The Wealth Management Association (WMA), a UK-based trade association of the investment industry, is seeking a revamp of the retail bond market to make it more accessible to wealth managers and their customers, reported Investment Week.
Currently, corporate bond issues more than 100,000 (£74,000) come with a wholesale prospectus.
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However, anything smaller requires to be issued with a heavier retail prospectus which takes more time to produce as well as is expensive.
WMA deputy chief executive John Barrass told the publication that in order to avoid the hassle, several UK issuers bring bonds to the market in denominations above 100,000.
"In buying or investing for private clients, they are bound by the rules of the retail market. For the overwhelming majority of retail clients, a bond of 100,000 is unsuitable, too big and indigestible," he remarked.
Barrass wants this limit, and the attached requirement for a retail prospectus, to be phased out.
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By GlobalDataAccording to him, the removal of this clause will allow corporations to issue bonds in smaller denominations, in turn opening up the market to wealth managers.
Barrass said, "Smaller denominations are much easier to justify under suitability rules and in terms of scale for retail clients."
Recommending issues in denominations between £100 and £2,000 for clients, he added, "They are also much more tradable and liquid in the secondary market. All this makes them much more eligible to be invested in by the wealth management community for their clients."
Barrass is also calling for the replacement of the current retail and wholesale prospectuses with one harmonised document, which according to him would lead to a single market for "plain vanilla corporate bonds" for retail and wholesale clients.
At the same time, he recommended the need for an intermediary for retail clients wanting to access these bonds, such as a wealth manager or a discretionary fund manager, as well as the segregration of the market for structured bonds or any other complex products from plain vanilla bonds.
