IG Group suspends trading in 900 small cap shares.

British spread betting and CFD company IG Group has announced that it is withdrawing leveraged share bets on hundreds of firms as the London-based company reacts to the day-trading trend gripping financial markets.

This morning, the company stated that it was pulling the leveraged products it had been offering as part of an initiative to allocate its resources after rising market demand following the GameStop saga.

Some of the London-listed shares affected include Saga, Mulberry and Hikma Pharmaceuticals. IG said the move involved less than 8 per cent of the leveraged equities it had been offering and does not affect the shares its customers can trade through its stockbroking service.

The boom in trading since the start of the pandemic has raised concerns in some quarters than unsophisticated traders will suffer big losses if their bets go wrong, and customers have been given 30 days to unwind existing positions.

This morning, speaking to FinanceFeeds, a senior FX industry executive said “it is rather an unusual move, as these stocks are not all that small, for example, Mulberry. Who knows what the reason is. Perhaps there is going to be a shift in the market for low cap stocks toward physical, which frees money on the balance sheet” however this is speculation.

IG Group has been in the spotlight a few times recently as a result of the meme stocks trend. Just a month ago, the platform suffered a series of outages, which FinanceFeeds looked at in great detail.

There have been a few outages in the last two years, but the most significant recent one was in November 2020 when volatility around the news of a Covid vaccine potentially being launched sent pharmaceutical stocks into volatility. At that time, IG admitted that several of its investors were unable to check the value of their investments for around 30 minutes.

As soon as we began to report this, IG Group senior management immediately contacted FinanceFeeds, thus the public image is vital to the company, whereas picking up the phone to their customers who cannot close trades has proven somewhat more difficult.

IG Group’s senior executive explained to FinanceFeeds on January 21 “Regrettably, some clients experienced intermittent login issues for a short period today, this is linked to unprecedented demand. This has not been a problem isolated to IG, a number of other brokerages have experienced intermittent problems in recent days.”

“Our interests are aligned with that of our clients, we operate a hedged business model, externally hedging risk where appropriate. We want our clients to trade well and successfully. Where a client experiences problems we will support them through this” said the IG Group spokesperson.

“IG does not close out positions in the way described” continued the IG Group spokesperson. “In keeping with ESMA and FCA rules, positions for retail clients are automatically closed out when the equity on the account falls to 50% of the required margin. This would also apply to pro clients unless they have made an express alternative arrangement with IG. It is difficult to comment further without knowing the individual circumstances and arrangements in place for this client.”

“Some clients have experienced login issues today, this is linked to unprecedented demand and was rectified within an hour of the US markets opening. As you will be aware a number of brokerages have experienced intermittent problems in recent days” concluded the IG Group spokesperson.

That is all very well, but if the platform is out of action and no client can log in, and nobody at IG Group answers the phones – something that has happened several times during periods of volatility recently, this is an important issue that FinanceFeeds maintains we are right to raise.

Years have passed in which the lack of volatility has provided a level market for b-book firms, and now volatility has returned, it appears to be an issue for large retail brokerages.

We can also note that IG Group under the stewardship of former CEO Peter Hetherington was a bastion of high quality and stability. Once he left, things have never been the same, demonstrating that it really does matter who is in the top leadership position. Mr Hetherington should be remembered as one of the great industry leaders.

Additionally, traders should consider their options and look toward working with multi-asset brokerages that use genuine prime of prime liquidity and don’t run a fully internalized system.

There is something to be said for market volatility, however, if the largest companies in the market have become so accustomed to low volatility that they are unable to operate under times such as these, there perhaps needs to be an adjustment regarding the method by which risk management is conducted, as times are changing rapidly at the moment.