By: Larry MacDonald
FAIR Canada (Canadian Foundation for Advancement of Investor Rights) recently released the July issue of its newsletter. The lead feature calls for a transparent bond market.
Bonds are currently bought and sold over-the-counter (OTC), mainly through the desks of the six big banks. No explicit commissions are charged; they are embedded in the bid-ask spreads. But those implicit commissions are not always easy to assess – which presents opportunities for gouging.
A central exchange, as exists for stocks, may be better. The bid-ask spreads will be clearly visible; investors will know what it exactly costs to buy and sell bonds.
Moreover, it’s possible the rather large bid-ask spreads that presently exist may come down through greater awareness and competition from other providers. Greater transparency may also invite greater participation, and, in turn, generate the kind of liquidity that can help reduce the spreads, says FAIR.
2 Responses to “ A central exchange for bond trading ”
I believe that bonds should be as easy to trade as equities. It is possible to calculate what the banks charge for buying and selling bonds but it is not easy to do and requires some good computer skills. My portfolio averages 1/3 equities and 2/3 bonds so I frequently buy bonds. Normally wait until maturity to cash in bonds so purchasing is much more important for me
By Germain on Aug 5, 2009
It is high time that the Financial Service Industry relinquish the Powers that it wields, that are in excess of those entrusted to the Federal Cabinet.
In this context, Bonds will never be allowed the transparent properties of Equity purchases, for the clue provided above.
H.J.
By Harry J Singh on Aug 5, 2009