Retail bond
Bonds - retail.
A retail bond is a bond designed to attract retail investors.
They are generally issued in smaller denominations to facilitate retail-sized investments for trading, and unsecured.
Denomination sizes for retail investment in GBP markets might typically be around £2,000.
In the UK, since the 2005 Prospectus Directive, retail bonds must be backed by a prospectus meeting certain disclosure requirements.
These disclosure requirements apply to bond denominations of below £100,000.
Few UK investment grade corporate treasuries have been tapping the retail bond market since 2005, due to these disclosure requirements, which are viewed as onerous.
In the UK, this may be about to change, as the Financial Conduct Authority (FCA) have responded to increasing investor dis-satisfaction (expressed through bodies such as the Investor Access to Regulated Bonds Working Group) and following positive responses to a consultation process in 2023, are preparing detailed policy changes proposed to be implemented in early 2025, which will remove the requirement for separate disclosure requirements depending on denomination size and also introduce some incentives to reduce denomination size.
(Source - James Leather FCT - January 2024.)
- Improving access to retail bonds - Financial Conduct Authority
- "The Government is in the process of finalising a new legislative framework that will replace the UK Prospectus Regulation...
- We asked for views [about whether] stakeholders would welcome the removal of the dual disclosure standards in [bond] prospectuses.
- The removal of the dual disclosure standards in prospectuses for retail and wholesale non-equity securities was almost unanimously supported [by respondents]. There was strong support to use the wholesale disclosure standard as a starting point...
- Facilitating broader access to listed bonds: A scheme which would encourage the issuance by seasoned UK-listed corporates of simple standardised unsubordinated unsecured corporate bonds aimed at a wide range of investors, retail and wholesale, was largely welcomed...
- However, there were nuanced and sometimes differing views on what types of issuers and securities should be within the scope of the scheme, with the majority of respondents asking that the scope be extended to encompass additional issuers and/or security features."
- Engagement feedback on the new public offers and admissions to trading regime - Financial Conduct Authority - December 2023.
- Facilitating broader access to listed bonds
- "We are aware of calls among some UK market participants for measures to address what is seen as the exclusion of smaller scale investors from listed bond markets.
- The removal of the dual standard of disclosure proposed above is one measure which we believe will assist here.
- There remains, however, a question as to whether more might be done.
- We think there may be an opportunity for a scheme which encourages the issuance by seasoned UK-listed corporates of simple standardised unsubordinated unsecured corporate bonds aimed at a wide range of investors, retail and wholesale.
- ... a product in which sophisticated institutional investors are keen to invest is likely to offer better terms for all investors, including retail investors, than a product aimed solely at retail investors, due to the additional scrutiny and pricing pressure institutional investors exert.
- Such a scheme may be to the benefit of all participants, issuers and investors alike, giving issuers a new additional source of demand for their bonds and by giving investors better access to corporate credit."
- Financial Conduct Authority - May 2023.
See also
- Bond
- Equity
- Financial Conduct Authority (FCA)
- Green bond
- Issuer
- Order book for Retail Bonds
- Prospectus Directive
- Retail
- Secured debt
- Security
- Unsecured
- Wholesale markets
