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Quick Reactions to BT’s article SGX mulls ‘seasoning’ retail-friendly bonds (9 May 2013)

 

“There’s general awareness of the fact that there’s a big demand from retail investors for more products, and those products are still not forthcoming, and idle deposits are building, so there must be something done to address that,” said a veteran debt capital markets banker.

I wholeheartedly agree with this observation and applaud the SGX for mulling over the ‘seasoning’ of retail-friendly bonds.

However, in terms of the financial eco-structure, I maintain that it will still not address the inadequacies. If the intention is to ‘restrict seasoning to just three classes of issuers: companies of a certain size, statutory boards and wholly owned government entities’, then it continues to ostracise SME issuers. It does not lead to the system becoming more inclusive.

While the concerns are against ensuring adequate safeguards for unsophisticated investors, I find it paradoxical that equities that contain little or no recourse for claims are afforded comparatively much greater latitude (in terms of disclosures, investment protection etc), compared to fixed income instruments.

BUT the big issue I have with only offering seasoned issues to retail investors is that they get only the last bite, after the big boys are done with their feeding frenzy!

Why should retail investors be allowed to participate only after the bond prices have become distorted (inflated), given the current state of leverage employed by the big boys? Yours truly believes that leverage most certainly accounts for order book inflation when the books become 10-30x or more oversubscribed on new S$ bond issues (especially so when private banks get the bulk of allocation)!

“Access to retail investors will only be good,” the banker said.

But let’s not treat them all like SUCKER FISH!