IG Group sounds caution despite revenue jump

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LSE listed spread betting and CFD broker IG Group Holdings PLC warns regulatory changes threaten an uncertain time ahead in 2018, despite a 9% increase in net revenue. The spread-betting broker released the figures as part of its trading update for the first half to 31 March 2018, and attributed the jump to a wider client base, which has enabled it to shrug off quieter markets.

The update also revealed that the group expects its operating costs to be 7% lower than last year, thanks to a cut-back in marketing spend, a factor which has enabled it to keep costs down as income rose.

However, this optimistic announcement was delivered with a note of caution, as IG foresees the potential for regulatory difficulties ahead in an already subdued market. The UK’s financial regulator the Financial Conduct Authority (FCA) continues its crackdown on contracts for difference (CFD), a financial product used in the spread-betting industry, which it believes represent a risk of poor conduct in the market with many investors losing their money.

Alongside increased scrutiny of CFDs, the FCA has also added binary options to its hit-list in November – a product IG stopped offering to new clients earlier in the year – after similar fears of abuse were raised by the market and financial regulators. As a result of these two factors, IG Group Holdings said it “continues to implement measures to differentiate itself further within the OTC leveraged derivatives industry and to protect the business from regulatory change”.

“It remains difficult, however, to predict what impact regulatory change may have on the Group this financial year and beyond,” it added.

The changes to industry regulations may mean a hit for smaller spread betting brokers, who rely too heavily on the newly scrutinised products as part of their business model and already struggle to break even, but Tuesday’s statement by IG Group is evidence that planning ahead can mitigate the effects.

Fellow broker Numis said:

“As the CFD industry matures and regulation is introduced to restrict the activities of the less scrupulous providers, we believe IG’s market position should improve.”

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