Winterflood applauds the release this morning of the FCA’s consultation paper CP25/2 which is intended to enable retail access to the UK’s bond markets. The proposed changes appear to have the potential to unwind regulations that were put in place over the last 20 years, intended to safeguard retail investors, but which resulted in their exclusion from primary issuances and also, access in the secondary market. Winterflood will provide feedback on the proposals to the FCA and intends to work with all interested stakeholders to establish the necessary market infrastructure. On our first pass of the paper, it is clear that the FCA is proposing a single disclosure standard – this is a welcome proposal.
The FCA’s proposals should make it easier for bond issuers to include retail investors in the primary and secondary market – primarily through the selection of low, rather than high denominations. Most bonds are issued with £100,000 denominations, which is too high for retail investors. Denominations of £1,000 or £100 would be more appropriate for retail and this would have no impact on institutional investors.
“It’s important that the proposals give issuers choice,” says Michael Smith. “Issuers can continue to use high denominations if they want to – but the incentive to do so, which has driven the market to favour high denomination wholesale-only bonds, is being removed. If the disclosure regime is the same irrespective of the denomination, surely, using a lower denomination makes sense because this gives you a bigger primary and secondary market. This is additive demand too.
“If an issuer really wants to restrict retail access, it can, it will select a high denomination. I anticipate this will be the case whilst advisors and issuers observe what their peers do. But I look at the corporate bonds that have been issued over the last few years and I just don’t see many that wealth managers and even individuals wouldn’t want to be restricted on. Using credit ratings as a proxy for risk, bonds listed in the UK are predominantly investment grade. Investment grade doesn’t mean risk free but if you’re going to expose retail to bonds, this is precisely where you start. So we are fully supportive of what the FCA is doing here. Retail had access to bonds before 2005, so it’s not like we’re breaking new ground.”
Winterflood welcomes the opportunity for retail to have the same access to bonds, as they do equities. Our view is that there should be one bond market that is open to all investors, ideally in the primary but most certainly in the secondary. The scale of the opportunity is significant for the retail community. At present, retail investors can access about 30 low denomination bonds via the LSE ORB platform. This contrasts with over 300 Sterling bonds that listed in the UK over the last two years alone, 150 of them being corporate (non-financial) issuers, 97% investment grade.
Winterflood is committed to supporting these advancements which will empower the retail investing community. We believe that these changes will drive market growth, efficiency and strengthen financial markets in the UK for the benefit of the investing community as a whole.
To read the FCA Consultation Paper follow this link
To read our Winterflood Whitepaper - Retail inclusion in the UK bond markets: Sizing the opportunity follow this link.
You can read more of our coverage below:
‘UK regulator to ease retail investor access to corporate bond market’, Financial Times, Friday 31st January 2025
'FCA to widen wealth manager and retail access to bonds', Portfolio Adviser, Friday 31st January 2025
'FCA corporate bonds proposals undo 20 years of restrictions for retail investors', Investment Week, Monday 3rd February 2025
'Retail investors' exclusion from UK bond market could be remedied', Global Capital, Friday 7th February 2025
If you would like to discuss the topic in more detail, please contact: Michael Smith, CFA, Debt Capital Markets at Winterflood Securities