Index linked gilts and broker's valuation

[daveh]

Does IWEB deal with normal gilts correctly i.e. no "weird" values shown?

Debating whether to shift some or all of my investments to them as Vanguard is now at a point where the fees are close to the cap but I like the simplicity.

HSDL does, so (almost certainly) as they are the same except for the colour of the website.

[dealtn]

Does IWEB deal with normal gilts correctly i.e. no "weird" values shown?

Debating whether to shift some or all of my investments to them as Vanguard is now at a point where the fees are close to the cap but I like the simplicity.

A better question to ask (and would apply to all "brokers") is whether they trade gilts directly with a GEMM in the most tightly priced and liquid market for those instruments OR do they deal indirectly onto a retail platform such as ORB or the LSE and hence at worse terms (despite being legitimately able to satisfy best execution)?

I would be amazed if the answer was the former but until a genuine mass retail market exists for gilts, be prepared to be treated as second class investors, or worse, which isn't the case for equities.

[GeoffF100]

Does IWEB deal with normal gilts correctly i.e. no "weird" values shown?

Debating whether to shift some or all of my investments to them as Vanguard is now at a point where the fees are close to the cap but I like the simplicity.

A better question to ask (and would apply to all "brokers") is whether they trade gilts directly with a GEMM in the most tightly priced and liquid market for those instruments OR do they deal indirectly onto a retail platform such as ORB or the LSE and hence at worse terms (despite being legitimately able to satisfy best execution)?

I would be amazed if the answer was the former but until a genuine mass retail market exists for gilts, be prepared to be treated as second class investors, or worse, which isn't the case for equities.

We have to put up with what is available to us.

[mc2fool]

A better question to ask (and would apply to all "brokers") is whether they trade gilts directly with a GEMM in the most tightly priced and liquid market for those instruments OR do they deal indirectly onto a retail platform such as ORB or the LSE and hence at worse terms (despite being legitimately able to satisfy best execution)?

I would be amazed if the answer was the former but until a genuine mass retail market exists for gilts, be prepared to be treated as second class investors, or worse, which isn't the case for equities.

We have to put up with what is available to us.

And it doesn't appear to be too bad, at least with Interactive Investor through which I just bought some T28 (an index link gilt) and bid-offer (clean) was 95.50-96.50 at the time, so a mid price of 96.00, and they got them for me for 96.04. Would have been better without the 19 minute phone call though...

[mc2fool]

How long is yonks? I would have thought that once you are speaking to a dealer the trade should be done quickly in securities as liquid as gilts. Although I guess he/she needs to get someone else on the phone.

viewtopic.php?p=609248#p609248

Sigh ... I bought my first index linker through Interactive Investor yesterday (my others have been through IWeb).

A rather tedious 17 minute phone call, mostly waiting for the agent to get though to the dealer...

(snip)
As it was my first and so far only over the phone deal with II I don't know how typical that is of them.

Second experience: 19 minutes. So, yeah, typical.

[dealtn]

We have to put up with what is available to us.

And it doesn't appear to be too bad, at least with Interactive Investor through which I just bought some T28 (an index link gilt) and bid-offer (clean) was 95.50-96.50 at the time, so a mid price of 96.00, and they got them for me for 96.04. Would have been better without the 19 minute phone call though...

It's been a few years since I've been a GEMM, so maybe its (slightly) different now.

But a typical price back then would have been 96.00-01 (or 95.74-75) so 96.04 might be ok, or not. It's a great example though of how terrible the Retail market currently is (and with little push back from end users how it will stay).

Can you imagine a scenario where Lloyds shares are trading on LSE at 45.03-05 and the initial quote you get from your stockbroker was 44-50 - 45-50? Would you be happy the trade was executed at 45-08 as a big reduction in the initial spread and close to the true price?

[mc2fool]

And it doesn't appear to be too bad, at least with Interactive Investor through which I just bought some T28 (an index link gilt) and bid-offer (clean) was 95.50-96.50 at the time, so a mid price of 96.00, and they got them for me for 96.04. Would have been better without the 19 minute phone call though...

It's been a few years since I've been a GEMM, so maybe its (slightly) different now.

But a typical price back then would have been 96.00-01 (or 95.74-75) ...

What size of trades were you typically dealing with?

[dealtn]

It's been a few years since I've been a GEMM, so maybe its (slightly) different now.

But a typical price back then would have been 96.00-01 (or 95.74-75) ...

What size of trades were you typically dealing with?

anything from £1k to £1bn

[mc2fool]

What size of trades were you typically dealing with?

anything from £1k to £1bn

Wow, I didn't know back then that anyone could buy that much through the Post Office!

Ok, just joshing ... what were the dealing commissions like?

[dealtn]

anything from £1k to £1bn

Wow, I didn't know back then that anyone could buy that much through the Post Office!

Ok, just joshing ... what were the dealing commissions like?

What's a dealing commission?

GEMM's just market make prices to other users, that's it, so the only potential profit is in bid-offer capture or "information". But mostly GEMMs lose money and other parts of the business make money from the relationship. eg underwriting fees, new issuance ...

Crazy business model where the the incentives are ranked 1) don't lose (much) money, 2) achieve as much market share as possible, 3) make money from quoting/trading

[mc2fool]

Wow, I didn't know back then that anyone could buy that much through the Post Office!

Ok, just joshing ... what were the dealing commissions like?

What's a dealing commission?

GEMM's just market make prices to other users, that's it, so the only potential profit is in bid-offer capture or "information". But mostly GEMMs lose money and other parts of the business make money from the relationship. eg underwriting fees, new issuance ...

Crazy business model where the the incentives are ranked 1) don't lose (much) money, 2) achieve as much market share as possible, 3) make money from quoting/trading

Sorry, poorly phrased. I meant what were the dealing commissions of brokers that used GEMMs like? Just wondering 'cos the govt's DMO's Gilt Purchase & Sale Service charges %age based commissions and is much more expensive than the via-the-LSE brokers.

[dealtn]

What's a dealing commission?

GEMM's just market make prices to other users, that's it, so the only potential profit is in bid-offer capture or "information". But mostly GEMMs lose money and other parts of the business make money from the relationship. eg underwriting fees, new issuance ...

Crazy business model where the the incentives are ranked 1) don't lose (much) money, 2) achieve as much market share as possible, 3) make money from quoting/trading

Sorry, poorly phrased. I meant what were the dealing commissions of brokers that used GEMMs like? Just wondering 'cos the govt's DMO's Gilt Purchase & Sale Service charges %age based commissions and is much more expensive than the via-the-LSE brokers.

No idea, you would have to ask a broker. GEMM traders aren't allowed to talk to them, that's the model. GEMMs only speak to their internal sales desk, or brokers that intermediate between them and other GEMMs (which I am sure isn't what you are referring to).

I'm fairly sure that retail brokers only make money from "fee" and not from any price amendments or margins, but if those fees are fixed £ amounts or % of trade I don't know. But in either case that would be reflected in the "costs" on any contract note and not captured via price, so all would be transparent.

[mc2fool]

Sorry, poorly phrased. I meant what were the dealing commissions of brokers that used GEMMs like? Just wondering 'cos the govt's DMO's Gilt Purchase & Sale Service charges %age based commissions and is much more expensive than the via-the-LSE brokers.

No idea, you would have to ask a broker. GEMM traders aren't allowed to talk to them, that's the model. GEMMs only speak to their internal sales desk, or brokers that intermediate between them and other GEMMs (which I am sure isn't what you are referring to).

I'm fairly sure that retail brokers only make money from "fee" and not from any price amendments or margins, but if those fees are fixed £ amounts or % of trade I don't know. But in either case that would be reflected in the "costs" on any contract note and not captured via price, so all would be transparent.

Wait ... are you talking about "talk" literally or figuratively? And if retail brokers aren't allowed to talk to the gilt market makers what would they have to do? Get on the phone to the bank's (I assume most GEMMs are banks) gilt sales desk who would then get on the phone to their market makers? Is there no electronic market making by them?

I expect there's some reason why retail brokers trade gilts through the LSE, and I suspect it'll be to do with extra costs (for the broker) if they can't do it through the existing RSP network. And while maybe going through GEMMs could have got my 96.04 trade for within 96.00-.01, it'd only take a little extra commission to wipe out the 0.035% saving.

FYI, the DMO's Gilt Purchase & Sale Service charges 0.7% up to £5K, min £12.50, and for more than £5K it's £35 plus 0.375% of the amount over £5K. Phew! And it's a postal only service.

[GoSeigen]

Wait ... are you talking about "talk" literally or figuratively? And if retail brokers aren't allowed to talk to the gilt market makers what would they have to do? Get on the phone to the bank's (I assume most GEMMs are banks) gilt sales desk who would then get on the phone to their market makers? Is there no electronic market making by them?

Bonds are not like ordinary shares. Ordinary shares can be thought of as a very simple instrument with no contract creating differences between one share and another. Bonds are a quite different beasts. To an extent I'm talking here about technical things that I don't know in any detail, but roughly, bonds come in a variety of trading shapes, with redemption dates, special call features and various stuff that, IIUC, make them unsuitable to simply be listed on an exchange as a share would be. So a separate platform has to exist for trading them in any sort of automated fashion. In the old days (pre-ORB) I think a lot of bond trading for retail customers was done manually between brokers and bond desks of market makers. ORB was supposed to address some of the challenges and create a simpler more automated system. I think ORB is the only such platform. So bond trading systems seem to still be in a fairly primitive stage of development. The reasons are possibly multiple, but two major reasons must be 1. the much lower volumes of retail trading in bonds than in equities, arising from 2. the added complexity of bonds versus the perpetual, discretionary, vanilla world of ordinary shares, and the consequent high cost of issuing them to the retail market.


GS

[dealtn]

No idea, you would have to ask a broker. GEMM traders aren't allowed to talk to them, that's the model. GEMMs only speak to their internal sales desk, or brokers that intermediate between them and other GEMMs (which I am sure isn't what you are referring to).

I'm fairly sure that retail brokers only make money from "fee" and not from any price amendments or margins, but if those fees are fixed £ amounts or % of trade I don't know. But in either case that would be reflected in the "costs" on any contract note and not captured via price, so all would be transparent.

Wait ... are you talking about "talk" literally or figuratively? And if retail brokers aren't allowed to talk to the gilt market makers what would they have to do? Get on the phone to the bank's (I assume most GEMMs are banks) gilt sales desk who would then get on the phone to their market makers? Is there no electronic market making by them?

I expect there's some reason why retail brokers trade gilts through the LSE, and I suspect it'll be to do with extra costs (for the broker) if they can't do it through the existing RSP network. And while maybe going through GEMMs could have got my 96.04 trade for within 96.00-.01, it'd only take a little extra commission to wipe out the 0.035% saving.

The only DMA electronic platforms in the GEMM market are for GEMMs, or their interbank dealers (or brokers). However GEMMs are "accessed" by platforms such as ORB on LSE for market-making - which is what retail clients get to see and act on. These quotes are wider and much worse served (they are blended generic quotes that are "improved" slightly by algorithm often to suit a market makers position or appetite (so a quote like 95-50 / 96-50 quoted earlier), then improved so that an GEMM is trying (a little) to either be first or second best price, and better than the "market quote")

There are no costs passed on to clients by GEMMs regardless of the route.

BUT from a (retail) broker perspective he has the following choices. Ask electronically via the LSE ORB platform for a price, with relatively quick execution and no cost, but get a minimum of 1 price back, and a wide price (typical is to ask 4 quotes and receive 1 or 2 within 15 seconds) OR phone the sales desk of a GEMM and get an indicative price, then do it again 2 or 3 times to satisfy "best execution" then go back to the best price, and close the trade on behalf of the client. You will get a better price but have to make 3/4 phone calls, and it takes longer.

So given that both methods meet "best execution", since you have attempted to get up to 4 prices through comparable methods, and the former is less costly in terms of time and resource etc, what do you think they do? Given Retail clients have no idea how this works and they don't know the poor relative pricing they receive from method 1, and never complain, then it continues ad nauseum.

[mc2fool]

BUT from a (retail) broker perspective he has the following choices. Ask electronically via the LSE ORB platform for a price, with relatively quick execution and no cost, but get a minimum of 1 price back, and a wide price (typical is to ask 4 quotes and receive 1 or 2 within 15 seconds) OR phone the sales desk of a GEMM and get an indicative price, then do it again 2 or 3 times to satisfy "best execution" then go back to the best price, and close the trade on behalf of the client. You will get a better price but have to make 3/4 phone calls, and it takes longer.

Well then we possibly have a mixture of the two. With Interactive Investor one can trade conventional gilts totally electronically and do so "live" (15 seconds to accept the quote, etc). However, trading index linked gilts takes a 17-19 minute phone call, most of it on hold while the II agent "contacts the dealer". Whether they contact just one favoured GEMM or several or none at all I don't know, but I'll ask next time.

AJ Bell are totally by phone for both conventional and index linked (no idea of how long it takes, I'm not a client) and with IWeb it's also "offline" and takes some minutes, and that doesn't indicate electronic trading either.

BTW, one shouldn't take the spread I mentioned earlier as too definitive. It was what the LSE website was showing during the 19 minute phone call, well, jiggling around it moving up to +/- 0.08 during the call, and on a 15 minute delay too, so I don't know what the exact mid point was at the actual time of the trade.

[dealtn]

BUT from a (retail) broker perspective he has the following choices. Ask electronically via the LSE ORB platform for a price, with relatively quick execution and no cost, but get a minimum of 1 price back, and a wide price (typical is to ask 4 quotes and receive 1 or 2 within 15 seconds) OR phone the sales desk of a GEMM and get an indicative price, then do it again 2 or 3 times to satisfy "best execution" then go back to the best price, and close the trade on behalf of the client. You will get a better price but have to make 3/4 phone calls, and it takes longer.

Well then we possibly have a mixture of the two. With Interactive Investor one can trade conventional gilts totally electronically and do so "live" (15 seconds to accept the quote, etc). However, trading index linked gilts takes a 17-19 minute phone call, most of it on hold while the II agent "contacts the dealer". Whether they contact just one favoured GEMM or several or none at all I don't know, but I'll ask next time.

AJ Bell are totally by phone for both conventional and index linked (no idea of how long it takes, I'm not a client) and with IWeb it's also "offline" and takes some minutes, and that doesn't indicate electronic trading either.

BTW, one shouldn't take the spread I mentioned earlier as too definitive. It was what the LSE website was showing during the 19 minute phone call, well, jiggling around it moving up to +/- 0.08 during the call, and on a 15 minute delay too, so I don't know what the exact mid point was at the actual time of the trade.

Possibly. But I wouldn't be surprised if no GEMMs were involved. It would be good to find out from anyone that executes over the phone who the "dealer" in question actually is.

You make the point again about poor service to retail clients if all you get visually is a generic feed with a 15 minute delay, although I suspect many get that for equities too.

[GeoffF100]

BTW, one shouldn't take the spread I mentioned earlier as too definitive. It was what the LSE website was showing during the 19 minute phone call, well, jiggling around it moving up to +/- 0.08 during the call, and on a 15 minute delay too, so I don't know what the exact mid point was at the actual time of the trade.

My last trade with iWeb was definitely executed on the LSE. I found it under Recent trades:

https://www.londonstockexchange.com/sto ... mpany-page

[mc2fool]

Well then we possibly have a mixture of the two. With Interactive Investor one can trade conventional gilts totally electronically and do so "live" (15 seconds to accept the quote, etc). However, trading index linked gilts takes a 17-19 minute phone call, most of it on hold while the II agent "contacts the dealer". Whether they contact just one favoured GEMM or several or none at all I don't know, but I'll ask next time.

AJ Bell are totally by phone for both conventional and index linked (no idea of how long it takes, I'm not a client) and with IWeb it's also "offline" and takes some minutes, and that doesn't indicate electronic trading either.

BTW, one shouldn't take the spread I mentioned earlier as too definitive. It was what the LSE website was showing during the 19 minute phone call, well, jiggling around it moving up to +/- 0.08 during the call, and on a 15 minute delay too, so I don't know what the exact mid point was at the actual time of the trade.

Possibly. But I wouldn't be surprised if no GEMMs were involved. It would be good to find out from anyone that executes over the phone who the "dealer" in question actually is.

You make the point again about poor service to retail clients if all you get visually is a generic feed with a 15 minute delay, although I suspect many get that for equities too.

The 15 minute delay is for everything traded on the LSE when perusing for free (any source). If you are dealing electronically you get live prices when you request a quote. If you want to peruse live prices you can pay extra for level II access (not all brokers support that). For me it's not worth it, for my LTBH style of investing it's rare that I've been sufficiently surprised by the live price that I've changed my mind.

[mc2fool]

BTW, one shouldn't take the spread I mentioned earlier as too definitive. It was what the LSE website was showing during the 19 minute phone call, well, jiggling around it moving up to +/- 0.08 during the call, and on a 15 minute delay too, so I don't know what the exact mid point was at the actual time of the trade.

My last trade with iWeb was definitely executed on the LSE. I found it under Recent trades:

https://www.londonstockexchange.com/sto ... mpany-page

I can find mine under recent trades too but like the ones under yours it's marked as "off book" and https://www.ig.com/uk/glossary-trading-terms/off-book-definition says (my underlining):

"An ‘off-book’ trade refers to the process of trading shares away from an exchange or regulated body. They are usually executed via the over-the-counter (OTC) market. Off-book transactions are made directly between two parties, outside or ‘off’ of the order books.

Once a price has been agreed between the two parties, it is typical for one of the participants to report the trade and its parameters to the exchange – and wider market – in order to bring the execution 'on exchange'."

So it's not clear to me that our trades were "executed on the LSE" or had just been reported to it.