Dec 6 Britain's financial watchdog proposed
tougher rules for retail financial spread betting products known
as 'contracts for difference' (CFD) after finding that 82
percent of customers using them lost money.
"We have serious concerns that an increasing number of
retail clients are trading in CFD products without an adequate
understanding of the risks involved, and as a result can incur
rapid, large and unexpected losses," the Financial Conduct
Authority (FCA) said on Tuesday. bit.ly/2gxTBcg
CFDs, including spread bets and rolling spot foreign
exchange products, are agreements between two parties to
exchange the difference between the opening price and closing
price of a contract.
Shares in UK's IG Group, which holds 40 percent of
the UK financial spread betting market by number of active
primary accounts, fell 22 percent to 611 pence in early trade.
Shares in retail brokerage CMC Markets were down
29.9 percent at 128.17 pence.
Both IG Group and CMC Markets did not immediately comment
when contacted by Reuters.
"FCA seems to be imposing more penal rules than the Cypriot
regulator last week... This will result in a much smaller less
profitable CFD and spread-betting industry," Liberum analysts
wrote in a note.
Cyprus's financial regulator CySEC last week issued a
warning to the mass of retail currency brokers registered on the
island over their use of bonus schemes to encourage trading in
risky products and related poor treatment of clients.
The FCA said on Tuesday it would introduce stricter rules
for CFDs to ensure the sector addresses the shortcomings
identified, ensuring that retail clients are aware of the high
risks involved in trading these "complex products".
Some of the proposed measures include standardised risk
warnings and mandatory disclosure of profit-loss ratios on
client accounts to highlight the risks and historical
performance of these products and setting lower leverage limits
for inexperienced retail clients.
Companies would also have to leverage at a maximum level of
50:1 for all retail clients and regulate leverage caps according
to their risks. Firms would not be allowed to give form of
trading or account opening bonuses or benefits to promote CFD
products, the FCA said.
(Reporting by Noor Zainab Hussain in Bengaluru, editing by