Investors in the spread-betting sector could be forgiven for thinking they deserved a break from bad news. However, CMC Markets (CMCX) followed IG Group (IGG) in reporting lower client activity in recent months, with lower market volatility exacerbating regulatory restrictions on retail leverage limits.
CMC Markets was worst affected, with the second-quarter reduction in client activity forcing management to warn that full-year spread-betting and contract for difference (CFD) income was likely to be 20 per cent lower than last year, below previous guidance of a 10-15 per cent reduction. A spokesperson for the group said it “was too early to tell” how much of the reduction in trading was due to tighter European Securities and Markets Authority (ESMA) regulations introduced in July. Management says lower discretionary spending on marketing and staff costs would help mitigate part of the impact on profitability.
Peel Hunt downgraded its 2019 adjusted pre-tax profit and earnings per share forecasts for CMC by 20 per cent to £34.9m and 10.4p, respectively. Shares in the group closed the day down 10 per cent, falling to a 12-month low. Shares in Plus500 (PLUS) fell 5 per cent on the day of CMC's update.
IG Group also reported a pullback in client trading within the UK and Europe, Middle East and Africa businesses, with revenue from leveraged over-the-counter (OTC) products falling by 8 per cent and 12 per cent, respectively, during the three months to the end of August. That offset a 7 per cent rise in revenue from the Asia Pacific region, with group leveraged OTC revenue 5 per cent lower. Unsurprisingly, the volume of client trades was lower in August than July, although management reiterated expectations of around a 10 per cent like-for-like reduction in full-year revenue due to the ESMA measures.
