Regulatory overhang haunts spread betting giant IG

Regulatory overhang haunts spread betting giant IG

Friday, March 24, 2017 Posted by Andy McCarron
Retail financial trading awaits imminent FCA moves

Retail financial trading business IG Group issued a disappointing trading statement this week ahead of a predicted spring announcement from the UK’s Financial Conduct Authority (FCA) which is likely new regulatory restrictions on customer leverage limits and a potential ban on offering binary options.

Revenue for the three months to the end of February fell back 3.8 percent to £117.4m dragged down by IG’s largest market of the UK where revenues was down 15 percent. The company blamed the performance on less volatile trading conditions.

However, what IG termed an “uncertain” regulatory backdrop continued to weigh heavily on the company. The trading statement said it had responded to open consultations being undertaken by the UK and Germany while it added that it was pleased with the “clarity” provided in January in France where the authorities instituted a ban on the marketing of binary options and forex trading but continued to allow CFDs under tighter rules.

On a brief earnings call with analysts, chief executive Peter Hetherington said that none of the changes that have been announced in recent months had affected the business adversely “in any way at all”, adding that moves such as in France have the potential to “improve (IG’s) competitive situation.”

However, there was scepticism from the analysts. Justin Bates at Liberum suggested the FCA’s consultation continued to be the “biggest risk to IG”, adding that the absence of clarity here made the business “impossible to forecast at this stage.”

At RBC, Peter Lenardos added that the UK overhang persists with the threat of “regulation contagion” affecting other territories providing additional risk.

The retail financial trading sector has faced a barrage of regulatory threats and actual actions in the past year or more including in the aforementioned moves in the UK, Germany and France as well as the Netherlands and Cyprus.

“Client contraction is possible, yet we do not forecast it; and financial performance stabilisation and recovery could take longer than we envision,” Lenardos added.

The FCA is likely to report within weeks and Bates at Liberum said it was unclear whether the FCA will proceed with their proposed leverage limits which would only allow inexperienced traders a maximum multiple of 25 times their original stake while experienced traders would be allowed 50 times. Some operators in the financial trading sector regularly offer leverage in the 100s.

Along with listed competitors CMC Markets and Plus 500, IG saw over £1bn in value wiped from their share prices in December when the FCA announced its initial consultation.

Bates added that he does not believe that industry participants have been given any indication of what the outcome of the FCA consultation will be. “Therefore, we believe it likely that the industry is faced with another couple of months of silence and uncertainty.”

With regard to the potential banning of binary options, an indication of where the FCA might be heading came with its annual data bulletin released in February where the financial watchdog which showed that binary options was the investment product with the largest number of FCA enquiries.

The enquiries were received despite the fact that the FCA doesn’t officially take over the regulation of binary options until January 2018 when the Mifid II European financial regulations come into force.

Totally Gaming says: The sense of trepidation within the financial trading sector is palpable with IG where the analysts conference call was very brief. The ten-minute call was telling all the same; the industry is understandably fearful over what the FCA might introduce and what it might presage in terms of other regulators picking up the baton.

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