each trade and therefore the bid and ask spreads are huge and they make more money on each trade.

        So FINRA isn't protecting anyone here but itself. FINRA is making a money grab against the interests of consumers, and probably unless one of us is worth $100M and wants to spend a ton in court, they will win.

        This all sets a terrible precedent. Is FINRA going to just arbitrarily start grabbing other equity traded debt off of the pink sheets and start moving that over to the over the counter bond market? Where is the certainty for any investor now investing in a pink sheet exchange traded debt?

        I think there is a better chance of getting an interested congressman or senator involved to make inquiries by phone than to report it to SEC or another corrupt captured regulator.

    • I've heard two rumors: Glitch with quote system and now I hear they're going to trade like regular bonds.
      I had just sold the last trading day and I wanted to do another trade. I couldn't and didn't understand why but noted no volume and order couldn't be placed.
      I asked TD Ameritrade--but as usual they knew nothing more than the bonds are not trading. Why am I not surprised?
      They never know anything! I could have figured out what they told me on my own!

      I guess I won't even be able to trade these through a broker?
      If someone is able to trade these--please let me know which broker to use.

      I won't buy to daytrade. I will buy if the lack of liquidity spikes yields. I really want to own an investment grade bond with 20% yields. I guess I can't whine. I used to own these when they yielded even more--but idiot me gave 'em up for a one time big profit. I enjoyed the hit but think I might have been better holding on and getting quarterly payments. Then again, no one knows this company's long-term future. Perhaps later, I may be glad for what I did.

      I guess time will tell. That's part of the fun.

      I must admit -- I hate to see 'em go. It's scary to think if I had held overnight I'd be stuck with them. I have no positions, thank goodness

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