SPAC

Bonds - retail.

"Retail bond" is a colloquial abbreviation for a bond designed to attract retail investors, that a bond issuer is allowed to offer for sale to non-professional investors.

They are generally issued in smaller denominations to facilitate retail-sized investments for trading, and unsecured.

Denomination sizes designed for retail investment in GBP markets might typically be around £2,000 or less.

In the UK, since the 2005 Prospectus Directive, smaller-denomination bonds must be backed by a prospectus making certain additional disclosures.

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) has 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 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.

Incentivising issuers: What if disclosure is easier when retail is included?

"We agree with the FCA that the removal of the dual standard of disclosure is one way to address the exclusion of retail investors and wealth managers from the listed bond markets.

However, issuers won’t be compelled to use low denominations – and so there’s no guarantee that a single disclosure standard will change much at all.

So we are a pleased to see that the FCA has proposed an incentivisation scheme.

This scheme proposes to reduce disclosure for seasoned UK-listed corporates or similarly seasoned companies who issue bonds with retail-inclusive low denominations.

We think that this scheme will be attractive for issuers who will be able to tap into retail demand in the primary and/or secondary markets without the present disclosure-related complications.

In our view, we think that the FCA’s draft requirements for inclusion in the scheme are targeted at the types of issuers whose bonds retail and wealth managers will want: investment grade bonds from well-known listed and unlisted companies."

Enabling broader access to the UK bond markets - Winterflood Securities - October 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
• Corporate treasury
• Credit
• Disclosure
• Equity
• Financial Conduct Authority (FCA)
• Green bond
• Institutional investor
• Investment grade
• Issuance
• Issuer
• Listed company
• Order book for Retail Bonds (ORB)
• Primary market
• Prospectus Directive
• Retail
• Seasoned issuer
• Secondary market
• Secured debt
• Security
• Subordinated debt
• Subordination
• Unsecured
• Wholesale markets

Other resources

• Engagement feedback on the new public offers and admissions to trading regime - Financial Conduct Authority (FCA) - December 2023

• Enabling broader access to the UK bond markets - Winterflood Securities - October 2023

• Opening up bond market will give corporates more flexibility - The Treasurer - September 2023

• Return of retail to bond markets on the cards

• Engagement paper - non-equity securities - FCA - May 2023