Good morning! 

Thanks for your suggestions, I will work my way through them.



(Please note that I own shares in IGG)

IG Group (LON:IGG)

  • Share price: 671.25p (-8%)
  • No. of shares: 367 million
  • Market cap: £2,464 million

Response to FCA and ESMA announcements

It was a slightly unpleasant start to the day for me, as an unsettling RNS was released by one of my holdings, IG Group (LON:IGG).

Many of you will probably be clients of IG, perhaps for many years. It is the biggest spread betting operator in the UK.

The market cap is a lot bigger than we normally permit here, but I'm happy to make an exception.

IG's smaller rival, CMC Markets (LON:CMCX), also made an announcement. Its shares are down 12% for a market cap of £424 million. So I will discuss both in what follows.

Regulatory attack

It has been known for some time that new rules may be enforced on retail traders of leveraged products in Europe and the UK.

The FCA published a consultation paper a year ago, receiving an avalanche of feedback in response, which undoubtedly slowed its progress.

The German and French regulators have also been active. And the Paris-based European Securities and Markets Authority (ESMA) issued a statement on Friday (see here), which sounds ominous.

ESMA has been concerned about the provision of speculative products such as CFDs, including rolling spot forex, and binary options to retail clients for a considerable period of time and has conducted ongoing monitoring and supervisory convergence work in this area. Some competent authorities have also adopted national measures to limit the provision of these products to retail clients.
Notwithstanding these actions, ESMA remains concerned that the risks to investor protection are not sufficiently controlled or reduced.

The proposals are to ban binary options for retail clients, impose leverage limits of between 30:1 and 5:1 on CFDs, prevent bonus offers to incentivise trading, a guaranteed limit on client losses, etc.

The really major proposal is the leverage limit. This is because it's fundamental to the product offering in forex, indexes, etc., that you can trade with a nice big leverage ratio of 100x, for example.



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