The serious omission in the ASIC proposals on fostering a retail market in corporate debt is the absence of any reference to credit ratings.In the first instance, if this new market is going to be successful with retail investors, their exposure to credit risk needs to be minimised to the extent that the market should be an investment grade market, with issuance by non-investment grade issuers to be undertaken only via a full prospectus, as required under existing legislation.ASIC has avoided any reference to credit ratings because of the impasse that has been reached with Moody's Investors Service and Standard & Poor's over terms and conditions that will be applied to any retail Australian Financial Services Licence applied for. No attempt to replace an objective assessment of credit risk provided by a credit rating through the use of minimal issue sizes and the disclosure of various financial ratios is going to protect retail investors from credit risk.ASIC is proposing that intending issuers should meet a minimum level of net tangible assets. Minimum targets are also proposed for a gearing ratio, interest cover and a working capital ratio. And these should be reported to bondholders on a regular basis. Disclosure of such ratios in isolation is unlikely to be informative to retail investors. Such data would be more meaningful if published together with industry means appropriate for the issuer, but such a requirement may be sufficient to ensure the market is not used by corporate Australia. Moreover, this ignores the fact that the qualitative considerations made in determining a credit rating usually outweigh the quantitative factors.ASIC is also proposing a minimum issue size of A$100 million to ensure reasonable liquidity in the secondary market and thereby attract some institutional investor participation. It has been suggested elsewhere that the minimum issue size is also intended to provide some indication of credit quality. This is unlikely. There are plenty of large companies that are not investment grade. Remember, only about a third of the companies listed on the S&P/ASX 200 have credit ratings and not all those are investment grade.There is also the suggestion that retail investors will be protected by the participation of institutional investors, who can assess credit risk and price for it accordingly. This assumes that there will be institutional investor participation, but evidence from the retail bond issues that have been undertaken this year says it will be minimal, at least initially. In the absence of credit ratings, investors will buy bonds on the basis of name recognition, which inevitably results in credit risk being mispriced, such that investors are not compensated for the true level of risk being carried. If retail investors dominate an issue, institutional investors will not protect them as they will simply avoid the bond issue.The New Zealand market provides a good example of how this works in practice. Many bonds are listed with a high level of retail participation but few corporate issuers have credit ratings. A wholesale bond market operates alongside the retail