Exchange-traded bonds, which we will discuss later in the article, are a financial instrument, securities issued by the exchange according to simplified rules. So, unlike classical bonds, they do not need state registration, the exchange itself is engaged in it. Accordingly, the issue of exchange-traded bonds does not require the payment of a state duty for their registration. But such an issue can only be produced by companies whose securities are traded on the stock exchange.
Initially, these securities were limited by the time they went on the market (it did not exceed 3 years), but now their circulation period is unlimited.
Bonds Issue Features
The provisions characterizing the features of exchange-traded bonds in federal laws do not prohibit their issuance, even if their amount exceeds the amount of the authorized capital of the joint-stock company. Also, they cannot be issued as collateral, even if the issuer of exchange-traded bonds issues them with security.
Only the stock exchange has the right to admit these securities to trading. At the same time, a exchange-traded bond is allowed for sale on only one trading platform on the basis of passing the admission procedure.
These securities are public, therefore, they are distributed by open subscription. Their issue is nothing more than a loan, so the openness and publicity of all transactions with such securities is a prerequisite.
What is a bond?
An exchange bond is a security that entitles its holders to receive its face value.
For example, an oil corporation needs investments to develop new fields, which are estimated to promise great returns. Securities issue in type of shares in this case, it is not attractive, as there will be permanent dividend obligations to shareholders. Credits as a tool are also not suitable, because they need solid guarantees, which the corporation does not have yet, and the calculations of scientists on oil reserves are not a special guarantee.
Issuing stock exchange bonds is an ideal way to solve a problem. Their nominal value is much higher than real, which means it is beneficial for investors. They buy bonds, thereby investing in projects planned by the company, and then return their money with interest. This is what is called the issue of securities.
But preparation for the issue of exchange-traded bonds is a rather expensive undertaking, so it is beneficial for a company to issue them only when more than half a million rubles are needed. And these are mainly large corporations, which, incidentally, do not resort to such operations very often. Consequently, there are not so many players on the stock market who resort to these loan methods, which reduces the risks of investors.
Exchange-traded bonds appeared in Russia not very long ago. By the way, they are called that way because, unlike other types of securities, they are issued under the supervision of the exchange, and they only notify the Federal Service for Financial Markets. In other cases, it fully controls emissions. This, of course, imposes some restrictions on the sale. Basically, exchange-traded bonds are sold by those exchanges that controlled the issue, but under certain conditions they can be sold at other sites. 
Participants in the issue of exchange-traded bonds
Let's look at the bond issue participants:
- Issuer - holder of securities. In economics, this term refers to the one who produces them. And in this case, the owner of the exchange bonds does not personally do this. The exchange does it for him.But still, a company that resorts to loan services is called an issuer.
- Exchange or depository. The platform on which securities are issued and sold. Their task is to timely monitor the transparency of all operations, make deposits on exchange bonds, inform all market participants.
- Investors This is the name of those who purchase securities for profit.
The advantage of registering on exchanges
The main advantage of the described securities is speed. So, exchange trading on them can take place the very next day. The commission from the circulation of securities goes to the stock exchange, which is a commercial enterprise. She is not profitable bureaucratic hitches and red tape. Also, long pauses are not needed for issuers and investors.
Requirement for the issuer of exchange-traded bonds
Naturally, each investor wants to receive funds invested in bonds back. Therefore, when issuing, it is necessary to make serious demands on the issuer of securities. So, only companies that have existed on the market for more than three years are entitled to release them. In addition, these legal entities must have shares and bonds located on the exchange on which exchange bonds are supposed to be issued.
At other sites, these securities receive circulation only after the so-called listing - the procedure for registering securities on the exchange, which did not issue them. But basically, a stock exchange bond is drawn where it was issued, so trusting relationships between the issuer and the trading floor are the key to success and stability.
Exchange bond - short-term or long-term loan?
To answer the question, you need to know the features of the described securities:
- Earlier, the life time of exchange-traded bonds was three years, but now it is not limited. This allows the company to raise money not only for short-term prospects, but also for long-term ones.
- The absence of state registration of the issue simplifies the issue a little. Makes it faster. State registration of securities involves a more detailed list of documents and the provision of additional information on the use of funds.
This, of course, reduces the risks for investors, because they can analyze for what purposes the issue was made. But as for the detailed information about the issuer, there is no particular fear here. This is due to the rules for issuing securities. The fact is that the issue of exchange bonds can only be done by a legal entity that already has shares or bonds located on the site on which the issue is supposed to be. This means that all information about the company is available from the Federal Service for Financial Markets.
- The yield on exchange bonds is higher than on ordinary ones. This is due to the fact that registration costs are reduced, loans are attracted faster, and investors have higher risks than other types of bonds. For example, trust in the state is greater than trust in the exchange. Consequently, investors are more likely to invest in government bonds than in exchange bonds. So, in order to attract investment, companies need to increase profits on these securities.
- The exchange-traded bond program involves working with securities through a public (open) subscription. There should not be any private (closed) arrangements.
Concept of coupon
An exchange bond is, as mentioned above, a loan requiring a mandatory return. Therefore, there is such a thing as a coupon. This is a financial instrument that provides investors with annual interest on deposits. But not all bonds are coupon. There are so-called zero-coupon securities. They determine the return of the par value (par) of the bond in a certain period.
Discount bonds
Bonds, in which, as a rule, the coupon is equal to zero, are called discount.But their face value is much higher than real. This difference is received by investors at the time of repayment of loans on bonds, and it makes up income (discount). Sometimes they use a mixed system - a mini-coupon. On him nominal cost bonds are not much higher than the real rate, but at the same time small interest is paid.
Face value
Par value or par value of a bond is the amount that must be repaid at the time of repayment of the loan term. Unlike other securities, it plays an important role. For example, take a financial instrument such as stocks. Their face value has little effect on the determination of market value - the price depends on the amount that the issuer has issued, on the state of affairs in the company, on the market value of its property, on profit received, etc.
For bonds, all this does not apply. It does not matter what state of affairs the issuing company will have and at what price investors purchased these securities. The value of the bond will be the same as in par.
The real or market value of a bond
The cost of bonds depends on three factors:
- The economic situation in a world, country, or industry. During systemic or sectoral crises, the number of issuers in dire need of investment is increasing. Their reasons are various. Basically, in order not to go bankrupt, live up to better times. Investors understand this and less often want to risk their own funds. Issuers are forced to increase the nominal value of bonds and reduce the return time.
- Maturity on bonds. The longer the period during which investors return the face value of the bond, the lower its market value.
- Right to a regular income. Coupon bonds are more expensive than couponless in proportion to their income.
Buyout price
In the West, another concept is legislatively fixed - the redemption price of a bond. It can be higher or lower than the nominal and depends on the economic situation. Market regulators in this way smooth out the effects of certain economic phenomena.
In the Russian Federation, such a concept is excluded. The buyback price for our market participants is the face value of the bonds.
Conclusion
The securities market is a rather complex mechanism requiring special knowledge. It's not even the terminology and understanding of market tools. It is necessary not only to know such concepts as a scheme for accounting for the extension of the circulation term of exchange bonds or trading instruments. It is necessary to have serious knowledge about the economic situation, in general, and its individual segments, in particular. For example, you can invest in exchange-traded bonds in an agricultural agricultural holding and not know that a crisis in this area is currently happening. The market price of similar enterprises can be much lower than the bought from this holding. Consequently, you could invest your money much more profitably.
In general, the described financial instrument is very useful for the economy. Sometimes stock exchange bonds are much more profitable than bank loans for issuers and bank deposits for investors. This is a kind of golden mean in the economy, in which both producers and investors are satisfied. It is only important to legally regulate this mechanism. Create leverage financial investor protection so that they are not afraid to contact exchanges that do not register the issue of securities with the relevant federal services.
To do this, create tools for protecting depositors, insurance, protection funds, etc. But, in addition, a transparent information policy in this area is needed. Important to increase and financial literacy population. The last point is most important. After all, Russia occupies one of the leading places in the distribution and activity of financial pyramids that use the terminology of trading floors in their work.Legislation in this area leaves much to be desired, and the huge profits that scammers have could be spent on improving the real production sector. Work in this direction is already underway. Legislation is being tightened, social institutions for improving financial literacy are being created, but today there are still many problems in this area.
