According to a report commissioned by the IMA, very large bond issue volumes and their complex interaction make it difficult for investors to understand the implications involved for each issue in the event of corporate failure. It says the minimum permitted investment or “lot” in the UK is typically much higher than in Europe, making retail participation in the UK less likely.
It adds that the over-the-counter nature of the market makes it hard to achieve “normal” levels of pre and post-trade transparency compared with other markets.
It urges the Bank of England to engage further in the corporate bond market and says exchanges and multilateral trading facilities should consider whether they have a role to play in offering anonymised trading systems. It says the FSA should engage actively with liquidity providers, exchanges and MTFs to help improve the market.
IMA director of markets Jane Lowe says: “Markets should be freely available to both retail and institutional customers but the research shows that while bonds may, on the face of it, be easier to understand than equities, the nature of primary issuance and secondary market trading arrangements in the UK act to prevent retail participation in the sterling corporate bond market.”
Kohn Cougar managing director Roddy Kohn says some of the barriers are important but welcomes dialogue about the reform of financial services. He says: “The industry seems to thrive on complexity and denying consumers access to investments that would be at their best interest at reasonable terms.
“More investors putting their money into corporate bonds instead of, say, savings accounts would go a long way to helping solve some of the financial problems.”