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: “Although the number of companies issuing bonds is akin to that in the equity markets, each issuer typically has a plethora of different bond-issues but only one type of share.”
The IMA also notes that the minimum permitted investment or “lot” in the UK is typically much higher than in Europe, making the likelihood of retail participation in the UK less likely.
It says UK lot sizes are usually £50,000 but in Germany, 23 of the 29 corporate bond issues in 2008 were €1,000.
It says the over the counter nature of the market makes it hard to achieve ‘normal’ levels of pre and post-trade transparency, compared to other markets. and designing and implementing best execution rules which is key to retail investor protection is more difficult.
IMA director of markets Jane Lowe says: “While markets should be freely available to both retail and institutional customers, 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.”