The UK’s biggest derivative trading platforms are under the cosh in trading on Monday as both UK and European regulators get tough.
Share prices across the UK quoted space, including IG Group (IGG), CMC Markets (CMC) and Plus500 (PLUS), are all sharply lower as investors respond to a list of possible restrictions to retail trading of complex leveraged products.
The joint announcement on 15 December from the UK's Financial Conduct Authority (FCA) and the European Securities and Markets Authority (ESMA) proposes restrictions to the marketing and sale of binary options and contracts for difference.
The proposals would also cap how much leverage (effectively, borrowed funds) retail customers can be offered.
The measures are designed to protect retail investors from running up large losses very quickly without proper levels of cash backing available.
INDUSTRY HITS BACK
Unsurprisingly, many of the derivatives providers have tried to defend their market positions.
For example, IG, the UK’s largest platform, says in a statement today that while it is ‘supportive of the objectives of regulators to improve client outcomes’ it thinks the leverage restrictions under review are disproportionate.
The company says the proposed measures ‘go beyond what is needed to protect customers from poor outcomes associated with excessive leverage’.
Speaking on a conference call on Monday morning, IG’s chief executive (CEO) Peter Hetherington says that if a customer wants more leverage they may go to unregulated offshore providers, with potentially worse outcomes.
IG has run its previous year’s numbers and says that revenues would have been down by less than 10% if the proposals had been in place. Hetherington explains that the impact last year would have been relatively limited because customers can bypass such restrictions by electing to take professional investor status, which would exempt them
Interestingly, Hetherington also confirmed that ‘we have no intention of cutting the dividend at this stage', a large concern for shareholders.
MORE INDUSTRY VOICES
CMC, which has already said it focuses on high value experienced investors, adds on Monday that it is ‘well positioned to take advantage of market opportunities that will arise from these proposals’.
The company adds that binary option products only generated £2.1m of its total £89.6m revenue earned in the UK and Europe during the first half this year.
Asaf Elimelech, CEO of Plus500, wants more details before coming to any hard and fast conclusions. He admits that until ‘details are finalised, it is difficult to assess the impact on our business’.
Despite the reassuring nature of such comments investors are clearly spooked, hence the steep share price sell-offs. IG (IGG) shares are down 9.4% to 664p in trading on Monday. CMC Markets (CMC) stock has 13.6% lower at to 145p while Plus500 (PLUS) has fallen 16.2% to 775p.