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Do Canadian Broker-Dealers Act as Agents or Principals in Bond Trading?

Author

Listed:
  • Daniel Hyun
  • Jesse Johal
  • Corey Garriott

Abstract

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). A move toward agency trading would represent a change in the structure of Canadian bond markets and, in theory, could worsen some aspects of market liquidity. To assess the prevalence of agency trading in Canada, we use data from the Market Trade Reporting System to construct the first estimate of agency-based trading in Canadian bond markets. We find that agency trading is relatively uncommon across major segments of Canadian fixed-income market and that large bank broker-dealers are less likely than their smaller counterparts to trade as an agent.

Suggested Citation

  • Daniel Hyun & Jesse Johal & Corey Garriott, 2017. "Do Canadian Broker-Dealers Act as Agents or Principals in Bond Trading?," Staff Analytical Notes 17-11, Bank of Canada.
  • Handle: RePEc:bca:bocsan:17-11
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    File URL: https://www.bankofcanada.ca/wp-content/uploads/2017/09/san2017-11.pdf
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    References listed on IDEAS

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    1. David A. Cimon & Corey Garriott, 2017. "Banking Regulation and Market Making," Staff Working Papers 17-7, Bank of Canada.
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    Cited by:

    1. Corey Garriott & Jesse Johal, 2018. "Customer Liquidity Provision in Canadian Bond Markets," Staff Analytical Notes 2018-12, Bank of Canada.

    More about this item

    Keywords

    Financial Institutions; Financial markets; Financial system regulation and policies; Market structure and pricing; Recent economic and financial developments;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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