UPDATE 1-RBS kicks off LSE's new retail bond platform

* RBS already selling 150 mln euros weekly to Italian retail

* Platform offers household names alternative financing

By Jane Baird

LONDON, Feb 1 (Reuters) - Royal Bank of Scotland (RBS.L) said it would offer the first retail bond listing on the London Stock Exchange's (LSE) (LSE.L) electronic retail bond market on its first day of operations on Monday.

The LSE launched its retail platform, citing heightened interest from non-institutional UK investors wanting to buy bonds but were unable to do so because of the lack of infrastructure.

Bonds are deemed safer than other forms of securities such as equities because interest payments are fixed and investors get their money back unless the company goes bust.

But prior to maturity bonds' value can vary and move inversely to their yield.

The RBS bond will be priced at 100 (widely known as par), giving investors a 5.1 percent coupon for 10-years if purchased Monday. Future buyers will effectively receive a higher yield, should price of bond fall, indicating that the perception of RBS risk has increased -- and vice versa.

RBS bankers said buyers can purchase as little as 100 pounds ($162.7) worth, while bid and offer spreads on the bond are expected to be in the region of 75 basis points.

The bank plans to start Monday's bond issue with an initial size of 100 million pounds and then sell additional tranches of the same bond and same maturity in coming weeks, depending on demand, said David Lake, head of equity derivatives sales UK at RBS.

RBS is also considering bringing on additional products over time with other maturities and characteristics, he said.

He floated the possibility of a bond that would pay the higher of 4 percent or the variable three-month LIBOR rate for each coupon period to investors.

The British bank has experience selling bonds to retail investors in Italy, Europe's largest retail bond market, selling more than 1.5 billion euros ($2.11 billion) in 15 different notes in 2009 and an average of 150 million euros a week so far this year, said Andrea Sozzi Sabatini, head of sales EMEA and Latin America, RBS.

The LSE, which used the Borsa Italiana's retail market as a model, has estimated potential demand at around 20 billion pounds for its new market, which kicked off with secondary trading of nine existing investment-grade corporate bonds and around 50 government bonds (gilts).

"We hope the new market will be good news for investors seeking yield as well as a new route for companies seeking capital," said LSE chief executive Xavier Rolet. "This is about funding growth and jobs in the SME (small and medium enterprises) as well as the blue-chip market."

The new market saw a few trades on Monday morning, said Raffaeli Jerusalmi, director of capital markets for the LSE Group.

Paul Killik, founder and senior partner of Killik & Co., said he believed that Manchester United and John Lewis, both UK household names that recently issued bonds in the wholesale market, could have found demand in the retail market that would have made those sales easier and at better terms.

"The (wholesale) market is riddled with vested interested, and the private investor is the loser," he added.

Evolution Securities and Shore Capital Stockbrokers have committed to making markets and ABN Amro to quoting the new RBS bond, the LSE said. (Additional reporting by Alex Chambers; Editing by Sharon Lindores) ($1=.6147 Pound) ($1=.7122 Euro)