Index linked gilts and broker's valuation

[GeoffF100]

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.

Good point. We are told that the trades listed on the LSE are a small fraction of the trades that took place on that day. What determines whether a trade has to be reported to the LSE? I thought that "off-book" simply meant that the market maker did not make the trades electronically through the LSE order book.

[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.

Well, today was next time and I did ask but the II call centre agent I talked to clearly wasn't the best person to answer the questions, as not only couldn't she say why index linked gilts couldn't be traded live online, as conventional gilts can be on II, but she'd never heard of GEMMs, or indeed of ORB!

However, she did say that my order had been executed by "Winterflood", and when I asked if that was the only oufit they used for IL gilts she said they also use "Peel", depending on which is giving the better prices.

Winterflood I'd heard of before in respect to investment trust research, but on a google I quickly found "Winterflood Securities is a specialist in execution services. Ranked at number 1 in the UK equity market, we are dedicated to providing liquidity in all market conditions to a diverse client network including institutional investors, retail brokers and asset managers..." https://www.winterflood.com

Their Coverage page, under the Fixed Income tab, says "Recognised retail gilt-edged market maker (GEMM) offering a service in UK gilts" (a retail GEMM?) and "Registered market maker on the London Stock Exchange (LSE) Order book for Retail Bonds (ORB)". It's unknown which of those facilities II went through. However....

On their What we do page there's a graphic that show WINS at number 1 and PEEL at number 2, and I assume that's the other one II use and assume it refers to Peel Hunt, although their site doesn't mention being a GEMM at all but just says, under Fixed Income, "We specialise in retail bonds, UK Government Bonds (Gilts), permanent interest bearing securities, Fixed Income ETFs, and preference shares. We are the largest market maker on the LSE market segment ORB". https://www.peelhunt.com/what-we-do/execution-services/

So, make of that what you will. I suspect II are using those two as ORB market makers. At least, as you've seen, we've discovered that Interactive Brokers uses a GEMM (UBS) for their gilt trades ... viewtopic.php?p=614630#p614630

[dealtn]

So, make of that what you will. I suspect II are using those two as ORB market makers. At least, as you've seen, we've discovered that Interactive Brokers uses a GEMM (UBS) for their gilt trades ... viewtopic.php?p=614630#p614630

Yes both are ORB market makers. Technically Winterfloods is a GEMM but only a retail one, which in that context of "retail" means they don't market make a book in the GEMM market, although they flatten there book via GEMMS using a GEMM interbank sales desk, but satisfy retail orders only.

Again its 7 years since I left the market but both will quote a price outside the narrower market as comfort against the market moving and have access to liquid hedging if required, but exposures were always small anyway (few retail clients traded gilts when interest rates were low, or negative). That rise in rates, and relative attractiveness of Gilts compared to other asset classes seems to be changing the market, albeit slowly.

[gpadsa]

although not singling out gilts x-o/Jarvis 'places significant reliance' on those two according to their list of main execution venues https://www.x-o.co.uk/important-info.html#info-8

Product 	 	 	Execution venues
------- 	 	 	----------------
UK Equities and			Winterflood Securities
exchange-traded products 	KBC Peel Hunt
 	 	 	 	Shore Capital Stockbrokers Ltd
 	 	 	 	Knight Equity Markets
 	 	 	 	Cantor Fitzgerald Europe

Non-UK instruments 	 	Winterflood Securities
  	 	 		KBC Peel Hunt
 	 	 	 	Stifel Nicolaus Europe Ltd

Their explanation that follows

Our order handling system will normally route orders to a network of Retail Service Providers (RSPs)

gave me an inkling of how complex the underlying systems must be, that are kept well hidden from retail investors (also apparent from dealtn bond trading posts).

gpadsa

[GeoffF100]

I bought £46K of TG36 today through iWeb. A clean price of 90.371 at 14:23 looks good. It is a pity that I did not have the money the price was not down at the bottom on Friday though.

Vanguard uses Winterfloods for its bulked up ETF trades. I got an excellent price when reinvesting my VEVE dividend last Thursday. Vanguard paid the dividend reasonably promptly for a change.