Broker Selection and Managing the Broker Relationship

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Broker Selection and Managing the Broker Relationship

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Broker Lingo How to relate to your broker ... Broker Information. Publications. On-line resources. Investment Software. Strategies ... – PowerPoint PPT presentation

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Title: Broker Selection and Managing the Broker Relationship


1
Broker Selection and Managing the Broker
Relationship
  • Carol Himes Hannigan, C.G.F.O. Treasurer, City of
    Boca Raton

2
Broker Lingo How to relate to your broker
  • Bullet is a non-callable bond
  • Callable bond is a bond with a call option,
    where the issuer can payoff the bond before
    maturity
  • Discount bond is a bond that does not pay
    interest, rather is sold at a discount to par or
    face value

3
Broker Lingo How to relate to your broker
  • Step up bond a bond that has the coupon rate
    adjust upward over time
  • Spread an increase in yield that is paid for
    one bond over another. Example a callable bond
    over a bullet or an agency over a treasury bond

4
Broker Lingo How to relate to your broker
  • Call types Bermuda, European, American, one
    time, semi-annual quarterly, monthly, continuous
  • European call One time call
  • American call Continuous
  • Bermuda call Any embedded option whereby the
    bondholder has sold the issuer the right to
    repurchase the bond back from the investor, on
    interest payment date only, from the first
    callable until its maturity date. (Bloomberg) .
    Quarterly

5
Broker Lingo Relating to your broker
  • Call protection- various structures offer
    different call protections.
  • Non- callable for
  • One month
  • Three month
  • Six month
  • One year

6
Broker Lingo Relating to your broker
  • Callable thereafter
  • One time only
  • Semi-annually
  • Quarterly
  • Monthly
  • Continuously

7
Broker Lingo Relating to your broker
  • New issues at face value or par.
  • Secondary market par, premium or discount.
  • Pricing is quoted in 32nds.
  • Par and 9/32
  • Par and 9/32
  • 99 and 9/32
  • Fractions versus decimals

8
Broker Lingo Relating to your broker
  • Yield to maturity A yield based on the
    assumption that the security will remain
    outstanding to maturity. It represents the total
    of coupon payments until maturity, plus interest
    on interest, and what ever gain or loss is
    realized from the security at maturity (1)
  • (1) UBS An Investors Guide to Bond Basics

9
Broker Lingo Relating to your broker
  • Yield to call A yield on a security calculated
    by assuming that interest payments will be paid
    until the call date, when the security will be
    redeemed at the call price. (1)
  • Yield curve A line tracing the relative yields
    on a type of security over a spectrum of
    maturities ranging from three months to 30
    years(1)
  • (1) UBS An Investors Guide to Bond Basics

10
Broker Lingo Relating to your broker
  • Settlement date The date for the delivery of
    securities and payment of funds
  • Reg settle settlement for next day
  • Cash settle settlement same day as trade

11
Broker Lingo Relating to your broker
  • Basis point One one-hundredth (1/100) of a
    percent
  • Duration The weighted maturity of a fixed
    income investments cash flows, used in the
    estimation of the price sensitivity of
    fixed-income securities for a given change in
    interest rates
  • DKd trade When a security does not settle
    because the safekeeper Doesnt Know the trade

12
How many brokers?
  • Investment Policy
  • What works?

13
Broker Selection
  • Qualifications
  • Style
  • Data collection
  • Analysis

14
The Bidding Process
  • Policy
  • Strategy
  • Broker selection
  • Who
  • How many
  • Fax, e-mail or phone?

15
Operations
  • Settling trades
  • DVP
  • Safekeeper notification
  • Quality of safekeeper follow-up
  • Broker terminology DKd trade

16
Analytics
  • Broker Information
  • Publications
  • On-line resources
  • Investment Software

17
Strategies
  • Ladder approach
  • Barbell Approach
  • Do nothing approach
  • Passive approach
  • Aggressive approach
  • Active approach

18
Considerations for what to buy
  • Callable vs bullet
  • Spreads
  • Option adjusted spread
  • Mortgage products
  • Adjustable vs fixed

19
Questions?
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