February 12, 2019 / 7:50 AM / 5 days ago

UPDATE 2-Online trading platform Plus500 slumps on profit warning

* ESMA regulation led to “marked reduction” in revenue

* Shares tank over 30 pct

* Co’s FY 2018 revenue tops estimates (Adds CEO quotes, shares)

By Muvija M and Noor Zainab Hussain

Feb 12 (Reuters) - Plus500 warned on Tuesday that revenue and profit would fall short of analysts’ expectations this year as new regulations made it harder for some clients to use its online trading platforms, wiping one-third off the firm’s market value.

Plus500 and its rivals IG Group and CMC Markets have been struggling as regulators in the European Union and Britain tighten the rules for apps and online platforms on which anyone with a bank card could previously make highly-leveraged bets.

The 30 percent drop in the company’s share price made it the worst performer on London’s mid-cap index and wiped out its 19 percent year-to-date gain. Shares in IG Group and CMC Markets fell 7 percent and 2 percent, respectively.

“Following our latest assessment of the...regulatory measures...2019 revenues are now expected to be lower than current market expectations,” Plus500 said in a statement.

Active customers more than halved in the last quarter of 2018 to 101,634, the company said, adding that its revenue had seen a “marked reduction” due to the measures introduced in August by the European Securities and Markets Authority.

Chief Executive Officer Asaf Elimelech said Plus500 was working to give its customers more flexibility to trade on its platforms, putting in place “retention measures” to protect its client base.

Plus500, like its peers, said the hit from the new regulations had been offset by increased volatility and trading volumes on financial markets in the final quarter of 2018, largely as a result of trade tensions between Beijing and Washington.

Two analysts, both with buy recommendations, also said that the group had guided down revenue assumptions by excluding the impact of clients’ net current trading positions, which can be a significant driver of its unhedged business.

Elimelech said that around a third of the company’s fourth quarter revenue resulted from the pick up in volatility as previously inactive customers logged on to take advantage of the resulting price swings.

The Cboe Volatility Index, Wall Street’s so-called “fear gauge”, surged 130 percent last year.

He also said the industry could consolidate due to the hit from the new regulation.

After starting 2018 with a five-fold surge in first-quarter core earnings on the back of a crypto-currency boom, Plus500 later cautioned that an “exceptional” first-half performance was unlikely to be repeated because of the regulatory crackdown.

Tuesday’s warning on 2019 revenue and profit took the shine off a doubling of core profit to $506 million in the year ended Dec. 31 from a year earlier. The firm reiterated in November that full-year results would be ahead of expectations.

The company’s full-year revenue surged 65 percent to $720.4 million, topping the $698.6 million expected by analysts according to Refinitiv I/B/E/S data showed.

Reporting by Muvija M and Noor Zainab Hussain in Bengaluru; Editing by Arun Koyyur and Kirsten Donovan

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