In February 2010 London Stock Exchange introduced the Order book for Retail Bonds (ORB) in response to growing private investor demand for greater accessibility to fixed income securities. This order-driven trading service offers access to a number of gilts, supranational and corporate bonds and has been developed in response to strong demand from retail investors for access to an on-screen secondary market in fixed income securities. The ORB is the first electronic retail bond order book allowing private investors to buy and sell bonds as easily as they would trade shares. This new market model provides issuers the opportunity to raise capital and admit their retail bonds to a transparent, regulated market.
Through issuing retail bonds onto ORB, issuers are able to tap into a new source of funding or diversify into a new pool of retail liquidity. A retail bond can either be an alternative source of funding or a complement to existing channels of private placement, bank lending and the wholesale debt capital markets. With the ability to raise less than £100m, the retail bond market creates an opportunity for issuers who may previously have been locked out of the wholesale bond market to borrow on a smaller scale. It also attracts investment grade issuers keen on an alternative to the US dollar private placement market.
The ORB offers greater flexibility for issuers as the size of a retail bond can be tailored to meet issuers’ particular needs; issue sizes on the ORB have ranged from £20 million to £300million. This can be beneficial to issuers who do not necessarily need a benchmark wholesale bond of £500m. Issuers have the option of issuing in smaller sizes on a more frequent basis, with Tesco Bank, Places for People and Provident Financial all repeat issuers.
Retail bonds have been characterised by simple structures; however we have seen fixed, floating and index-linked bonds issued onto the market. As the market develops further diversification in bond structures and seniority should follow. A common characteristic of all retail bonds listed on ORB is that they have trading denominations of under £1,000. The majority of ORB dedicated issues have been in £100 denominations with a minimum £2,000 upfront investment.
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