A reader asks: I am an existing customer of Hargreaves Lansdown. I have asked them if they are primary brokers of corporate bonds. They say they are not.
If that is the case could you advise who are primary brokers, which will enable me to invest in corporate bonds at point of issue not on the secondary market where they look less value for money, and indeed the information is poor.
Answer: This highlights some very important distinctions in the business that certain firms conduct. Hargreaves Lansdown is what is known as a financial platform what this means that it is a service provider and reseller of other peoples products rather than an originator of those products.
We can draw an analogy with a car dealership whose business is selling cars and perhaps providing the finance to buy them, but they do not manufacture them.
The business of the origination of securities, that is advising on and issuing securities on behalf of corporate clients tends to be the preserve of corporate finance departments within larger brokers and investment banks.
These brokers and banks also come together to form underwriting syndicates for the largest of new issues whether that’s issues of bonds or equities or sometimes both.
Often these deals are done via a bookbuild where interested parties indicate an interest in the new issue through one of the book runners in the syndicate. And once a level of demand has been established then the new securities may be priced and issued.
That can work well for the company issuing new shares or bonds but it also creates something of a closed shop, which means that those on the outside are excluded from the issues.
Even if your broker is able to participate, there may also be financial minimums and settlement restrictions that effectively exclude most retail customers.
However, In recent years the London Stock Exchanges Order Book for Retail Bonds or ORB has attracted Blue Chip borrowers, who have specifically structured and packaged bond issues to appeal to private investors.
Mark Glowrey, author of The Sterling Bonds & Fixed Income Handbook and Head of Fixed Income Sales, at Allia C&C, a specialist bond broker told the Good Money Guide that
“The ORB primary or new issue market is geared to meet the requirements of self-directed investors. ORB bonds are typically issued with a minimum subscription level of £2,000, with £100 increments above that. The subscription period is more leisurely (than in the institutional market), and lasts for up to two weeks“
What’s more Mr Glowery added
“These bonds are listed and traded on the London Stock Exchange and the majority of the well-known execution platforms such as AJ Bell, Eqi, Hargreaves Lansdown etc will support subscription and enable trading the bonds on the secondary market as well”
So it may be worth revisiting the conversation you had with your current provider or if they still say no then talking to the others listed above.
Over the last year or so, ORB new issues have been seen from home credit provider International Personal Finance, Manchester-based property company Bruntwood and the Alynwick Garden Trust, and coupons on these bonds ranged from 5% to 7.875%.
Darren is a veteran of the financial markets with almost 36 years of experience under his belt. He has worked in trading, sales, analytical, and research roles, he has been a regular guest & commentator on financial television channels and publications. During his career, Darren has been fortunate to act for and advise major hedge funds and investment banks as well as HNWI. Darren analyses the markets using a blend of technical and fundamental analysis