Shocked investors dumped their shares in spread betting firms as the financial regulator launched a crackdown on contract for difference (CFDs) trading.
Recently-listed CMC Markets (LON:CMCX) shed 37% and IG Group 39% as the Financial Conduct Authority said the products are too complex for the majority of their customers.
Also affected was binary bet specialist Plus500 (LON:PLUS), which shed 28% after a warning that that the new rules would have a material impact its UK regulated subsidiary, which represents approximately 20% of the group’s revenues.
CFD products such as spread bets and rolling spot foreign exchange products resulted in losses for 82% of clients, the regulator said.
Trading on margin, where a customer is only required to put up a fraction on the total investment, in partcular is set for much tighter control.
Retail clients who do not have 12 months or more experience of active trading in CFDs will now have maximum leverage of 25:1 with a 50:1 maximum for all retail clients.
Health warnings, a disclosure of profit/loss ratios and banning the use of offers to entice customers to open new accounts are other measures proposed,
Christopher Woolard, the FCA's executive director or strategy and competition, said: "We have serious concerns that an increasing number of retail clients are trading in CFD products without an adequate understanding of the risks involved, and as a result can incur rapid, large and unexpected losses.
"We are introducing stricter rules for CFD products to ensure the sector addresses the shortcomings identified, and that firms make sure that retail clients are aware of the high risks involved in trading these complex products."
Woolard added: “The FCA also has concerns that binary bets pose investor protection risks and question whether binary bets meet a genuine investment need.”
The FCA’s tougher stance followed a new set of regulations introduced by the Cyprus regulator last week and is part of a trend towards tighter regulation globally.
Broker Liberum said that when the Japanese authorities introduced lower trading limits, IG Group saw its revenues there halve over five years.
Meanwhile, Numis noted that France has moved to ban all digital advertising of CFDs, Belgium has banned CFD trading, the Netherlands is exploring whether it will follow France and ban the advertising of CFDs while Germany could ‘intervene’ shortly.
CMC shares were trading at 117.5p down 66.9p, IG Group lost 309p at 578.1p while binary bet specialist PLUS500 shed 28.5% to 365.4p.
-- update for detail, share prices, broker comment --