Trading platform IG confident of turning corner after profit slump

FILE PHOTO: A broker looks at a graph on his computer screen on a dealing floor in London, Britain
FILE PHOTO: A broker looks at a graph on his computer screen on a dealing floor in London, Britain January 3, 2018. REUTERS/Simon Dawson/File Photo

July 23, 2019

By Muvija M

(Reuters) – IG Group expects to return to revenue growth in the second half of this year after the online trading platform reported a 31% slump in annual earnings due to Europe’s clampdown on high-stakes financial betting by amateur traders.

IG, like rivals Plus500 and CMC Markets, has struggled as regulators tightened rules on platforms which had allowed anyone with a bank card to make highly leveraged bets on markets via easily accessible mobile phone apps.

The European Union’s securities watchdog, the European Securities and Markets Authority (ESMA), introduced a ban on the sale of ‘binary’ options to retail customers last July, saying there are still concerns about the risks of the products.

IG’s top bosses said that the regulatory storm would eventually blow over.

“ESMA regulations have come out and instituted. We don’t foresee in ESMA more regulation that will affect us,” June Felix, who was named IG’s first female CEO last year, told Reuters.

“We have prepared exceptionally well and are in constant dialogue with regulators to ensure that we remain compliant,” she added.

The mid-cap company, which allows individuals and other non-institutional retail investors to bet on stock, currency and oil market moves, saw pretax profits dive to 194 million pounds ($241 million) for the year ended May 31 from more than 281 million a year ago.

Shares in the company, up just 2% so far this year, were flat in early trading in response, compared to a roughly half percent rise for London’s main markets.

IG Group unveiled a plan in May to battle the hit from the regulatory clampdown and drive growth while warning that full-year results would be impacted by low levels of financial market volatility. It reiterated that last message on Tuesday.

A number of major indicators of market volatility, for example euro and yen currency market options, have hit long-term lows this year. Others – including the VIX indicator of Wall Street volatility during a sell-off in May – have at times been much higher than during the same period last year.

The company, which started in 1974 as a spread-betting company with just three employees, said its number of active clients had slipped 9% to 178,500 in fiscal 2019.

It said it expects operating expenses to rise by about 30 million pounds this year due to higher promotional spending and client costs.

Chief Financial Officer Paul Mainwaring said he expected the company would have worked through the impact of the ESMA regulations in the second half.

“We expect we will show revenue growth in the second half of this financial year,” he said.

(Reporting by Muvija M and Noor Zainab Hussain in Bengaluru; editing by Patrick Graham and Susan Fenton)