IG recovers from binary options and CFD restrictions in Q3

Derivatives trading specialist IG Group has reported a 29.4% year-on-year increase in third quarter revenue, marking the business’ strongest results since the implementation of product intervention measures by the European Securities and Markets Authority (ESMA) in August 2018.

Revenue for the three months to 29 February, 2020 amounted to £139.8m (€149.3m/$161.0m), of which £135.2m came from over-the-counter (OTC) derivatives, as in products traded directly between two parties rather than over an exchange, up 31.0%.

During the quarter IG served 101,700 OTC leveraged active clients, with average revenue per client rising to £1,330.

This offset a 2.5% decline in exchange-traded derivatives, to £3.9m, while revenue from stock trading and investments fell to £0.7m.

This was the first time IG Group reported growth since ESMA called for the sale of binary options to retail investors to be prohibited in July 2018, and placed restrictions on the sale of Contracts for Difference (CFDs) in August 2018.

As a result of ESMA’s intervention, 24 regulators in European Union countries banned binary options sales permanently, while 17 introduced restrictions on CFDs.

During the quarter, IG Group opened a new client facing subsidiary in Bermuda, IG International, regulated by the Bermuda Monetary Authority.

“This investment means that the group is better positioned to capture client demand and simplifies its arrangements with existing international clients,” it explained. “IG International will not offer products or services to residents of any EU country or residents of countries where IG has a regulated presence.”

For the year to date, IG Group’s revenue is up 8.9% at £389.7m, with £374.7m coming from OTC leveraged derivative sales, up 9.1%. Revenue from exchange traded derivatives was down 5.6% at £11.7m, with stock trading and investment revenue flat at £3.3m.

Core markets accounted for £324.7m of the year to date total, up 2.8%, with a 10.5% increase in revenue from non-ESMA markets (to £123.1m) offsetting a 1.5% decline from territories covered by the authority.

The big growth came from IG Group’s portfolio of significant opportunities, comprising Japan and other emerging markets. OTC revenue for this segment has grown 74.2% to £53.3m, and though revenue from exchange traded derivatives has fallen 6.0% behind the first three quarters of 2018 to £12.4m, revenue from significant opportunities is up 51.2% to £65.0m.

IG Group did not provide a full breakdown of financial performance for the quarter.

Looking ahead, the operator said it had implemented a comprehensive business continuity plan in response to the novel coronavirus (Covid-19) pandemic. All employees can work remotely, it said, allowing the business to continue to provide the best possible service to clients.

After seeing particularly high levels of volatility in trading in the last week of February, it continued, this had continued into March. Revenue for the first 12 trading days of its fourth quarter – to 31 May – was around £52m. However, the pandemic made it difficult to provide any projections for revenue in the period.

“These are extraordinary times,” IG Group said. “This sustained level of volatility and revenue is unprecedented, and it is not possible to determine how long it will persist or how clients will continue to respond.

“In addition, the actions of governments and regulators are not predictable, and the group may face circumstances and events it has not previously anticipated. It therefore remains difficult to predict accurately the level of revenue in the final quarter of this financial year.”