Sale of complex hybrids to retail investors worries Aussie regulator

[SYDNEY] Banks and brokerages are targeting retail investors with risky and complex hybrid instruments that even some professional investors avoid, a trend that worries Australia's investment regulator.

Contingent convertible bonds or "CoCos" are hybrid securities that count as Tier 1 capital under Basel III rules. They behave like bonds but can be written off or converted into ordinary shares if regulators declare a bank's capital has fallen too low - potentially wiping out CoCo holders in the process.

Regulators require banks to hold certain amounts of these hybrids so they have a strong enough capital base to avoid the need to be bailed out by taxpayers in the event of a financial crisis.