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Spreadbetters wary ahead of new customer protection rules

Published: 08:57 07 Jun 2018 BST

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Clampdown on retail clients will affect trading

CFD and spread bet specialists Plus500 PLC (LON:PLUS) and CMC Markets Plc (LON:CMC) were both wary ahead of the introduction of new client protection controls from 1 August.

CMC Markets said the changes would see group retail revenue from CFDs and spread betting drop by between 10% to 15%.

A ban on binary trading from July 2 will also cost it £4.5mln in lost revenue.

READ: The benefits of being classified as a professional investor ... they're marginal

PLUS500 said the impact of the changes was hard to assess at this stage and would be determined by how many clients convert to professional status.

Under the proposals from European regulator ESMA, a leverage cap of 30 times the upfront investment will apply to foreign exchange, 20 times for stock markets and major commodities but just two times on cryptocurrency spreads.

Firms will also have to close out losing positions, limit client losses and restrict aggressive marketing.

The changes apply to retail clients only with professional customers exempt, which has a sparked a rush of applications from punters to be upgraded.

CMC's results for the year to March showed the number of clients fell by 2% though an increase in premium punters helped boost the number and value of trades by 9% and 28% respectively.

Profits rose by 24% to £60.1.mln, but CMC only maintained the dividend at 8.93p.

Plus500, meanwhile, said trading so far pointed to ‘materially’ higher revenues in 2018 than previously expected, but this depended on the reaction to the new rules and conversions.

Financial volatility and high levels of cryptocurrency CFD activity had boosted the numbers.

Asaf Elimelech, chief executive, said:  "We are pleased with the continued strong financial performance made despite market conditions returning to more normal levels during this period.” 

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