Polish Regulatory Backlash Drives XTB Shares to All-Time Lows

The company’s valuation drops to under $200 million a little over a year after the $350 million IPO.

A little over a year ago, Polish retail brokerage company XTB Dom Maklerski marked one of the most successful public offerings in the industry, valuing the company at $349 million. The listing at the time constituted the biggest share sale via the Warsaw Stock Exchange in 2016.

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Yesterday, Polish regulatory authorities marked the beginning of a new era for retail traders in the country. The maximum leverage for foreign exchange traders will be cut to 1:25. The news came as a follow-up to a previous action taken by the Polish Financial Supervision Commission (KNF) in 2015, when it capped leverage at 1:100.

Shares of the biggest Polish retail forex and CFDs brokerage publicly listed on the Warsaw Stock Exchange tanked over 12 percent in response, marking a new all-time low at PLN 6.15.

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Daily chart of XTB after its Initial Public Offering in May 2016. Source: TradingView

The company’s revenues from the country make up a substantial portion of its earnings. In 2016, XTB sourced over $21.5 million (PLN 80 million) of revenues from Poland. In the first quarter of 2017, the brokerage reported about $2.9 million (PLN 10.6 million) of revenues, which represented a decline of 52 percent when compared to a year ago.

For the full year in 2016, XTB’s revenues from Poland constituted 32 percent of the company’s total operating income. Looking at the first quarter of 2017, the figure declined to 18 percent, which is a much more manageable situation, but nevertheless paints a dim picture for at least a portion of those revenues.

The regulatory backlash against retail brokers started across the EU in the aftermath of the Swiss National Bank crisis. At the time, a number of brokers chose to transfer their losses to clients and caught the attention of financial industry supervisors across the EU.

The latest changes to the Polish industry show that the strategy of overwhelming clients with risk, which some brokers do by providing excessive leverage, is coming to an end. Companies will need to find better ways to entice their clients to remain active without taking too much risk onto their books.

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