Corporate issuers of debt and retail investors
Historically, UK retail investors have not directly held tradeable corporate debt, preferring to invest in debt via unit trusts and other collective investment schemes. This contrasts with continental Europe, where retail investors are more familiar with holding and trading individual corporate debt instruments.
But with companies looking to expand their sources of debt funding and retail investors seeking both income and to diversify portfolios that remain heavily weighted towards equities, the London Stock Exchange (the Exchange) launched its “Order book for Retail Bonds” (ORB) in February 2010. ORB, in the words of the Exchange, is a response to “growing private investor demand for easier access to trading bonds…[and] also offers an efficient mechanism for corporate issuers wishing to distribute bonds to retail investors”.
ORB’s principal features
- ORB is not a market; it is an electronic order book on which dedicated market makers quote two-way prices in a range of retail bonds. As a result, the bonds are tradeable by retail investors in a similar way to shares admitted to trading on the Exchange.
- All bonds whose price is quoted on ORB are listed on the Official List and and admitted to the Exchange’s Main Market – so, as the bonds are listed on an EU-regulated market, a prospectus prepared in accordance with the Prospectus Directive must be approved by the UK Listing Authority before the bonds can be traded.
- As a result, all bonds quoted on ORB are subject (in the words of the Exchange) to “a high level of regulatory oversight” – which is to be expected, as they are designed for retail investors.
- Bonds are settled through CREST and are free of stamp duty. Bonds with a maturity of greater than five years can be included in ISAs.
One of the historic reasons why UK retail investors have been unable or reluctant to hold traded debt directly has been the high denomination size. Bonds traded on ORB must have a maximum denomination size of £10,000, and most denomination sizes are smaller, typically £1,000 (and even as small as £1).
ORB celebrated its first birthday on 1 February 2011. In a birthday press release, the Exchange stated that there “are now 142 corporate, government and supranational bonds available for trading on the ORB, up from 59 at launch. There have been 7 new bonds specifically issued for the market, including bonds from Royal Bank of Scotland, Provident Financial, and Lloyds TSB”.
Here is the Exchange’s ORB factsheet.
UPDATE 30 December 2011: See this post for updated information on ORB, including a comprehensive presentation on the UK retail bond market by Evolution Securities and various materials from the November 2011 Retail Bond Issuance Forum.
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