Financial trading companies lost almost £2 billion (€2.3 billion/$2.5 billion) yesterday (Tuesday) after the Financial Conduct Authority (FCA) proposed rule changes for firms selling contract for difference (CFD) products to retail customers.
The national regulator said it has acted due to an increase in the number of firms in the CFD market, citing its concerns over customers not properly understanding CFD products.
According to The Times newspaper, nearly £1.5 billion was wiped off the share prices of IG Group, CMC Markets and Plus500, the three largest operators in the UK market.
IG Group was hit the worst, with its market value down £1.1 billion, while shares fell 38% to a three-year low.
CMC’s market value dropped £200 million, with its share price at less than half of the firm’s IPO nine months ago, while Plus500’s value fell £166 million, with shares down 28% to a 12-month low.
BlackRock, M&G Investment Management and Legal & General, leading names in the global business market, also suffered as they are among the top shareholders in IG, while JP Morgan Asset Management and Odey Asset Management were hit as shareholders in Plus500.
In response to the announcement, Plus500, said the topics covered by the FCA will have a “material operational and financial impact” on its UK subsidiary, which represents approximately 20% of group revenue.
IG Group also issued a response to the announcement, saying it believes in “robust and proportionate regulatory oversight” of the CFD sector in the UK and Europe, and recognises “that there are shortcomings in the approach to the marketing of CFDs and binaries by certain firms, often operating from outside the UK”.
The company said it has operated and will continue to operate to the highest standards in the industry, also noting the proposals “do not appear to directly apply to firms operating from outside the UK offering CFDs and binaries to clients in the UK on a cross-border services passport from another EU member state”.
IG Group said it will now consider the implications of the FCA Consultation Paper and the courses of action open to it, with plans to respond in accordance with the deadline of March 7.
CMC spoke positively about the consultation paper, praising the FCA for “endeavouring to ensure that any regulation is delivered in a balanced fashion”, adding that it “looks forward to working closely with the FCA over the coming months”.
Related article: UK FCA proposes tighter rules for CFD products