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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

    as
    1. Cimon, David & Garriott, Corey, 2019. "Banking regulation and market making," Journal of Banking & Finance, Elsevier, vol. 109(C).
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    Cited by:

    1. Jean-Sébastien Fontaine & Corey Garriott & Jesse Johal & Jessica Lee & Andreas Uthemann, 2021. "COVID-19 Crisis: Lessons Learned for Future Policy Research," Discussion Papers 2021-2, Bank of Canada.
    2. Jason Allen & Jakub Kastl & Milena Wittwer, 2020. "Primary Dealers and the Demand for Government Debt," Working Papers 2020-27, Princeton University. Economics Department..
    3. Jason Allen & Jakub Kastl & Milena Wittwer, 2020. "Maturity Composition and the Demand for Government Debt," Staff Working Papers 20-29, Bank of Canada.
    4. Corey Garriott & Jesse Johal, 2018. "Customer Liquidity Provision in Canadian Bond Markets," Staff Analytical Notes 2018-12, Bank of Canada.
    5. Rohan Arora & Guillaume Bédard-Pagé & Guillaume Ouellet Leblanc & Ryan Shotlander, 2019. "Bond Funds and Fixed-Income Market Liquidity: A Stress-Testing Approach," Technical Reports 115, Bank of Canada.

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    More about this item

    Keywords

    Financial Institutions; Financial markets; Financial system regulation and policies; Market structure and pricing; Recent economic and financial developments;
    All these keywords.

    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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