Since the prospectus law was amended in 2012, the requirement for a company to produce a prospectus for corporate bonds only applies to offers of securities with a denomination per unit of less than EUR 100,000. The consequences are clear: to avoid the expense of drawing up a prospectus, over the past few years increasing numbers of companies have issued new bonds with a denomination per unit of EUR 100,000 or more. An analysis by Boerse Stuttgart shows that in 2014 only 171 of the total 770 corporate bonds issued in the euro area had a denomination per unit of less than EUR 100,000. That represents 22 percent of the total. Of the 244 new corporate bonds issued so far in 2015, only 51, or around 21 percent, have had a denomination per unit of less than EUR 100,000. In 2010, by comparison, 88 percent of corporate bonds had a denomination per unit of less than EUR 100,000. As Michael Görgens, Head of Fund and Bond Trading at Boerse Stuttgart, said: ‘The current regulation refuses retail investors’ access to a whole range of securities, because a minimum investment of EUR 100,000 is generally not feasible for them. Also, with a denomination per unit this high, it is not possible to achieve adequate diversification without a portfolio amounting to millions of euro.’
The high threshold for exemption from the requirement for a prospectus also indirectly fuels the intensifying liquidity problem on the bond market. Because exchange trading offers retail investors fewer and fewer bonds with a denomination per unit of less than EUR 100,000, price determination is increasingly shifting to over-the-counter trading. The consequence is a lack of transparency, inequality of free access to price information for market participants, but also a reduction in overall market liquidity.
In February 2015 the European Commission began consultations on its Prospectus Directive with the aim of harmonising the regulations in the different EU member states. In its response to the consultation, Boerse Stuttgart calls for the threshold for the prospectus requirement for corporate bonds to be reduced to EUR 50,000. This would contribute to an improvement in retail investors’ access to the bond market towards the level enjoyed by institutional investors.
Bar chart: Number of newly issued euro-denominated corporate bonds from issuers in the eurozone, broken down by denomination per unit.
* up to 4 May 2015
Boerse Stuttgart’s response to the European Commission’s consultation process on the Prospectus Directive can be accessed at:
https://www.boerse-stuttgart.de/files/prospectus-directive-2015_13_05_boerse_stuttgart_-_final.pdf