Hargreaves Lansdown had said it will now offer investors access to Primary Gilt Issuance. This is a significant milestone for retail investors, granting them fair access to Gilts in the primary market, via auctions from the UK Debt Management Office (DMO).
The UK broker said that its YOY Gilt trading volumes had increased by 315%. This could be partly the result of the quest for yield by investors as UK interest rates rose. But the move does provide retail investors with access to a market which has been harder to participate in previously.
UK government opening up Gilts to retail investors
The UK government has made the decision to open up the Gilts market to retail trading as it seeks out new sources of financing. Winterflood Securities acts as the government-appointed debt dealer and will be working with brokers on new issues of debt to retail investors.
HL said that the first issue was a 7-year Gilt and and its clients can buy free of dealing charge. Tim Jacobs, head of primary markets, Hargreaves Lansdown, explained further:
“This is a ‘first’ for retail investors and gives them fair access to Gilts in the primary market under favourable terms. HL have been instrumental in delivering this solution with the DMO and Winterflood Securities.
“Muted equity markets and higher interest rates have led to a significant rise in client demand for fixed interest products. Currently, over 25,000 clients hold one of the 57 Gilts available on the HL platform; however, until now it has only been possible to purchase Gilts in the secondary market.”
The conventional auction process for Gilts is designed for institutions and may not be suitable for some retail investors. However, the new process invites retail investors to participate with favourable terms.
How it works
The traditional DMO Gilt Auction involves institutional investors submitting bids which can result in disappointment. HL clients will have six days to apply and will be allocated at the Average Accepted Price (AAP) determined during the auction. The client journey will mirror any other IPO or Bond New Issue.
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DMO Gilt Auction
HL has worked with the DMO and Winterflood Securities to ensure its clients have access to the Gilt auction. As part of a wider Government initiative of retail investor inclusion, they have agreed to the following:
The DMO will issue the prospectus 7 days in advance of the auction. At this point, HL will open applications. Clients will have until 4pm the day before the auction to apply. This means that clients have six days to review the prospectus and submit an order.
At the point of application, clients will know the duration and coupon. They will not know the price until applications have closed and the auction has been completed.
HL said its clients will be familiar with submitting an order without knowing the price. Most retail offers do not disclose a price until applications have closed and some equity IPO’s will only have a price range which can change during the offer period. This will be prominently displayed in all client communications and on the application page.
Clients will receive the Average Accepted Price (AAP) which is determined during the Auction. Gilt auctions are extremely competitive with tight spreads. Dealing at the average competitive price will ensure clients will pay a fair price, HL said.
The main advantage to investors in buying in the primary market over the secondary market is that they will deal at the average price which is determined following a competitive auction process.
