Collateral Management in the LVTS by Canadian Financial Institutions

This article examines the incentives for banks to hold various assets on their balance sheets for use as collateral when the opportunity cost of doing so can be high. Focusing on the five-year period (2002-07) that preceded the financial crisis, it examines the choices made by financial institutions among the assets that are pledged as collateral in Canada's Large Value Transfer System. This serves as a baseline for collateral-management practices during relatively normal times. The results of this study are important for policy-makers, especially the Bank of Canada, which is concerned both about the efficient functioning of fixed-income markets and about the credit risk it ultimately bears in insuring LVTS settlement. The results suggest that relative market liquidity and market-making capacity are important factors in the choice of securities pledged as collateral in the LVTS.

The Role of Foreign Exchange Dealers in Providing Overnight Liquidity

This paper illustrates that dealers in foreign exchange markets not only provide intraday liquidity, they are key participants in the provision of overnight liquidity. Dealing institutions receive compensation for holding undesired inventory balances in part from the information they receive in customer trades. These flows can be used to forecast future movements in the exchange rate. Findings suggest that Canadian dealers, as a group and individually, are more likely to provide interday liquidity to foreign rather than Canadian financial customers. Financial institutions operating in multiple price-correlated markets manage their risky positions across markets. An interdependent relationship is revealed between the supply of liquidity provided by non-financial firms and dealing institutions across time, and across markets.Exchange rates; Market structure and pricing; Financial markets

Price Discovery Across Geographic Locations in the Foreign Exchange Market

The ongoing process of price discovery in foreign exchange markets provides valuable information to certain market participants. Recent empirical findings suggest that aggregate measures of order flow convey information about the fundamental value of the exchange rate. Using a market microstructure approach, D'Souza reports on a two-year study of completed transactions within the Canadian and Australian exchange rate markets to examine the relationship between exchange rate returns and trades initiated in different locations. Based on the information content of the trades, he finds that geographic location and hours of operation are two of the factors driving informed interdealer trading.

Where Does Price Discovery Occur in FX Markets?

Trades in foreign exchange markets are initiated around the world and around the clock. This study illustrates that trades are more informative when initiated in a local country or in major foreign exchange centers like London and New York. Evidence suggests that informational asymmetries based on geography arise from the market making capacity of dealers and the customer order flow that dealers capture during regional business hours. Findings also show that market orders initiated in price-correlated FX markets are not informative. Transparency in quotes on electronic trading platforms may prevent informed participants from exploiting information across FX markets. Overall, these results are robust across different market conditions.Market structure and pricing; Exchange rates; Financial markets

The Effects of Economic News on Bond Market Liquidity

The authors contrast the impact of two sources of information flow on the volatility of prices, trading activity, and liquidity in the brokered interdealer market for Government of Canada bonds. Liquidity varies with the amount of asymmetric information in the market, and order flow plays a central role in the processing of information. The authors find a two-stage adjustment process in the period before and after a scheduled 8:30 a.m. macroeconomic news announcement that is similar to the adjustment process documented by Fleming and Remolona (1999) for the U.S. Treasury market. They contrast these dynamics with the adjustment that occurs around a Government of Canada bond auction. Results are somewhat inconsistent with the patterns observed around macroeconomic news events, but are explained by theory.Financial markets; Market structure and pricing; Debt management

Price Formation and Liquidity Provision in Short-Term Fixed Income Markets

Differences in market structures may affect the manner in which fundamental information is incorporated into prices. High levels of quote and trade transparency plus substantial quoting obligations in European government securities markets ensure that prices are informationally efficient. The relationship between price changes, order flow, relative depth and spreads across European and Canadian short-term government bond markets is examined via a reduced-form vector autoregression model. In European markets, dealers are able to quickly absorb private information elsewhere in the market. Consequently, spreads and the relative depth on the bid and offer sides of the market are found to be only slightly informative. Similarly, order flow, which reflects inventory management practices in addition to private information, explains a smaller proportion of the variation in asset returns in European markets than in Canadian interdealer brokered markets where no quoting obligations exist.Market structure and pricing; Financial markets; Interest rates

An Empirical Analysis of Liquidity and Order Flow in the Brokered Interdealer Market for Government of Canada Bonds

The authors empirically measure Canadian bond market liquidity using a number of indicators proposed in the literature and detail, for the first time, price and trade dynamics in the Government of Canada secondary bond market. They find, consistent with Inoue (1999), that the Canadian brokered interdealer fixed-income market is relatively liquid for its size. Liquidity measures are analyzed relative to each other and across securities, and intraday patterns are identified. The authors' results show that trading activity is positively correlated with price volatility, and that signed order flow is significant in explaining contemporaneous high-frequency price movements. They find evidence that trading activity is positively related to liquidity measures in some markets, which suggests that indicators such as trade frequency and trading volume, despite certain drawbacks, can be seen as useful proxies for liquidity. The authors also document Canadian participants' prevalent use of an order expansion protocol, whereby order size can be negotiated upward once a trade has been initiated; although Boni and Leach (2002) identify this practice as consistent with a market where there is relatively strong concern regarding information asymmetry, the authors observe no consistent link between the frequency of its use and observations of trading activity, market liquidity, or price volatility.Financial markets; Market structure and pricing

A First Look at the Navigation Design and Analysis for the Orion Exploration Mission 2

This paper will detail the navigation and dispersion design and analysis of the first Orion crewed mission. The optical navigation measurement model will be described. The vehicle noise includes the residual acceleration from attitude deadbanding, attitude maneuvers, CO2 venting, wastewater venting, ammonia sublimator venting and solar radiation pressure. The maneuver execution errors account for the contribution of accelerometer scale-factor on the accuracy of the maneuver execution. Linear covariance techniques are used to obtain the navigation errors and the trajectory dispersions as well as the DV performance. Particular attention will be paid to the accuracy of the delivery at Earth Entry Interface and at the Lunar Flyby

Autonomous Optical Lunar Navigation

The performance of optical autonomous navigation is investigated for low lunar orbits and for high elliptical lunar orbits. Various options for employing the camera measurements are presented and compared. Strategies for improving navigation performance are developed and applied to the Orion vehicle lunar missio

Orion Relative Navigation Flight Software Analysis and Design

The Orion relative Navigation System has sought to take advantage of the latest developments in sensor and algorithm technology while living under the constraints of mass, power, volume, and throughput. In particular, the only sensor specifically designed for relative navigation is the Vision Navigation System (VNS), a lidar-based sensor. But it uses the Star Trackers, GPS (when available) and IMUs, which are part of the overall Orion navigation sensor suite, to produce a relative state accurate enough to dock with the ISS. The Orion Relative Navigation System has significantly matured as the program has evolved from the design phase to the flight software implementation phase. With the development of the VNS system and the STORRM flight test of the Orion Relative Navigation hardware, much of the performance of the system will be characterized before the first flight. However challenges abound, not the least of which is the elimination of the RF range and range-rate system, along with the development of the FSW in the Matlab/Simulink/Stateflow environment. This paper will address the features and the rationale for the Orion Relative Navigation design as well as the performance of the FSW in a 6-DOF environment as well as the initial results of the hardware performance from the STORRM flight