IG expects to launch US subsidiary in mid-2018, marks progress on MTF for European market

Maria Nikolova

“The business is developing new products and services, and is establishing operations in new geographies, in order to broaden its client base, extend its competitive advantage, and to allow it to continue to market OTC leveraged derivatives to potential new clients for whom it is appropriate”, says IG’s CEO Peter Hetherington.

Electronic trading major IG Group Holdings plc (LON:IGG) has earlier today posted its interim results for the six months ended November 30, 2017.

With regard to its business expansion, the company provided some interesting updates.

As announced in July, the company is developing a multi-lateral trading facility (MTF) for the European market where IG believes there is a significant opportunity in offering its products on exchange. IG notes that the on-exchange market in Europe is considerably larger than the OTC market, thus providing the company with an opportunity to appeal to a wider client base, strengthen its brand presence and potentially, over time, expand the adjacent OTC market. IG plans to offer only Limited Risk products on its MTF, so that every trade has a guaranteed stop position, making the offering suitable for less experienced clients.

With regard to its US expansion plans, IG confirms that it has identified potential in the US OTC FX market, where it believes the market is currently underserved. IG filed its licence application at the end of November to establish a new subsidiary based in Chicago, and has commenced hiring for key roles. The Company is targeting launch in the middle of calendar 2018.

In Europe, IG has applied to BaFIN, the German regulator, to establish a subsidiary in Dusseldorf as a response to the UK’s decision to leave the EU. The office is set to combine the existing German sales office with key management and control positions and will serve as a regional hub for the Group’s well-established EU business. The establishment of this subsidiary will not have any impact on the company’s UK operations, IG says.

IG also commented on the recent launch of a public consultation by the European Securities and Markets Authority (ESMA) into proposed rules for CFD and binary options offering to retail clients.

IG believes that enforcing consistent close-out procedures, putting a guaranteed limit on client losses, restricting trading incentives such as bonus offers, and issuing standardised risk warnings would all improve client outcomes if implemented appropriately, and enforced effectively.

IG believes that the leverage restrictions under review are disproportionate and go beyond what is needed to protect consumers from poor outcomes associated with excessive leverage. The danger of disproportionate leverage restrictions on regulated firms is the risk that they will push retail clients to trade CFDs with unregulated firms based outside the EU potentially resulting in poor client outcomes.

IG has sharpened its appropriateness testing and implemented increased wealth hurdles for all new clients. The Company is confident that these measures safeguard clients, including directing less experienced retail clients to the Limited Risk account, which prevents them from losing more than their initial deposit.

In mid-November 2017, IG launched an online process that allows clients to request to be categorised as an elective professional. These requests are assessed internally, and clients who meet the requirements are now categorised as professional. To date, more than half of all requests by number have been rejected. Clients who have been categorised as professional generated over 25% of the Company’s UK and EU revenue in the three months to January, IG estimates.

Over the past 12 months, the company has conducted a full review of its institutional partners and will only work with partners who share IG’s values and ethics, have transparent and appropriate fee structures and are of sufficient size. The number of institutional partners has been reduced, to seek to ensure that all clients who engage with the business through a partner will be offered the same, quality outcomes as those who maintain a direct relationship.

Let’s note that the numbers for the six-month period to November 30, 2017, were solid. Net trading revenue amounted to £268.4 million, up 10% from the corresponding period a year earlier when it amounted to £244.9 million. The company managed to cut operating expenses excluding variable remuneration by 7% from a year earlier to £117.6 million. Pre-tax profit for the six-month period was £136.2 million, up 29% from the corresponding period a year ago.

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