Questrade zero commissions on bonds?

[londoncalling]

I was just looking at the pricing tab on questrade site. Is it true that they no longer charge commission on GICs and bonds? Does this include convertible bonds?

Cheers

[HaroldCrump]

I was just looking at the pricing tab on questrade site. Is it true that they no longer charge commission on GICs and bonds?You mean they used to?
That's weird...most brokers do not charge an explicit commission for buying and selling bonds.
Their commissions are embedded into the bid/ask spreads.
You pay their commission by accepting a slightly lower YTM than the primary market.

The only exception I know of is Scotia iTrade.
They claim that their bond quotes do not have any embedded commissions.
Instead, they charge commissions separately, just like stock trades ($1 per $1,000 face value I believe, subject to a minimum of $19.99).

I have never personally validated their claim of no embedded commissions in bond quotes.
To properly validate that claim, one would require access to the primary jobbers' data or multiple brokerages, which I don't have.

Anyhow, if QT had been charging commissions in adition to embedded fees, then they were double dipping.

[andrewf]

Questrade has never charged commission on bonds or GICs as long as I have been a customer. They are paid to originate GICs (like a broker) and have a spread built into bond prices.

[londoncalling]

I need to clarify my post. I don't believe they used to charge commission on bonds and GIC's Apparently, what I was thinking and what I was typing were clearly not the same thing. that being said does anyone use Questrade for debentures? I was unable to find a fee structure for such an investment.

Cheers!

[humble_pie]

questrade is not a primary bond dealing desk, so they have to be getting em from an outside desk & adding their own spreads into the prices. Bonds are nearly always sold without commish. Commish instead are built into the bid/ask price quotes.

bond trading in canada eclipses stock trading by billions & billions of dollars. Total tsx trading is a mosquito bite compared to the bond himalalyas. Bond markets are still an old boys' network. It's impossibly difficult, as harold crump says, for any retail investor to even get a toehold up so as to peer inside.

my favourite bond story is about the 100% pure laine french-speaking rbc DS bond salesman whose book one year was the biggest in the whole of canada. He sold nothing but roman catholic parish bonds to quebec farmers.

day after day, he drove the rural roads of la belle province, sat at kitchen tables & sold savings bonds from the fabriques to the farmers. Please don't ask why they're called fabriques. Reportedly the interest rates would always be less than canada bonds, but still the farmers bought nothing but the local fabriques.

when they hauled the country bond salesman up for his golden award at the annual prizewinners' dinner, it turned out that he had never heard of the new york stock exchange. He had sold several hundred million $$ of securities that year, though.

[HaroldCrump]

that being said does anyone use Questrade for debentures?Is this an exchange listed debenture?
If so, the regular stock trading commisions should apply.
Depending on how liquid such debenture is, and who the market maker is, there may be a wide bid/ask spread you may end up paying, over and above the brokerage commission.

[londoncalling]

Thanks Harold. I have yet to decide on a particular debenture but the ones I was watching are all exchange listed. I will definitely watch the spread as I would with a stock if I ever decide to pursue debentures.

Cheers!

Also, HP thanks for the interesting tale of one particular bond salesman who unknowingly climbed his to the top of an industry that he obviously did not follow too terribly closely as he was more interested in selling bonds to farmers. :cool:

[humble_pie]

ah, it's the convertible debentures you are talking about.

here they all are:

http://www.financialpost.com/markets/data/bonds-debentures.html

i have one of these - boralex - in rrsp. Some parts of their stories can be troublesome.

all these debs are unrated. They are all, said the (unnamed) broker's fixed income desk, pure junk.

they are also all convertible into common stock of the issuer. Most of them are also redeemable by the issuer.

therefore it's important to learn the conversion & the redemption dates & terms. One can get this info from the issuing prospectus. I was able to find the boralex one by simply googling, i did not have to dig through SEDAR, although sedar is always the ultimate perfect resource.

the boralex details were not too terrible. I did pay more than par, while redemption is always at par, so redemption would mean a capital loss. However the boralex redemption date is far enough off in the future that the debentures will have paid nicely for themselves. Besides, i am planning to sell them prior to the redemption date.

forewarned is forearmed, they say, so if you take the trouble to obtain all the conversion/redemption information you will be on top of the game. The idea is to look beyond the simple presentations set forth in the table in the above link. A debenture may appear to have a high yield & a long maturity, but unattractive conversion/redemption details can put the kibosch on the best-looking among em.

[londoncalling]

The link you posted is the only site I have been able to find listing most of the convertibles offered. About a year ago, when I was new to investing I was tempted to buy pembina`s 5.75% debenture due in Nov 2020. At that time it was below par. I was too new to investing to understand the instrument fully so I did not take the plunge. What I had planned to do, and still may at some point, was purchase a debenture at or slightly below par and sell before the conversion/redemption date. I also would only select a debenture that I would be fine with holding the stock in case I was under water at redemption. I know that each debenture is unique in its own way as I have read many of the prospectuses on SEDAR. I was curious as to where to get more information on the probability of conversion vs payout at maturity. I would assume this would be largely influenced by the details of each debenture and the amount of cash or need to keep cash by the individual company. I have created a list of potential debentures from this list linked above over the past few months. Many of those on my watchlist are now above par. I have considered picking up the debenture of companies of stocks that don't pay a dividend or distribution that I wouldn't mind owing as it would provide the option of getting a "dividend" while getting a limited opportunity for upward price movement. I have heard that this instrument is often suitable for those that are too risk averse to hold equities but want more potential return than owning a preferred or corporate bond. The most recent one I have been following was ARN.DB.B as they are partly owned by a larger oil company. I would guess that this holding should provide some stability or even a possibility of a takeover should the junior's price should tumble too far. I am worried about potential dilution as the series A comes due prior to the B series. Anyways, these are some of the thoughts I have been mulling over the past while as I try to branch out into other places to deploy funds.

On a totally different note, but somewhat in reference to the last sentence of your post, YLO.DB.A sure looks tempting as a place to put some $$$ that I would be willing to completely lose should the possible bankruptcy of that company take place. However, if it was still afloat in another 5 years the payoff would be a return of over 65%. ;)

[humble_pie]

london you have excellent commentary w good insights imho.

i am not big into this area since i would rather pull tax-favoured income from a quality-common-stock-plus-dividends-plus-options combo. Therefore debentures from companies rated far below the common stocks i've chosen are not interesting to me.

for a bit of diversification i do have miniscule amount of the boralex debs + 2 preferreds in rrsp, only about 40k altogether. As you mention, these have all risen, in the case of the pfds quite handsomely. At present i monitor/review them frequently from the point of view of possible sells. A related issue then becomes Where to put the proceeds that would result.

your work in analyzing how cash will be used as a prognosticator of whether companies will go conversion vs payout at maturity is pretty amazing. I don't do this myself since i have zero intention of ever owning these stocks. I don't really believe that debenture conversion is a first-class example of get-paid-while-U-wait strategies, because the stocks themselves will often turn out to be illiquid or low-grade or both.

from time to time some have posted here in cmf forum that, in the case of reit conv debs, they hold the debentures because they believe there is considerably greater security. I've also read - not here - that this notion is more or less an illusion, because the debs are nearly always unsecured & their markets are far less liquid than the reit units, should an issuer run into trouble. I don't know how all this worked out in yellow, though, that was a story i didn't follow.

[HaroldCrump]

londoncalling, thought I should post the following, came in this morning:

Parallel Energy Trust
Treasury offering of Convertible Unsecured Subordinated Debentures
Coupon:
6.50% per annum payable semi-annually in arrears on June 30 and December 31 of each year, commencing on June 30, 2012. The June 30, 2012 interest payment will represent accrued and unpaid interest for the period from Closing to June 30, 2012.
Maturity Date:
June 30th, 2017
Closing:
April 12th, 2012.

Check with your brokerage if they are participating in this.
Needless to say, please review the prospectus, do your DD, etc. I am simply posting this, not recommending an investment.

[londoncalling]

Thanks HP for your kind words and insightful comments.

Harold - I saw that this morning as well. I personally find that this type of investment requires more research for what is supposed to be less risk(and reward) because each convertible is unique in some aspect. So far I don't mind the learning but I find researching the equities themselves much more standardized. Also, you have to do the same research of the company on top of the prospectus for the debenture so it may dissuade some investors. So far, I plan to study these instruments further before throwing some money at it.

[HaroldCrump]

I personally find that this type of investment requires more research for what is supposed to be less risk(and reward) because each convertible is unique in some aspect. So far I don't mind the learning but I find researching the equities themselves much more standardized. Also, you have to do the same research of the company on top of the prospectus for the debenture.Yep, right on.
And for such reasons, I go with either regular bonds or just buy equity.
If you want fixed return with (relative) capital safety, just buy the bond.

A big wildcard with these convertibles is the conversion price.
It is bad enough trying to value what a share price might be worth in a few weeks or months, let alone 5+ years into the future.
Just ask the YLO convertible holders who agreed to $8 conversion prices when the stock traded at above $6, and now trades barely at 10c. :p