December 18, 2017 / 8:36 AM / 6 months ago

UK spread better shares sink after EU watchdog proposes market curbs

LONDON Dec 18 (Reuters) - Shares in leading British spread-betting firms sank in early trading on Monday after the European Union’s securities watchdog proposed curbs on core parts of their market.

The European Securities and Markets Authority (ESMA) proposed late on Friday to prohibit the marketing, distribution or sale of binary options to retail clients, and restrict the marketing, distribution or sale to retail clients of contracts for differences, or CFDs, including rolling spot forex. (bit.ly/2yGx85b)

Binary options and CFDs are financial products that give an investor exposure to price movements in securities without actually owning the underlying assets such as a currency, commodity or stock.

The ESMA has said it has been concerned about how these inherently high-risk speculative products are offered to retail investors, potentially leading to significant losses.

Britain’s markets watchdog said last week it had noticed steady growth in the volume of CFDs linked to digital currencies.

The Financial Conduct Authority said it supported ESMA in its consideration of potential EU-wide product intervention. (bit.ly/2yFVEn9)

Shares in IG Group, CMC Markets and Plus 500 sank between 7 and 13 percent in opening trade.

IG Group said it had stopped offering its Sprint binary product to new retail clients in January, with revenue from binaries traded by clients in the UK and EU accounting for less than 5 percent of its revenue in the first half.

IG Group said it remains difficult to predict the impact of regulatory change beyond the current financial year.

CMC Markets said it could quickly respond to regulatory change as it did in Germany and Britain.

Binary products generated 2.1 million pounds ($2.80 million)of revenue from the UK and Europe in the first-half, CMC said, adding any prohibition on the marketing of binary options to retail clients will be “immaterial”.

Plus500 said it has never offered binary options, adding thatit provides protection to its customers across all its products.

Shares in the companies took a beating last year when Britain’s financial watchdog joined other European regulators in a crackdown on financial spread betting, a fast-growing 3.5 billion pound industry where most retail investors lose money. ($1 = 0.7493 pounds) (Reporting by Noor Zainab Hussain in Bengaluru and Huw Jones in London, editing by Louise Heavens)

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