IG Group predicts 10 per cent revenue hit from leverage limits after record year | City A.M.
Spreadbetting firm IG today warned that it expects imminent limits on the leverage available to traders to push down revenues in 2019 after reporting record revenues for the year.
Net operating income rose 17 per cent year-on-year to hit £571.2m in the year ending in May, IG said.
Profits rose by 34 per cent to £226.4m as the company kept a lid on costs in spite of a big increase in bonus payments.
However, IG said that EU regulations due to come in next week will reduce revenues by 10 per cent in the next year.
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The European Securities and Markets Authority (Esma) has put in place limits on the leverage available to retail clients which come into effect next week. Leveraged trades allow much bigger bets with the same amount of cash, although they also mean traders can be exposed to losses much bigger than the amount of money they put in.
The changes responded to concerns from the Financial Conduct Authority that retail customers were using contracts for difference (CFDs) that they did not understand. The City watchdog found that 82 per cent of clients lost money on CFDs.
IG chief executive Peter Hetherington told City A.M. the firm had seen a rush of clients trying to gain accredited professional status to avoid the leverage limits. Out of around 100,000 UK and EU clients, 19,000 have applied to be professional investors. Only 4,000 have met the criteria.
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“We support everything regulators are trying to do,” Hetherington said, pointing to some firms behaving “reprehensibly”. However, the rush of applications for pro status indicates “just how much our clients dislike these rules”, he said.
IG expects revenues from the four cent of traders who are professional to rise from 40 per cent to 50 per cent.
IG is doing “a lot of product development” in anticipation of shifting patterns of trading, including a multilateral trading facility in Europe.
The firm also expects continued strong growth outside the UK and Europe, continuing a trend which has seen UK revenues fall to only 40 per cent of revenues, after launching outside Britain in 2002.
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