IG highlights client ‘quality’ as ESMA measures hit

Investment services provider IG Group has highlighted an “improvement in client quality” after new regulations by the European Securities and Markets Authority (ESMA) led to a slump in retail clients in the first half of the 2019 fiscal year.

IG Group confirmed today (January 22) that in the six months through to November 30, the company’s net trading revenue fell year-on-year by 6% to £251m (€285m/$324m), with a 4% rise in operating expenses ensuring an 18% drop in operating profit to £112.5m.

ESMA’s renewal of a ban on the sale of binary options to retail customers, followed by fresh restrictions relating to the provision of contracts for difference (CFD) products to retail clients, led to a total of 22,744 of the company’s clients applying for ‘professional’ trader status by the end of November.

However, IG Group revealed today that it had accepted only a quarter of the applications – 5,675. Of those who were not accepted as professional clients by IG Group, 40% are no longer trading with the company.

In a conference call today though chief financial officer Paul Mainwaring defended the company’s strategy, saying that the application process had been “appropriately rigorous” and adding: “We believe this approach is an essential part of running a sustainable business.”

Mainwaring, who assumed the CEO role on an interim basis last year following the departure of Peter Hetherington in September and before the arrival of June Felix a month later, added that the number of professional clients in the UK and EU had approximately doubled over the past year.

Some 69% of the group’s ESMA region revenue in the second quarter was generated by professional clients, although the number of new over-the-counter leveraged clients fell in the first half from 18,027 to 14,626 year-on-year.

Despite warning of the H1 revenue fall in December, IG Group’s share price on the London Stock Exchange slumped by more than 10% in early trading today before recovering to a fall of just over 6% by 11am.

The company also spoke of the need to broaden its product offering today.

IG Europe, the company’s client-facing subsidiary in Germany, and IG US, the group's US subsidiary operating as a retail foreign exchange dealer, are both expected to launch by the end of this month. Spectrum, IG Group's multilateral trading facility, is expected to launch in May.

Felix said that she is confident the company will return to growth after the 2019 financial year.

“The actions that have been taken over the last two years have resulted in the company successfully navigating the introduction of the ESMA measures,” Felix (pictured) said. “At the same time the business has developed innovative new products, continued to on-board new, valuable clients, and has continued to deliver a high-quality service.

“IG has experienced significant change and will continue to do so in the future. Change will be driven by regulation, by shifting patterns of wealth, and by the continued development of financial markets around the world.

“I believe that IG has the capability to adapt and thrive in this evolving market. The size and quality of our client base and our broadening product offering, all underpinned by our culture and values, provide an excellent platform for sustainable growth in the medium term.”