City’s fears of a crackdown driven by EU financial regulators

There are concerns investors are being encouraged to take on risks they cannot afford or have not had properly explained to them. Justin Tallis / AFP

The potential clampdown on spread betting led to sharp falls in the shares of London-listed trading businesses aimed at individual investors.

The European Securities and Markets Authority (Esma), the European financial markets watchdog, said it was considering restricting the sales of contracts for difference and binary options.

It was also looking at other “speculative products” amid concerns investors are being encouraged to take on risks they cannot afford or have not had properly explained to them, reports The Times.

Shares in CMC Markets and IG Group, two of the world’s largest spread betting companies, were particuarly hard hit on the London market yesterday. They lost more than 12 per cent and 9 per cent of their value respectively.

Shares in Plus500, a smaller operator, fell almost 11 per cent.

These products have proved popular with investors as it enabled them to place bets on movements in share prices or assets such as commodities without needing to own the underlying product.

In a statement to investors, CMC Markets said the new rules “may have an impact” on its business, but played down their potential seriousness.

“The group has focused on higher value clients and has one of the highest revenues per client in the industry. This, coupled with geographic diversity, a growing institutional business and a partnership with ANZ Bank to provide stockbroking services in Australia from September 2018 will help to mitigate any impact from Esma’s proposals,” CMC said.

IG Group said that it was “supportive” of Esma’s work considering their user base: “Whilst IG has historically categorised the vast majority of its clients as retail as a matter of course, IG’s client base is different from most in the industry due to the company’s long term focus on clients of high value and sophistication,” IG Group said.

European authorities are to begin a public consultation on the rule changes next month. The Financial Conduct Authority said it backed the work of the watchdog. “Any permanent FCA policy measures would take in to account any prospective Esma measures,” it said.

The shares in CMC Markets closed 21p lower at 146¾p, while IG Group’s ended the day down 68p at 665 and Plus500’s lost 100p to 825p.