IG Group Dispels Regulatory Concerns, Plans MTF Launch in EU

CEO criticized aggressive marketing practices in the industry including bonuses that forced the regulatory crackdown.

IG Group just posted its full year results for the financial year ending on May 31st 2017. The broker’s revenues are higher by 7.6 percent when compared to the previous year, marking a total of £491.1 million ($643 million). Profits before taxes are up 2.8 percent to £213.7 million ($279 million) and up 3 percent after taxes to £169.2 million ($222 million).

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The devil is in the details however as IG Group has presented a rather interesting review of the evolving regulatory landscape in Europe. The company’s revenue from UK and EU operations amounted to £330 million. Within this amount, £78 million came from equities trading, a product where new restrictions won’t apply.

Corporate clients and non-resident clients may also continue using higher leverage. The company expects half of the firm’s total revenues to be unaffected by changes in UK and EU regulation.

Reclassifying Retail Clients to Professional

A question that has been on the minds of many in the retail brokerage industry – will all their clients be subject to the restrictive leverage levels applied by ESMA and the FCA? IG Group seems to have the answer for its own client base. The firm states that the reclassification of retail clients to professional will substantially reduce the impact of regulatory restrictions on revenues.

Clients will need to pass two of the three tests defined under MiFID – trading experience, a sufficient amount of capital and relevant occupational experience. Meeting two out of the three requirements is sufficient grounds for the broker to reclassify the trader if the latter so chooses.

According to the London-headquartered brokerage, its revenues largely come from the most active end of the firm’s client base. During the past year, 80 percent of IG Group’s revenue outside of the US was generated by less than 9 percent of its clients.

A separate independent study found that about 15 percent of the firm’s clients have a portfolio large enough in size to qualify them as professional.

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IG Group has not specified to what extent an overlap between the two groups exists, but the firm is taking action to determine how many of its clients are eligible for re-classification.

IG Preparing to Roll Out an MTF in EU and Set Up a Regulated Subsidiary

The company has started the process of developing a Multi-Lateral Trading Facility (MTF) for its European operations. The news comes as increased supervision from European regulatory authorities is pushing companies to look for different ways to diversify their offerings to retail clients.

“This on-exchange offering could provide further protection for IG’s business across Europe and increase the opportunity for further growth in this region. There can be no certainty of success here,” the company outlined in its earnings statement.

Margins Decline Amid Increased Marketing Spend

The details of IG Group’s earnings report show that operating expenses have increased 14 percent, largely due to increased marketing spending, which accounted for a year-on-year rise of 30 percent.

The number of new clients, defined as first trades, increased 38 percent and 15 percent for the over-the-counter segment of the business.

The company’s CEO Peter Hetherignton had some harsh words for some of the company’s competition: “Unsuspecting consumers have been bombarded by providers who market the leveraged product to an inappropriate audience, often using bonus offers to attract clients. This is clearly wrong and we fully support regulators’ attempts to stamp out this behaviour.”

“Our efforts are concentrated on ensuring that appropriate clients can continue to trade on a level playing field. As the original and the biggest firm in our industry, I believe IG is well placed to evolve and prosper and to continue to empower our clients to access opportunities in financial markets,” he concluded.

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