Broker Selection and Managing the Broker Relationship

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Broker Selection and Managing the Broker
Relationship

• Carol Himes Hannigan, C.G.F.O. Treasurer, City of
  Boca Raton

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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

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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

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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

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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

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Broker Lingo Relating to your broker

• Callable thereafter
• One time only
• Semi-annually
• Quarterly
• Monthly
• Continuously

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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

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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

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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

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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

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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

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How many brokers?

• Investment Policy
• What works?

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Broker Selection

• Qualifications
• Style
• Data collection
• Analysis

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The Bidding Process

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

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Operations

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

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Analytics

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

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Strategies

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

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Considerations for what to buy

• Callable vs bullet
• Spreads
• Option adjusted spread
• Mortgage products
• Adjustable vs fixed

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Questions?