FCA proposals for CFD restrictions do not change IG Group’s performance expectations

Maria Nikolova

IG says the FCA’s proposals have been anticipated, and do not change the company’s expectations on performance.

Further to today’s publication of proposals by the UK Financial Conduct Authority (FCA) to impose permanent rules for the offering of CFDs to retail clients, electronic trading major IG Group Holdings plc (LON:IGG) has posted its response to the regulatory proposals.

“The FCA’s proposals have been anticipated by the Company, and do not change the Company’s expectations on performance or Group revenue”, IG said.

The broker reiterated its support for the objective of regulators to improve client outcomes in the online trading industry and noted that it will continue to engage fully with regulators. IG said it believes that “when proportionate regulation has been applied consistently and appropriately, client outcomes have improved, and compliant providers have benefitted over the longer term”.

Let’s recall that, earlier this week, IG Group provided an update following the end of the first half of the financial year ending May 31, 2019 (FY19). The Group said it expected revenue in the first half to be around 6% lower than in the same period in FY18, which was a record one for IG.

Group revenue in the four month period since all the measures came into effect is expected to be around 10% lower than in the same period a year ago. Revenue in that four month period in the ESMA region (UK and EU) is expected to be around 20% lower. However, revenue from the Group’s business in APAC and other non-ESMA region countries expected to be around 9% higher.

The FCA is proposing permanent rules to require firms to:

  • limit leverage to between 30:1 and 2:1 by collecting minimum margin as a percentage of the overall exposure that the CFD provides;
  • close out a customer’s position when their funds fall to 50% of the margin needed to maintain their open positions on their CFD account;
  • provide protections that guarantee a client cannot lose more than the total funds in their CFD account;
  • stop offering monetary and non-monetary inducements to encourage trading, and
  • provide a standardised risk warning, which requires firms to tell potential customers the percentage of their retail client accounts that make losses.

The UK regulator is also proposing to extend the rules to closely substitutable products, including so-called turbo certificates. The regulator is also envisaging 30:1 leverage limits for CFDs referencing certain government bonds (compared to 5:1 under ESMA’s measures).

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