FT.com / LSE to launch retail market for corporate bonds and gilts February 2010 welcomed
New bond market faces fight
By Steve Johnson
Published: November 29 2009 08:02 | Last updated: November 29 2009 08:02
Stockbrokers have welcomed plans by the London Stock Exchange to launch a UK retail market for corporate bonds and gilts in February.
However, there are fears the ground-breaking initiative could be scuppered by a lack of interest from issuers and an unwillingness by investment banks to provide essential liquidity by acting as market makers.
“It would be great to have a transparent market but it’s absolutely critical we get some market makers behind it,” said Paul Killik, senior partner at Killik & Co, a broker. “There are vested interests who don’t like the concept of order books because they are making too much money. It’s not a very transparent market at the moment and spreads are very wide.”
Matt Rickard, head of dealing at Hargreaves Lansdown, said the broker was “keen” on opening this market to its clients, but questioned how many companies would choose to issue debt in the small retail sizes the LSE’s new market will insist upon.
“It sounds very simple but finance directors are so worried about doing something new,” he said.
At present most UK companies issue bonds in lots of £50,000 targeted purely at the wholesale institutional market.
This contrasts sharply with countries such as Germany, France and Italy where most bonds are available in €1,000 lots and retail investors are an important source of funding; Eni, the Italian energy group, attracted €5.8bn (£5.3bn, $8.7bn) of orders for a €1bn-€2bn retail-only issue in June.
The LSE Group owns Borsa Italiana whose MOT market, the most heavily traded retail fixed income platform in Europe, is used by UK issuers such as Lloyds TSB and RBS to access retail investors.
The exchange hopes the launch of a London market will encourage more UK companies to issue domestic debt in retail-friendly £1,000 units.
Gillian Walmsley, product manager for debt and specialist securities, said it had seen “a lot of interest from market participants”.
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