Access to the fixed income market has been growing steadily for private investors, five years after the launch of the UK’s first market dedicated to retail bonds.
London Stock Exchange’s Order book for Retail Bonds, known as ORB, became the first platform to offer a fully EU-regulated, cost effective and transparent electronic market for the trading of retail bonds.
Launched in response to strong investor demand for greater access to fixed-income products, particularly in light of the prolonged low interest rate environment in the UK, ORB has helped a broad spectrum of companies raise almost £4.5bn and opened up a market that previously had been largely closed to ordinary investors.
However, not all fixed income products are alike and with the proliferation of companies marketing “bonds” to savers, it is important to note the differences between the various products available.
London Stock Exchange is committed to working closely with organisations such as the Order book for Retail Bond Issuers Group (ORBIG) to educate investors and the wider financial community on the features of retail bonds.
Retail bonds available via ORB have a number of key distinct characteristics, compared to ‘mini’ or ‘loyalty’ bonds. Firstly, investors are not locked in to their investment and can buy and sell listed retail bonds throughout the life of the bond unlike a ‘mini’ or ‘loyalty’ bond, where investors may be locked in until maturity.
Continuous two-way pricing is available throughout the trading day, in the same way as traditional equity shares, and allows investors to monitor the value of their portfolio and realise capital gains if the value of the bond increases.
To enhance transparency and investor confidence, and to give investors full disclosure on all the information they need before making investment decisions, companies looking to list a bond on ORB are required to follow a similar process to that required if they were issuing equity shares - namely it is mandatory to publish a full prospectus formally approved by the UK Listing Authority, providing detailed financial performance information.
There are also ongoing financial reporting disclosures for the company during the life of the bond, whereas ‘mini’ bonds have no such obligations.
As well as increased transparency, listed retail bonds are tax efficient as they are eligible for inclusion in ISAs and SIPPS, if the bond has 5 or more years left to maturity from the date of purchase.
Typically, retail bonds have a maturity of between five and 10 years. If you invest at the time of issue, the usual minimum subscription is £2,000 but the majority of bonds trading in the secondary markets are available in denominations of around £1,000 and many are tradable in denominations of £100 and some in denominations as low as £1.
Currently, there are over 180 bonds listed on ORB ranging from UK gilts and fixed income corporate bonds as well as inflation-linked and floating rate issues.
Bonds include household names such as National Grid, Tesco, Lloyds TSB and London Stock Exchange Group, the latter’s bond issue being the largest retail-dedicated bond to date.
The success of the relatively nascent market is evident but I am certain that it will continue to strengthen and grow, as the potential from initiatives such as recent pension reforms, come into effect, encouraging greater private investor participation in the market. What’s more, looking at the UK economy as a whole, a larger and more active ORB market has the opportunity to play a significant role in providing increased and more diverse capital to companies, vital to the ongoing recovery of the country.