IG Group and CMC Markets Weigh in on ASIC CFDs

The statements elaborate on wholesale clients reclassification and the length of product intervention

Two large brokers whose business is exposed to Australia published official statements regarding the implementation of the new product intervention measures outlined by the ASIC earlier today. Both CMC Markets and IG Group are stating that they do not expect any material changes in the long run.

That said, one of the London-headquartered brokers took the opportunity to upgrade its guidance for the full year. Shares of CMC Markets, a company founded by Peter Cruddas rose 7 percent on the upgraded guidance.

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In its statement, CMC Markets highlighted that 31 percent of the broker’s net operating income is tied to its Australian operations. That said, the company has exposure to stockbroking via its partnership with ANZ.

Changes “Similar to Other Jurisdictions”

Despite more stringent leverage requirements for forex and CFDs which the ASIC is proposing, CMC Markets is classifying the changes as “similar” to those implemented in other jurisdictions.

In addition, the statement by the company provides details on the length of the product intervention power applied of the Australian regulator.

According to the London-headquartered broker, ASIC’s decision can only be effective for up to an initial period of 18 months. “CMC is well prepared to respond quickly and manage any regulatory changes as required,” the company elaborated in its statement.

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In its trading update published on the 25th of July, the company noted that it is ESMA’s measures have yielded a transition period. The company restated today that the behavior of its clients continues to adjust to the new environment and CMC Markets is adjusting its model accordingly.

Summer Outperformance

CMC Markets also stated that the company is performing strongly through the summer. With the importance of Australia for the company’s business, the firm is also highlighting that net revenues from CFDs trading in Australia only total 20 percent of the firm’s earnings from the region and only 17 percent of net operating income.

Basing its statement on recent and current trading, the board of directors of CMC Markets forecasts that the firm will report a net operating income and profit which exceeds marginally the upper end of the current market expectations. The firm’s stock is trading close to recent highs from end-July.

Wholesale Clients Requirements

Meanwhile, IG Group refrained from making statements on its performance, while highlighting another important aspect of ASIC’s decision. While European requirements for professional clients have been relatively easy to fulfill, the Australian regulator is establishing a very strict criteria for reclassification to “wholesale clients”.

Only customers whose net worth totals to over $2.5 million, or have earned $250,000 per annum over the previous two years are allowed to apply for professional status. The barrier of entry into this category is making it very difficult to achieve the same rate of reclassification which brokers managed in Europe.  

IG didn’t elaborate on its specific exposure to its Australian business, but highlighted that the firm is ready for a stricter regulatory environment.

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