IG Group ‘Disappointed’ by ESMA’s ‘Disproportionate Leverage Restrictions’

The company has highlighted the risks of clients going offshore to meet their leverage expectations

In an official statement distributed via the London Stock Exchange’s RNS, IG Group has announced that the company is supporting the measures which the ESMA and the FCA publicized earlier this morning.

The company also expressed disappointment with some of the aspects which the regulators have been considering. In the opinion of IG Group, the disproportionate leverage restrictions are restricting consumer choice and are likely to result in poor outcomes for retail customers.

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The brokerage elaborates that a number of clients may choose the services of offshore-based brokerages, which are loosely regulated or unregulated altogether.

Reclassifying clients

The outlook for IG Group is unchanged from the previously announced measures which the ESMA has been contemplating. The supranational regulator already published the guidelines to which brokers would need to adhere in the middle of December.

IG Group has outlined in its announcement that it expects more clients to choose to reclassify as professional. According to the firm, despite the lack of benefits for retail clients to be categorized as elective professionals, the small number of customers who have been categorized as such is rising.

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CMC Markets also issued a statement highlighting that it is well prepared for the measures announced this morning. The UK brokerage stated that targeting high value, experienced clients that could be categorized as ‘elective professionals’, puts it in a strong position to manage the change in regulations.

Future outlook & bizarre stocks reaction

IG Group has stated that uncertainty around the nature and extent of regulatory changes in the UK and EU affecting the industry has been removed by this announcement. The brokerage added that it expects that its revenue in FY19 will be lower than that expected in FY18 due to these regulatory changes.

IG Group and CMC Markets both have stressed that their shift to reclassifying clients as professional is going to mitigate the impact of the new rules.

Shares of IG Group and CMC Markets declined by about five percent each after a muted initial reaction. In a bizarre twist, Plus500 rallied five percent on the news, in what seems to be a sell-the-rumor, buy-the-fact reaction. In any case, today’s announcement from the ESMA is not a big surprise for the industry.

Most importantly, the ESMA has proven that the fabric of the European Union’s institutions is shifting into a direction that is only welcoming to big corporations with the accompanying lobby groups.

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