Treasurer Wayne Swan has introduced legislation aimed at encouraging the development of a retail market for corporate bonds. In a media statement issued yesterday, the Treasurer said the legislation was a milestone in the development of the Australian financial system. However, there are plenty of commentators who believe the reform has serious shortcomings.The Corporations Amendment (Simple Corporate Bonds and Other Measures) Bill 2013 has three main elements: new prospectus rules will reduce compliance costs; directors' liability attached to bond offers will be modified to a "reasonable steps" approach; and the introduction of depository interests will allow for the trading of bonds on the wholesale and retail markets simultaneously.Under current law, an issue of corporate bonds to retail investors requires the provision of a full prospectus.The simplified system relies on a mandatory two-part prospectus. The base prospectus, which will have a three-year life, will have general information about the issuer that is unlikely to change over the three years. Issuers will also need to release an offer-specific document for each fund raising. It will include a statement that the issuer is compliant with its continuous disclosure obligations. It will also contain any material that relates to the investment that has not been included as part of continuous disclosure.The idea is that the offer-specific document will be short and relatively quick and easy to prepare.To facilitate parallel trading of bonds in the wholesale and retail markets, corporate bonds in the wholesale market can be offered to retail investors using depository interests, which provide a beneficial interest in an underlying security.The intention of this change is to allow securities issued to institutional investors in marketable parcels worth many thousands of dollars to be available to retail investors who might invest a few thousand dollars.One widespread criticism of the legislation is that the Government has limited the facility to what it calls "low risk and less complex bonds".The restrictions are that bonds cannot be subordinated, interest payments cannot be deferred, bonds cannot be converted into another class of securities and terms cannot be longer than 10 years.Greg Hammond, a senior associate at King & Wood Mallesons, said many of the submissions to Treasury after the draft bill was released called for subordinated bonds to be included.The entity offering securities must have securities quoted on the Australian Securities Exchange, or be a wholly owned subsidiary of a company with quoted securities. Real estate investment trusts and managed investment schemes (whether listed or not) cannot issue retail bonds under the new legislation.Hammond said a number of submissions called for the Government to widen the scope of the legislation to allow for more issuers.He said submissions called for an even simpler approach to the prospectus requirement. This would involve allowing issuers to rely on current continuous disclosure rules and issue a "cleansing notice".Truong Le, the head of retail fixed income at Commonwealth Bank, said there were problems with the Government's approach to the two-part offer document.Lee said: "The content and structure of the two-part prospectus is to be