has recently reported on the failures of the Australian retail corporate bond market and called out red tape as the culprit.
In a classic chicken-and-egg dilemma, because retail investor experience with bonds is minimal, so is the demand for these products. High distribution costs have been another barrier for issuers. Typically, such investors cannot price the credit risk involved. Perhaps the solution revolves around this very point. If there’s sufficient and genuine institutional participation, reduced disclosure for offers of simple corporate bonds in the form of a cleansing notice sounds reasonable.
There’s more. Following the financial crisis, the major global rating agencies left the Australian retail market to avoid the financial services licensing regime. Ratings agencies play an important, but not perfect, role in bond markets. Their absence in the retail space is a problem because all bonds are not created equal. Even professional investors rely on ratings.
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