Hooray for TRACE - Bonds for the little guy
Pros in the bond world have been griping and moaning for quite a while now about the NASD TRACE requirements, because now they can't rip people off nearly so easily. TRACE is the Trade Reporting And Compliance Engine. It requires broker-dealers to report all their bond trades (on the list of eligible bonds), and the trades get displayed to the public on a 4-hour time delay.
Back in the "good old days" (depends a lot on your perspective), we bond trading desks could just rip the sh*t out of our accounts because, unlike in stocks, nobody can see the trades. So you could buy a million bonds (ie $1mm face amount) at, say, 88 and sell them at 91 and nobody would know they'd been ripped for 3 points ($30,000 on a $1mm trade). Once in a while, of course, the word would somehow get out and the customer would maybe stop trading with that particular desk or put them into the penalty box for a month. Then, of course, there's the NASD 5% rule, which discourages trades where the desk makes 5% or more. But by and large it made for a pretty profitable business. Now, though, everyone looks at TRACE. And even though the broker names aren't shown on the trade, trades, at least in most high-yield issues, are relatively infrequent, hence pretty visible, and it doesn't take rocket science to see when you've been ripped. Widespread wailing and gnashing of teeth among bond traders and their salesmen.
Of course, retail guys get ripped off way more than institutions. It doesn't necessarily mean all that much for a trading desk -- after all, a $10,000 trade is more like a spread than a trade for a desk that trades in $1mm pieces. Still, it's all gravy. Here's an example: take a look at the Sea Containers 8 7/8s of 2008. On Thursday at 13:25:33, a $15,000 piece traded at 98.25. At 14:38:58, another $15,000 trade was reported at 100.375. That's a spread of 2 1/8. The range for the whole day was 96.5 to that trade of 100.375 -- damn near 4 points for a bond that only yields a bit more than twice that for the whole year. Someone got ripped.
So next time you want to buy bonds, go to http://www.nasdbondinfo.com/asp/bond_search.asp first, type in the name of the bond you're interested in, and follow your nose to see where it's been trading. Let your broker know before you do the trade that you've checked out the prices on TRACE. Don't let them take you for more than a point, including commission.
And, way to go, guys at NASD! It's nice when once in a while the regulating body isn't too cozy in bed with the regulatees.
Back in the "good old days" (depends a lot on your perspective), we bond trading desks could just rip the sh*t out of our accounts because, unlike in stocks, nobody can see the trades. So you could buy a million bonds (ie $1mm face amount) at, say, 88 and sell them at 91 and nobody would know they'd been ripped for 3 points ($30,000 on a $1mm trade). Once in a while, of course, the word would somehow get out and the customer would maybe stop trading with that particular desk or put them into the penalty box for a month. Then, of course, there's the NASD 5% rule, which discourages trades where the desk makes 5% or more. But by and large it made for a pretty profitable business. Now, though, everyone looks at TRACE. And even though the broker names aren't shown on the trade, trades, at least in most high-yield issues, are relatively infrequent, hence pretty visible, and it doesn't take rocket science to see when you've been ripped. Widespread wailing and gnashing of teeth among bond traders and their salesmen.
Of course, retail guys get ripped off way more than institutions. It doesn't necessarily mean all that much for a trading desk -- after all, a $10,000 trade is more like a spread than a trade for a desk that trades in $1mm pieces. Still, it's all gravy. Here's an example: take a look at the Sea Containers 8 7/8s of 2008. On Thursday at 13:25:33, a $15,000 piece traded at 98.25. At 14:38:58, another $15,000 trade was reported at 100.375. That's a spread of 2 1/8. The range for the whole day was 96.5 to that trade of 100.375 -- damn near 4 points for a bond that only yields a bit more than twice that for the whole year. Someone got ripped.
So next time you want to buy bonds, go to http://www.nasdbondinfo.com/asp/bond_search.asp first, type in the name of the bond you're interested in, and follow your nose to see where it's been trading. Let your broker know before you do the trade that you've checked out the prices on TRACE. Don't let them take you for more than a point, including commission.
And, way to go, guys at NASD! It's nice when once in a while the regulating body isn't too cozy in bed with the regulatees.
posted by econoclast at 11:07 AM
0 comments
