Ordinary investors can access individual company bonds with new service launched today at the London Stock Exchange

News - Shares

Written by Ray Clancy

Monday, 01 February 2010 10:00

The London Stock Exchange today launched its new electronic Order book for Retail Bonds aimed at giving ordinary investors greater access to fixed income markets.

It has been introduced in response to strong private investor and offers continuous two-way pricing for trading in UK gilts and retail-size corporate bonds on-exchange for the first time. It means that individuals can invest modest amounts of money in individual company bonds.

Initially, 49 gilts and 10 corporate bonds are available for trading including securities issued by Tesco, BT, National Grid, GlaxoSmithKline, Morgan Stanley, GE Capital, Enterprise Inns and a bond issued specifically for this new service by Royal Bank of Scotland.

Investors can see prices on screen and trade in increments as low as £1 for gilts and £1,000 for corporate bonds, in a process similar to share dealing.

The new market is supported by dedicated market makers. Evolution Securities has committed to a leading role and will make markets across all of the gilts and corporate securities on the service. In addition, Shore Capital Stockbrokers will make markets in corporate bonds and ABN Amro is committed to quoting in the new RBS bond.

The new initiative is modelled on Borsa Italiana’s highly successful MOT market which, with €230 billion worth of trading in 2009, is Europe’s largest retail fixed income market.

The new service has been widely welcomed. Lord Myners, Financial Services Secretary to the Treasury, was at the launch this morning. ‘Economic growth depends on individual businesses being able to raise the funds necessary to operate and flourish. I welcome the launch of the London Stock Exchange’s new bond market today, which will offer companies a new route to access capital that is vital for growth, benefiting the wider British economy,’ he said.

Philip Hammond MP, Shadow Chief Secretary to the Treasury, also welcomed the launch. ‘This is an important day for savers in the UK. For the first time ordinary individuals in this country have a dedicated platform which will allow them to invest modest amounts of money in individual company bonds. At a time when equity markets have been volatile, and interest rates have remained low, this represents a new way for private investors to save while supporting the capital raising needs of British companies,’ he said.

Xavier Rolet, Chief Executive of London Stock Exchange Group, said it was a prime example of how the Stock Exchange can evolve and change according to investor demand. ‘We are determined to continue expanding and diversifying our product offering while responding to the needs and demands of our customers. 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,’ he said.

Paul Killik, Senior Partner at Killik and Co, said there has been growing demand from private investor customers to access the corporate bond market but until now a centralised, transparent order book for trading in individual retail-friendly sized bonds has not existed.

‘We are delighted to be participating in this market from its launch and working with the London Stock Exchange. We look forward to providing our customers with an entirely new type of access to fixed income markets,’ he said.

The new trading service offers an open and transparent market model for trading in retail-size dedicated market and there will be continuous tradable two way prices in a range of retail bonds throughout the trading day.

The trading day will be made up of an initial opening auction phase followed by continuous trading until market close. There will be no closing auction.

The new trading service is not expected to impact existing wholesale bond or gilt trading and trade reporting arrangements. It is not intended to change established practices in the institutional fixed income markets, the Stock Exchange said.