Deferred Spotting: The New Gold Standard in Canadian Capital Markets

By Rob Kelsall, Head of Credit Trading, CanDeal Markets

Canadian capital markets are experiencing a greater appetite for electronification and greater sophistication in the trading tools that firms leverage. While sheer volumes may not rival its larger American neighbor to the south or even the activity in the United Kingdom, Canada is seeing greater adoption of these tools, which is creating greater transparency, more efficient workflows, and new opportunities for both the buy and sell-side, leading to a palpable shift in market structure.

One of the innovations that has played a key part in this transition is the introduction of CanDeal’s Deferred Spotting on its Evolution platform, delivering a common benchmark price for the Canadian corporate bond market on which both investors and liquidity providers agree. Previously referred to as auto spotting, this functionality has been popular across US capital markets for several years. With a tremendous amount of intraday rate risk faced by Canadian fund managers, CanDeal’s deferred spotting delivers a 4:00 pm execution price using the previously agreed upon spread and CanDeal’s Consensus Benchmark 4pm Composite Price. CanDeal’s Composite prices have quickly become accepted nationwide as the de facto Canadian benchmark price.

Launched in August 2021, CanDeal’s deferred spotting capability is a win-win for the entire market landscape. This new “gold standard” in pricing has allowed its more than 250 clients, including a global community of almost 1,000 leading investment managers, to achieve a uniform price and are not hamstrung with a lack of price transparency. Dealers, meanwhile, benefit because the end-of-day pricing burden is completely removed, eliminating what normally is a day-end logjam of pricing inquiries between 2:30 and 4:00 pm - aptly referred to as “list-o-clock”.

But are dealers actually giving something away by agreeing to this model? The answer is no; because they benefit from not having to price several thousand securities at the end of each day.

With cash inflows and outflows occurring throughout the day, it has historically been an onerous task for firms to achieve the best price at the market close. If a purchase is executed at 8:00 am but the market falls throughout the day, the value of that trade could ultimately be worth significantly less by end of the day. Using CanDeal’s Deferred Spotting function, it’s as if all price requests have been placed exactly at 4:00 pm but without the simultaneous influx of orders to the dealer community. The US markets refer to this as “putting the pin in” at their 3:00 pm spotting time.

Since this model has received buy-in from all 11 of Canada’s primary dealers as well as the majority of the buy-side, CanDeal’s deferred spotting functionality has almost single-handedly removed intraday rate risk, particularly for those whose funds are marked to market each day at the closing index price.

As the only vendor to offer this functionality in Canada with prices accepted by both sides of the street, CanDeal’s deferred spotting is shifting the innovation curve forward in the Canadian institutional ecosystem. Currently trades using CanDeal’s Deferred Spotting are limited to $1 million per line and maturities of 10-years or less.

With full approval from Canadian regulators and nearly industry-wide buy-in from market participants large and small, CanDeal’s deferred spotting functionality looks to be the answer to what Canadian traders have been envious of in the US for years.