Corporate bonds to be traded on London Stock Exchange
Private investors will be able to trade corporate bonds and gilts like the professionals for the first time, following the launch of the London Stock Exchange's retail bond market.
The trading service will allow investors to buy and sell bonds in chunks of at least £1,000 without being stung for high brokerage fees.
It is initially offering 49 gilts and 10 corporate bonds 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.
The London Stock Exchange says it then plans to offer another 40 in the second stage of the launch.
It will charge investors a flat transaction fee for all retail bond trades at 90p per executed order.
The new initiative is modelled on Borsa Italiana's highly successful MOT market. This is Europe's largest retail fixed income market with 230 billion euros worth of trading in 2009.
Philip Hammond MP, shadow chief secretary to the Treasury, says: "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."
Bonds are traditionally the domain of institutional investors who buy tranches of at least £50,000.
Retail investors could previously only directly access around 200 corporate bonds of the 10,000 available on the markets through brokers with fees of around £25 slapped on top of typical trading fees. A more common approach is to buy a bond fund.
Research from retail stockbroking body APCIMS suggests that private investors currently hold around £20 billion of corporate bonds.
The familiar name given to securities issued by the British government and issued to raise money to bridge the gap between what the government spends and what it earns in tax revenue. Back in 1997, the entire stock of outstanding gilts was £275bn; by October 2010 it had surpassed £1,000bn. Gilts are issued throughout the year by the Debt Management Office and are essentially investment bonds backed by HM Treasury & Customs and considered a very safe investment because the British government has never defaulted on its debts and this security is reflected in the UK’s AAA-rating for its debt. Gilts work in a similar way to bonds and are another variant on fixed-income securities.