Hargreaves Lansdown is giving its clients access to Debt Management Office (DMO) Gilt auctions.
Tim Jacobs, head of primary markets, Hargreaves Lansdown, says, “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.”
He notes that investors will need to assess how they can engage in the market, given the normal level of sophistication by market participants.
“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.”
Hargreaves Lansdown says it will confirm details when the prospectus is published on Wednesday 21 February.
The traditional DMO Gilt Auction involves institutional investors submitting bids which the firm notes 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.
There is no charge to participate in the first transaction on 21 February.
HL said in a statement “We have worked with the DMO and Winterflood Securities to ensure our 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, we will open applications.
• Clients will have until 4pm the day before the auction to apply. This means that clients have 6 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. Our 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.
• Our 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 our clients will pay a fair price.
• The main advantage to clients 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.”
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