London Stock Exchange's new retail bond market goes live

London Stock Exchange's new retail bond market goes live

01/02/10

The London Stock Exchange launched its new electronic Order book for Retail Bonds. Introduced in response to strong private investor demand for greater access to fixed income, it offers continuous two-way pricing for trading in UK gilts and retail-size corporate bonds on-exchange for the first time.

Initially, 49 gilts and ten 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.

To mark the start of trading on the electronic Order book for Retail Bonds, the Exchange today welcomed key politicians and market participants to speak at its Paternoster Square headquarters.

Lord Myners CBE, Financial Services Secretary to the Treasury, said:

"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."

Philip Hammond MP, Shadow Chief Secretary to the Treasury, said:

"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."

Xavier Rolet, Chief Executive of London Stock Exchange Group, said:

"We are very excited to be launching this new market today. 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."

Andrew Umbers, Chief Executive Officer at Evolution Securities, said:

"We are enthusiastic about the London Stock Exchange's new electronic order book for bonds, and are pleased to be playing a key part in its launch by operating as a market maker from today. The new initiative reaches out to retail and, working together, we look forward to building continuous, transparent and liquid access to gilts and corporate bonds."

Paul Killik, Senior Partner at Killik and Co, said:

"There has been growing demand from our 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."

Andrea Sozzi Sabatini, Head of Sales EMEA & Latin America at Royal Bank of Scotland, said:

"RBS is one of the leading issuers of bonds for private investors on Borsa Italiana's MOT platform and our 'Royal Bonds' have become the backbone of many personal portfolios in Italy. The LSE's development of a similar market in the UK is a great advance and enables RBS to provide more and more British investors with the same opportunities, with the same small denominations and the same tight spreads."

The main characteristics of the new trading service are:

  • It offers an open and transparent market model for trading in retail-size
     

- dedicated market makers committed to quoting will provide continuous tradable two-way prices in a range of retail bonds throughout the trading day

- all other registered member firms will also be able to enter orders into the book

- the new market model means private investors will be able to see prices on-screen and trade in bonds in a similar way as they currently do for shares

  • Two new segments for electronically tradable gilt-edged securities (UK Gilts) and electronically tradable UK fixed interest securities (UK Corporates) on London Stock Exchange Group's TradElect trading system.

     

  • 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.

     

  • All order book trades in securities admitted to the new segments settle in CREST. Routing of trade information to Euroclear UK & Ireland is carried out by London Stock Exchange Group's post-trade router, X-TRM.
     

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.