DDO stands for Design and Distribution Obligations, and it means that certain financial products can only be sold by initial public offering or IPO to appropriate consumers. For bank hybrid IPOs, this means wholesale investors or retail investors who receive the appropriate level of financial advice. And assume there will be material negative consequences for issuers who breach the rules by issuing to inappropriate investors.
So how does this affect banks and hybrids?
From ASIC’s perspective, investors in hybrid IPOs have traditionally fallen into five categories:
- Wholesale investors
- Investors who receive a high level of financial advice
- Investors who receive a lower level of financial advice
- Investors who receive no financial advice or are unadvised
- Investors who apply after receiving a shareholder offer
The last three categories will most likely be deemed inappropriate under DDO guidelines.
At rollover of existing hybrids, those in 3-5 will not be able to elect to do so. Nor will they be able to buy in the IPO of new issuance. If a retail investor wants exposure to hybrids, they will only be able to buy an individual Preference Share on the secondary market once listed (with brokerage) or they could buy either a managed fund or ETF that offers a diverse and managed exposure to such products.
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