IG Group voices disappointment with severe CFD leverage restrictions outlined by ESMA
IG expects that its revenue in FY19 will be lower than that expected in FY18, mainly because of the impact of the regulatory changes in the UK and EU.
Following today’s announcements by the European Securities and Markets Authority (ESMA) and the Financial Conduct Authority (FCA) on new measures for the offering of CFDs and binary options to retail clients, electronic trading major IG Group Holdings plc (LON:IGG) has stated that it is pleased with the efforts of the regulators to bolster client outcomes but voiced its disappointment with the regulators’ decision to proceed with what the broker called “disproportionate leverage restrictions”.
In a filing with the London Stock Exchange, IG warned that the leverage restrictions “will unduly restrict consumer choice, and risk pushing retail clients to providers based outside of the EU or to use other products which allow the leverage clients seek. This may result in poor client outcomes”.
Let’s recall that, as per the new rules outlined earlier today, the leverage for CFDs will be capped at levels from 2x to 30x, depending on the underlying asset. The heftiest restriction (leverage of 2:1) is for CFDs on cryptocurrencies. Binary options will be banned altogether: the prohibition applies to any offering, marketing and distribution of such products.
The measures announced by ESMA only relate to retail clients, IG notes. With regard to its client base, IG explains that the small number of clients who have been categorised as professional has continued to grow. Clients now categorised as professional generated over 30% of the company’s UK and EU revenue in the three month period to 26 March, 2018. The company believes that clients who generate over half of its current UK and EU revenue will be classified as elective professional.
The broker refers to its announcement from December 18, 2017, when it stated that it believed that any reduction in historic annual revenue from the implementation of the measures being considered by ESMA, taking into account the actions being taken by the business to mitigate the impact, would have been less than 10% including the impact from lower binary revenue. Applying the same logic to the revenue in the first nine months of FY18, IG believes that the impact of the measures that ESMA will now implement would have been a reduction of approximately 10%.
IG does not believe there will be any financial impact from the implementation of the measures in the current financial year, FY18.
The company, however, expects that its revenue in FY19 will be lower than that expected in FY18, primarily reflecting the impact of the regulatory changes in the UK and EU. Also, IG’s revenue in FY18 year to date has benefitted from the volume of client trading in cryptocurrencies which is unlikely to be as strong in the next financial year.
IG expects to return to growth after FY19.
