Q. What is the difference between wholesale and retail bonds?
A.
A wholesale bond refers to a debt security which, at the time of issue, could be sold only to wholesale clients or investors as defined in the Corporations Act 2001 on the basis that any disclosure (e.g. information memorandum) was not made in accordance with the retail disclosure requirements of the Corporations Act 2001. Wholesale bonds trade in the OTC market rather than on an exchange. In certain circumstances, a wholesale bond can be sold to retail investors in the secondary market after a period of 12 months from the date of issue. The number and volume of wholesale bonds outstanding significantly exceeds that of the retail bond market.
A retail bond refers to a debt security which, at the time of issue, can be sold to retail clients and investors as well as wholesale clients and investors as defined in the Corporations Act 2001 on the basis that an appropriate disclosure document (e.g. a prospectus) has been prepared and lodged with ASIC and provided to retail investors in accordance with the Corporations Act 2001. Retail bonds may sometimes also be listed and traded on the ASX.
Under the Corporations Act 2001 wholesale clients comprise sophisticated investors and professional investors:
A professional investor is defined as one or more of the following:
• A financial services licensee
• A body regulated by APRA, other than a trustee of any of the following (within the meaning of the Superannuation Industry (Supervision) Act 1993): A superannuation fund, an approved deposit fund, a pooled superannuation fund or a public sector superannuation scheme
• A body registered under the Financial Corporations Act 1974
• The trustee of a superannuation fund, an approved deposit fund, a pooled superannuation trust, or a public sector superannuation scheme within the meaning of the Superannuation Industry (Supervision) Act 1993
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And the fund, trust or scheme has net assets of at least $10 million
• A person or entity that controls gross assets of at least $10 million (including any amount held by an associate or under a trust that the person manages)
• A listed entity or related body corporate of a listed entity
• An exempt public authority
• A body corporate or an unincorporated body that:
- Carries on the business of investment in financial products, interests in land or other investments, and
- For those purposes, invests funds received (directly or indirectly) following an offer or invitation to the public, within the meaning of section 82 of the Corporations Act 2001, the terms of which provided for the funds subscribed to be invested for those purposes
• A foreign entity that, if established or incorporated in Australia, would be covered by one of the preceding paragraphs
A sophisticated investor is one or more of the following:
• A person or entity that has obtained an accountant’s certificate dated no more than two years ago that the client:
(a) Has net assets of at least $2.5 million, or
(b) Has a gross income for each of the last two financial years of at least $250,000; or
• A person or entity that is controlled by a person or entity that meets the requirements of (a) or (b) above. or
• A person or entity who invests where the purchase price of the product or single security is at least $500,000
Conclusion
So it’s important to ascertain if you are a wholesale client and, if so, to inform FIIG so that we can ensure that you (a) receive proper disclosure of credit ratings for issues/issuers, with credit ratings only being available to wholesale clients but not retail clients due to ASIC rules and (b) have a significantly wider universe of bonds to choose from.