CMC Markets, the online trading platform, issued a profit warning on Tuesday, sending shares down as much as 18 per cent, as a recent regulatory crackdown on speculative trading products began to take its toll on the sector.
The FTSE 250 group warned that its 2019 net operating income was expected to come in below previous guidance, adding that tough new European rules would hurt revenues from its staple “contracts for difference” and spread-betting products more than previously thought.
It also blamed a “sustained period of low market volatility and rangebound markets” in the second quarter of its financial year, which covered the summer period.
Analysts had expected net operating income of £176m, according to a consensus estimate.
Shares in the group, which was founded by City tycoon and Brexit donor Peter Cruddas, fell 18 per cent in early trading before settling 11 per cent lower at 147p.
The European Securities and Markets Authority brought in curbs on the sector’s CFD products from August, to better protect novice punters from opportunistic marketing and potential heavy losses. The watchdog also banned another less popular derivative, binary options, in July.
Binaries and CFDs are leveraged products that allow investors to bet on price movements without owning an underlying asset. Many trading the instruments were burnt in 2015 by the Swiss central bank’s surprise decision to let the franc appreciate.
CMC said in its half-year trading statement that Esma’s rules, which include restrictions on the amount of leverage traders can now access, had “reduced UK and European retail client activity as expected”.
But it revised down its estimates for how the change would affect its CFD and spread-bet revenue to a 20 per cent reduction year on year, from previous guidance of a 10-15 per cent fall year on year.
The downgrade comes as the rules begin to weigh on the wider sector. Last week, large listed rival IG Group also reported a 5 per cent drop in revenues in its latest quarter, citing the impact of the rules. Its shares fell 9 per cent on the news to their lowest level since April.
Another FTSE 250 rival, Plus500, said in August the rules could hit as much as 30 per cent of its revenues. Earlier this month, Plus500’s founders announced plans to cash out 8 per cent of the group’s shares in a sale worth £145m, halving their combined stake.
CMC said on Tuesday that any impact on profitability would be “partially mitigated by tight cost control”, adding that discretionary spending on staff and marketing would fall below previous guidance. It also noted that there had been an uptick in client activity since the summer.
The company also said that a new stockbroking partnership with ANZ Bank in Australia had been implemented “successfully”, despite media reports suggesting some ANZ customers were struggling to use the new CMC platform.
CMC later told the Financial Times that it was “aware some customers have experienced issues accessing the site” and was “responding to enquiries and working closely with ANZ to resolve these issues as quickly as possible”.
