TORONTO, Nov 8 (Reuters) - Privately owned Perimeter Financial Corp. said on Thursday it will launch a market for third-party Canadian asset backed commercial paper next week, in an attempt to provide a transparent trading venue for the frozen securities.
“There has been an increasing demand from our customers, and other affected parties, for assistance in creating liquidity in the ABCP markets,” Doug Steiner, chairman and chief executive of Perimeter Financial, said in a statement.
The market will open on Nov. 14 to members of the Investment Dealers Association of Canada and institutional investors who want to buy or sell ABCP holdings, the company said.
Canada’s third-party ABCP market — commercial paper issued by conduits sponsored by groups other than the country’s big banks — froze up almost three months ago. Investors in the short-term notes stopped buying on fears that the underlying assets were tied to the troubled U.S. subprime mortgage market. Subsequently, many ABCP issuers couldn’t get emergency funding to pay maturing notes.
Many large market participants are now trying to assess and restructure third party ABCP conduits under a process known as the Montreal Accord. Those investors agreed not to trade their ABCP until at least mid-December.
Marlene Puffer, managing director of consulting firm Twist Financial, said that the notion of a market is “admirable” but may not attract participants.
“These (ABCP) deals have always traded over the counter,” Puffer noted. “The market is there, it’s the information that is not.”
In the last week or so, more details have been disclosed by rating agency DBRS about the loans and debt obligations backing the commercial paper, but there still is not sufficient information to price the notes, Puffer said.
“It’s great in theory (to start a market) but in practice it may face some major hurdles,” she said.
Perimeter said that trading in 22 trusts would be done on an anonymous counterparty basis. Limit prices and all post-trade details will be made available to the public, it said.
Ken Knowles, adviser to Perimeter Financial, said the firm had been asked by many clients to provide a platform that would create some transparency and, hopefully, liquidity.
“Whether or not a price point will be found quickly is hard to tell,” Knowles said, noting that investors who do not own the ABCP do not know what assets they contain.
“But there are investors out there who believe they have a handle on potentially what’s inside them and they are prepared to put some capital at risk,” Knowles said.
“We’re not sure we understand why freezing a market (with the Montreal standstill agreement) was ever a good thing to do,” he said.
Perimeter, which is owned by Ontario Teachers’ Pension Plan, National Bank of Canada (NA.TO) and the huge Caisse de depot et placement du Quebec, among other investors, operates an automated fixed-income trading system as well as BlockBook, an electronic market for equity blocks.
This week, as Canadian companies reported third-quarter financial results, many said they had written down the fair value of their nonbank ABCP holdings by between 10 percent and 15 percent. But the companies stressed that uncertainty remains about the value of the assets.
Reporting by Lynne Olver; Editing by Peter Galloway