Australian Government Legislates to Encourage Retail Corporate Bond Offerings

Australia’s deputy prime minister and treasurer, Wayne Swan, and minister for financial services and superannuation, Bill Shorten, have introduced legislation to further encourage the development of the country’s retail corporate bond market.

The government said that promoting a deep and liquid retail corporate bond market is a key component of its banking reform agenda and the Corporations Amendments (Simple Corporate Bonds and Other Measures) Bill would cut red tape for businesses issuing simple corporate bonds, making it easier to buy and sell these financial products.

It added that a vibrant retail corporate bond market would put competitive pressure on Australian bank lending rates to business and allow harnessing of national superannuation savings, enabling domestic funding of more productive investment in the Australian economy and reduce its reliance on offshore wholesale funding markets.

The legislation amends the Corporations Act to:

  • Introduce a two-part simple corporate bonds prospectus – the new prospectus reduces the current compliance costs associated with the offer of simple corporate bonds to retail investors both in the first issuance and in subsequent tranches.
  • Modify the current director’s liability that is attached to the offer of simple corporate bonds and to clarify the defences provided in respect to director’s liability that apply to all offers of securities.
  • Allow for simple corporate bonds to be transferred from the wholesale to the retail market, in line with the approach adopted for retail trading in Commonwealth Government Securities (CGS), through the introduction of simple corporate bond depository interests.

The legislation, according to a statement issued, represents “another major milestone in the government’s commitment to secure the long-term safety and sustainability of the Australian financial system”.

Prime minister Julia Gillard’s government is “committed to securing the long-term safety and sustainability of [Australia’s] financial system and boosting its reputation as one of the most attractive investment destinations in the world”. The latest move follows the passage of legislation last year to enable the retail trading of CGSs which provide a benchmark price for small investors looking to diversify their savings through investments in these corporate bonds.

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