A NEW online trading platform will open up the corporate bond and gilt market to the retail sector.
The launch of a new order book by the London Stock Exchange (LSE) yesterday will allow far greater access to private investors.
Of an estimated 10,000 bond packages available, only 200 were readily available to retail investors.
The new order book will initially offer 49 gilts and ten corporate bonds, including securities issued by Tesco, BT,
National Grid, GlaxoSmithKline, Morgan Stanley, GE Capital, Enterprise Inns and a bond issued specifically for the new service by Royal Bank of Scotland (RBS).
The LSE says it then plans to offer another 40 in the second stage of the launch. It will charge investors a flat transaction fee for all retail bond trades at 90p per executed order.
Evolution Securities will make markets across all of the gilts and corporate securities on the service while Shore Capital Stockbrokers will make markets in corporate bonds and ABN Amro is committed to quoting in the new RBS bond.
Xavier Rolet, chief executive of the London Stock Exchange, said: “We are very excited to be launching this new market today. We are determined to continue expanding and diversifying our product offering.”
He added: “There has already been considerable interest in this new platform from issuers, member firms and private investors, and we look forward to further facilitating that growing interest as the market establishes itself over the coming months.”
The RBS bond has a return of 5.1 per cent and investors can buy into – and sell out of – the bond at any time over the next ten years without a redemption penalty.
A seven year Tesco bond offers interest of close to five per cent.
Q&A | RETAIL BONDS
Q.What is this new online market?
A.It is an electronic platform which will allow private investors to buy and sell modestly-sized, individual corporate bonds and gilts as easily as they can trade shares.
Q.How can I access the new market?
A.Trading bonds on the new service is much like trading shares on-exchange. Bid/offer prices are displayed throughout the day, meaning investors can simply look up the price of the bonds they want to trade and then contact their broker who will place their order for them.
Q.How much will it cost to use?
A.Brokers will pay a flat 90p charge per transaction to access the market. Investors will also need to factor in their broker’s fees.
Q.What kind of bonds can I trade on the new market?
A.Initially there are 49 UK gilts and ten corporate bonds available for trading on the new platform. Bonds issued by blue-chip names are the first to be available for trading with Tesco, BT and National Grid among them. Royal Bank of Scotland has also issued retail-sized bonds specifically to coincide with the launch of the new platform.
Q.How does this differ from current bond trading?
A.Until now bond trading has been largely institutional. Most bonds have been issued in large sizes (typically around £50,000) and traded over the counter. Retail investors have primarily accessed bond markets through funds. The new platform offers continuous, two-way pricing in individual debt securities and it is supported by market makers.