(March 1 – 17:20 ET) – The Bank of Canada has given fixed-income dealers the all-clear after contemplating an investigation into the fairness of the bond market.

On January 29, the Investment Dealers Association and the bank requested IDA firms designated as Primary Dealers complete a series of Net Position Reports. The reports concerned holdings in the 10-year benchmark issue, 5.5% June 2010, as of the close of business, for the following days: Dec. 11, 21 and 22, 2000 and Jan. 11, 12, 15 and 22, 2001. The bank says this action was prompted by concerns about how the 10-year benchmark issue was trading in the repo market.

A Net Position Report provides information on inventory positions and trading patterns from the dealer community. At the request of the bank, and in circumstances where market integrity is at risk, IDA firms designated as Government Securities Distributors are required to complete these reports.

According to the bank says a review of the reports showed that there was nothing to worry about. “There are insufficient grounds to suggest that IDA guidelines were broken and that the activities of any single dealer or group of dealers had a longer-term negative impact on the integrity of the Government of Canada securities market.”

It notes that as a result, no formal investigation is being requested by the bank, but the bank and the Department of Finance will shortly review IDA policy with the IDA Capital Markets Committee to ensure it remains current and effective.
-IE Staff