July 24, 2018 / 6:46 AM / 10 months ago

UPDATE 2-A crackdown on financial spread betting to weigh on IG Group revenue

* Sees lower FY 2019 revenue

* Forecasts return to growth after 2019

* Says Contract for Differences to be less attractive (Rewrites throughout, adds CEO comments, details)

By Noor Zainab Hussain

July 24 (Reuters) - British online financial trading company IG Group lowered its revenue forecast for 2019 and said a regulatory clampdown on spread-betting will make some of its products less attractive.

The company, which provides online stockbroking and trading services to retail investors, said on Tuesday that it would return to growth after 2019.

The company’s muted forecast comes as global regulators crack down on the fast-growing spread-betting industry to address concerns that high-risk speculative products are being offered to retail investors, leading to losses.

The European Securities and Markets Authority (ESMA) has said it would ban ‘binary’ options sales to retail clients and restrict the sales of contracts for differences (CFDs) to protect investors from significant losses.

“As ESMA’s product intervention measures are focused on the CFD industry, they risk creating an unlevel playing field by giving an advantage to other forms of leveraged trading products which are offered to retail clients,” IG Group Chief Executive Peter Hetherington said.

“What you’ve had are regulatory rules that apply only to CFDs and are quite onerous, and will relatively make other products more attractive and relatively make CFDs less attractive,” Hetherington told Reuters.

Other products include traditional futures, options, warrants, and swaps, amongst twenty others, he said.

Binary options and CFDs are financial products that give an investor exposure to price movements in securities without actually owning the underlying assets such as a currency, commodity or stock.

IG, which was founded in 1974 as the world’s first spread-betting firm, had already warned that ESMA’s rules would risk pushing retail clients to providers based outside of the EU, resulting in poor client outcomes.

While most measures announced by the European regulator relate to retail clients, IG’s client base is dominated by sophisticated traders.

“I think our clients are not happy with these new rules. And that is an understatement,” Hetherington said, adding that one in five of its customers had applied to be classified as “professional”.

The company said it would continue to acquire licences to operate in additional jurisdictions and expects to go live as a forex dealer merchant in the United States in the next five months.

IG also reported pretax profit of 280.8 million pounds ($368.13 million) in the year ended May, from 213.7 million pounds, and higher than analysts’ estimates of 273.9 million pounds, according to company supplied consensus estimates.

IG Group and rivals Plus500 and CMC Markets have all reported healthy revenue growth as they signed up record numbers of customers, partly due to the bitcoin boom.

Hetherington said, however, that the volatility from bitcoin had faded: “Cryptocurrency was extraordinarily volatile in the run-up to Christmas, but then faded away almost completely.”

IG, which plans to create a subsidiary in Dusseldorf, also said it would have an EU licence in time for Britain’s exit from the bloc next March. ($1 = 0.7628 pounds) (Reporting by Noor Zainab Hussain in Bengaluru; Editing by Amrutha Gayathri and Louise Heavens)

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