FTSE 100 rises but spread betting firms plunge 40pc after City watchdog clamps down on CFD trading

Traders work on the trade floor at IG Markets in London
Traders work on the trade floor at IG Markets in London Credit: Rex Features
  • FTSE 100 rises as banks rally on bullish broker note and hopes of Italian bank rescue
  • Spread betting companies plunge 40pc in early trade after FCA launches stricter rules
  • Plus500 sees a 'significant financial impact' on its UK business after FCA proposals
  • What is spread betting and why does the FCA want to tighten up the rules?
  • Pound hits highest level in over two months 
  • State aid measures for Banca Monte dei Paschi ready, reports suggest

                                                                                                    

Market report: Bullish broker note and hopes of Italian bank rescue lift UK bank stocks, as spread betting firms plunge on FCA proposals

A bullish broker note catapulted banking stocks to the top of the blue chip index.

Morgan Stanley adopted a “glass half-full” view of the sector as it expects to see “gradual relief and improvement” in the banking industry’s earnings, rehabilitation of balance sheets resulting in stronger levels of capital. “We see the opportunity for the sector to re-rate in 2017,” strategists at the bank said.

As banks continue to restructure and de-risk business models, Morgan Stanley expects banking stocks’ appeal will “broaden” in the eyes of investors.

It upgraded HSBC’s rating to equal-weight and raised its target price to 645p from 550p citing an improvement in its revenue outlook thanks to better loan growth in its Asia-Pacific unit.

The bank also revised Barclays’ target price higher, from 190p to 230p, but cut its target price on Royal Bank of Scotland from 230p to 225p.

Separately, rising hopes of an Italian bank rescue plan rise also lifted the banking sector. Shares in Royal Bank of Scotland jumped 11.3p to 209.1p, HSBC climbed 27.3p to 654p, Barclays advanced 10p to 226.8p and Lloyds rose 1.2p to 59.5p.

Buoyed by the rally in bank stocks, the FTSE 100 eked out gains of 33.01 points, or 0.49pc, to close at 6,779.84. But the mid-cap index underperformed its blue-chip peers, falling 0.1pc, as spread betting firms plunged after the Financial Conduct Authority proposed a crackdown on “contracts for difference” trading.

In its wake, shares in IG tanked 301.9p, or 38.4pc, to 485.1p, CMC Markets plummeted 69.4p to 115p, and Plus500 dropped 144.5p to 366.5p.

CMC’s losses were exacerbated by a rating downgrade. Numis slashed its rating to “sell” on the back of the FCA’s consultation paper, as it believes the stricter rules will “materially reduce” its forecasts.

Jonathan Goslin, of Numis, said: "We believe rising regulation is likely to have a material impact on both the growth and the profitability of CMC across Europe and the UK." Meanwhile, Plus500 said the tougher CFD guidelines would knock 20pc of its revenues.

Elsewhere, a drop in metals and oil prices weighed on commodity-related stocks. Anglo American fell 48.5p to £11.95, BHP Billiton slipped 28.5p to £13.11, Rio Tinto shed 32.5p to close at £30.22 and Glencore lost 4.3p to 286p.

On the other side, shares in asphalt producer CRH edged up 65p to £26.56 after Deutsche Bank raised its target price.

Meanwhile, equipment hire group Ashtead hiked its annual results forecast thanks to a rebound in US construction markets and a weaker pound boosting earnings, sending shares 16p higher to £15.56.

Elsewhere, Apple supplier Imagination Technologies bounced 20.5p to 240.5p after it returned to profitability in the first half of the year.

Housebuilders came under pressure as Liberum warned the sector has “some obstacles to clear” next year, including slowing growth and reflation without wage rises.It also cut Barratt Developments rating to “sell” citing a less attractive landbank and margins. Shares dipped 1.8p to 471.9p. Its peers Bellway added 3p to £24.08, Berkeley advanced 106p to £29.08 and Persimmon inched up 6p to £17.10.

Finally, Aim-listed gold miner Hummingbird Resources closed flat despite securing $55m debt funding for its Yanfolila Gold Mine in Mali.

On that note, it's closing time. I'll be back again tomorrow from 8.30am with more market updates. 

European bourses close higher 

European bourses ended the day higher as banking stocks rallied as hopes of an Italian  rescue plan rise. 

At close of play: 

  • FTSE 100: +0.49pc
  • DAX: +0.88pc
  • CAC 40: +1.33pc
  • IBEX: +2.54pc

 Chris Beauchamp, of IG, said: "Banks have led the way this afternoon on the FTSE 100, helping the index to make modest gains. Indeed, optimism about banks is driving markets in Europe firmly higher, on expectations that some sort of bail-in for Italian institutions is on the cards. This would provide a real boost to risk appetite, similar to that seen when the ECB first announced its QE programme, and would certainly do more than just a measly extension to the easing timeframe, which is quite possibly all that Mario Draghi can offer at the ECB meeting on Thursday.

"Softer metals prices and a sharp drop in price of oil have hit commodity firms, but a solid performance from European indices has helped to preserve the  generally positive tone of the week so far. Whether that changes following the ECB meeting this week is another matter, but Mario Draghi will have to deliver something impressive to avoid a further rally in the euro and a push lower in European stock markets." 

Fitch cuts outlook for Italy's banks to negative

Back to Italy, where credit ratings agency Fitch has cut Italy's banks outlook to "negative" as bad debts persist. 

The factors driving the 2017 outlook to "negative" from "stable" include: 

  1.  step-up in pressure from authorities and market participants on the sector to reduce the very high levels of impaired loans has increased urgency and risks for Italian banks.;
  2. Profitability in the sector is frail;
  3. Disposals of non-performing loan portfolios could lead to losses that require additional capital;
  4. The "No" vote  has further heightened political uncertainty and possibly reduced the capacity to implement economic reforms.

In October, Fitch cited "political instability" as a factor that contributed to its revision of the outlook on Italy's 'BBB+' sovereign rating to "negative" in October. 

The ratings agency added: "The referendum result could also damage the recapitalisation plans of some Italian banks, most notably Banca Monte dei Paschi di Siena and UniCredit, and have negative implications for the broader banking sector, whose attractiveness with investors has already reduced significantly during 2016."   

IG poised for their biggest ever one-day drop

IG Group has become the biggest casualty of the FCA's plans to tighten up rules on CFD trading. 

Shares plunged by as much as 41pc today. The mid-cap stock is currently off by 38pc and now poised for its biggest one-day drop ever. 

Ashtead hikes expectations thanks to weakened pound

Shares in Ashtead Group edged up 1.3pc today after the tool hire firm hiked its annual results forecast. Rhiannon Bury and Harry Yorke report: 

Favourable conditions in the construction market and the impact of the weakened pound have boosted equipment hire company Ashtead's outlook for the year.

The firm's chief executive Geoff Drabble said Ashtead had been boosted by UK construction companies reducing the amount of investment they were making into equipment, meaning they were hiring more to complete projects.

"During periods of uncertainty people who might previously have owned equipment might choose to outsource and rent instead," he said.

"Two thirds of our growth in the last five years has been because of structural change."

Mr Drabble said that the transition to a more "institutionalised" rental industry had been cataylsed by the FTSE 100 group's investment in smartphone apps, which had enjoyed a "phenomenal" uptake of 3,000 users a month since launching in 2015. Ashtead now receives 20pc of all of its orders via smartphone and online devices. 

Continue reading here

US stocks little changed as energy stocks weigh

US stocks were little changed this afternoon as energy stocks weighed down markets. 

Here's the state of play at the opening bell on Wall Street: 

  • Dow Jones: +0.01pc
  • S&P 500: +0.07pc
  • Nasdaq: +0.14pc

Drax shares soar after it changes tack with £340m retail energy supplier purchase

Drax, the owner of Britain's biggest power station, has unveiled a £340m deal for the leading challenger business energy supplier and plans to build up to 1.2 gigawatts (GW) of new gas plants in a strategic overhaul.

Shares in the FTSE 250 company soared as much as 18pc as chief executive Dorothy Thompson set out the plans to carve out a new diversified growth strategy, amid an uncertain future for the 4GW Drax power plant in Yorkshire that is its main asset.

Drax has converted half of the coal plant to run on biomass, which is due receive renewable energy subsidies until 2027. However, it has so far failed to persuade the Government to support the conversion of the remaining coal units, which are due to be shut down by 2025 at the latest.

US stocks set to open higher

Wall Street is expected to open higher this after with the Dow Jones on track to hit a record peak for a second consecutive trading session. 

Here's a look at the opening calls: 

FCA's tougher rules will increase a customer's trading life span and support longer-term revenue growth, says Numis

Returning to the FCA's clamp down on spread betting. Numis has placed IG's rating "under review" from "hold" following the release of the City watchdog's consultation report. 

James Hamilton, of Numis, said: "We believe rising regulation is likely to have an impact on near-term revenues as they are generated on the gross value of customer positions which will fall from as much as 200x to 50x for experienced traders."

He added that most of IG's customers are "experienced" and most do not utilise the maximum leverage currently available to them.

Mr Hamilton said the stricter guidelines on CFD trading will increase a customer's trading life span which in turn will support "longer term revenue growth". 

Shares in Apple supplier Imagination Technologies leap as restructuring ends

Shares in Imagination Technologies jumped 10pc today after the group returned to profitability. James Titcomb reports: 

IPhone microchip designer Imagination Technologies showed signs that the worst of its brutal restructuring was behind it on Tuesday as it halved losses, despite slowing demand from its biggest customer.

Shares in the Hertfordshire-based group rose by more than 10pc after a combination of the weaker pound and increasing revenues from its wireless chip designs offset falling demand for graphics units from Apple as sales of the iPhone and iPad fell.

Imagination also announced that Peter Hill, the former chief executive of British technology group Laird, had been appointed as chairman. Mr Hill’s appointment marks a reunion with Imagination’s chief executive Andrew Heath, with the two acquainted from their days at Alent, the chemicals giant.

Continue reading here

Spread betters extend losses on CFD crackdown

Ouch! Spread betting firms have extended their losses after the FCA launched stricter rules on CFD trading. 

Let's take a look at how far they've fallen: 

  • IG Group: -37.8pc
  • CMC Markets: -35pc
  • Plus500: 26.6pc

What is spread betting? 

Here's a great explainer on spread betting by my colleague Julia Bradshaw: 

Britain's financial watchdog wants to tighten up the rules governing spread betting, a form of financial trading. It's worried that ordinary investors are losing huge sums of money because they don't understand what they're getting themselves into.

If you've never heard of spread betting, don't worry. Here's all you need to know:

What is spread betting?

Spread betting, also known as contracts for difference, or CFD, is a complex financial instrument. It allows people to trade on price movements in financial markets, such as stocks and currencies. It is effectively a wager on which direction a particular asset will move.

For instance, if you bet that the price of a particular share will rise, known as going 'long', and things work in your favour, your profit will grow. But if the market turns against you, your loss will increase.

A trading screen shows the reaction to early market moves on the London Stock Exchange and the FTSE100 index at CMC Markets in London

As an investor, you never actually own the underlying asset, you're simply speculating on its performance. You can trade on pretty much any financial asset, from foreign exchange and indices to commodities and shares.

Spread betting is classified as gambling, which means people who spread bet don't pay tax on their profits.

Read more here

FCA to clamp down on spread betting to 'protect' ordinary investors

Here's our full piece on the clamp down by the FCA on spread betting by Julia Bradshaw: 

The Financial Conduct Authority  (FCA) is cracking down on spread betting with tougher rules on firms offering the service, after finding that 82pc of clients using these products have lost money.

Spread betting using a financial product known as contracts for difference, or CFD, allows people to trade on price movements in financial markets, such as stocks and currencies. It is effectively a wager on which direction a particular asset will move.

It is classified as gambling, which means people who spread bet don't pay tax on their profits.

With rising numbers of ordinary investors using CFDs through financial services companies such as IG Group and CMC Markets, the City watchdog is concerned that many people don't understand the risks involved.

It wants to introduce a raft of measures to protect consumers, such as forcing firms to display risk warnings and disclose profit-loss ratios on client accounts.

Continue reading here

Half-time: FTSE 100 turns positive but spread betters slide

The FTSE 100 has turned positive, reversing its earlier losses, as banking stock edge higher. However, spread betting firms are among the biggest casualties after the FCA announced stricter rules on CFD trading. 

Let's take a look at the current state of play in Europe: 

  • FTSE 100: +0.13pc
  • DAX: +0.25pc
  • CAC 40: +0.44pc
  • IBEX: +1.36pc
  • FTSE MIB: +1.16pc

 Reflecting on this morning's trading session, Connor Campbell, of SpreadExsaid: 

"There hasn’t been much to work with this Tuesday, the markets settling into an uninspired rhythm as the morning went on.

Brexit and the fallout from the Italian referendum continued to dominate proceedings, though dominate perhaps isn’t the right word given how mild things have been. The FTSE fell by around 20 points, keeping it under the 6750 mark, thanks to a wobbly commodity sector and a gradually gaining pound. Sterling’s slight growth this morning has seen it hit a two month high, largely due to the fact that Philip Hammond has claimed Britain wants to ‘keep all options open’ when negotiating the country’s EU divorce." 

Thomas Cook to take over Co-op travel stores

Away from the FCA, tour operator Thomas Cook will take over Co-op travel stores. Jillian Ambrose reports: 

Holiday giant Thomas Cook will pay £55.8m to take control of the retail travel business it set up with the Co-operative Group as its food-to-funeral partner ends months of speculation over its plans to exit the travel industry.

The mutual hinted in its annual report in April that it could exercise its option to quit the joint venture set up with Thomas Cook in late 2011, and confirmed the plan today following a difficult period for the travel industry, which has been rattled by a spate of terror attacks across popular holiday destinations in North Africa and Turkey.  

The Co-op said having a minority stake in a travel business no longer fitted with its strategy.

In the last five years the number of high street stores run by the partnership has plummeted from 1,200 to just over 750 as holidaymakers increasingly turn to online options to book their trips.

Thomas Cook boss Peter Fankhauser said the partnership had helped the company establish a strong presence on the high street but with full control of the retail network it would be able to better integrate the stores with its online offering.

Read more here

CMC Markets shares 'a common desire' to see uniform application of highest standards in CFD market

CMC Markets has joined its peers in acknowledging the proposals by the FCA this morning. 

In a statement published minutes ago, it said: "CMC shares a common desire to see a uniform application of the highest standards of conduct across the industry."

The FTSE 250 company said it has "consistently focused on higher-value experienced premium clients" who understand the markets and products they are trading. 

It added: "An integral part of CMC's "client first" proposition over the last five years is ongoing client education about markets, products and associated risks. CMC's business model and ongoing strategy is focused on generating revenue from client trading costs and therefore believes in establishing long-term client relationships."

"CMC recognises that in its consultation paper the FCA is endeavouring to ensure that any regulation is delivered in a balanced fashion and looks forward to working closely with the FCA over the coming months."

FCA proposals will not have 'material impact' on Playtech 

Playtech has shrugged off today's proposals from the FCA this morning, saying they are "not expected to have a material impact" on its financials division.

Shares dipped just 3pc in mid-morning trade. 

IG to 'carefully consider implications' of tighter FCA rules

IG, which currently holds the unwanted accolade of biggest FTSE 250 faller today, has also reacted to the FCA's consultation paper. 

In a statement the spread betting firm said: "IG firmly believes in robust and proportionate regulatory oversight of the CFD sector in the UK and Europe.  The Company recognises that there are shortcomings in the approach to the marketing of CFDs and binaries by certain firms, often operating from outside the UK.  The Company has operated and will continue to operate to the highest standards in the industry, and its initial view is that certain of the FCA proposals could enhance client outcomes."

IG also highlighted that the FCA's proposals do not appear to directly apply to firms operating outside the UK offering CFDs and binaries in clients in the UK on a cross-boarder services passport from another EU member state. 

As such, the mid-cap group said it will "carefully consider the implications" of the FCA's consultation paper and the courses of action open to it. 

Similarly to Plus500, it will respond in accordance with the timeline provided of March 7 2017. 

Plus500 sees 20pc revenue impact from FCA clampdown 

The tougher rules introduced by the FCA on CFD trading will knock 20pc of Plus500's revenues, the group said this morning. 

Acknowledging the share price plunge of 28pc this morning, Plus500 said industry participants have been requested to provide comments to the City watchdog's proposals by March 7 next year. 

"The Company believes that the topics covered in the note will have a material operational and financial impact on the UK regulated subsidiary which represents approximately 20pc of the Groups revenues," it said in a statement. 

It intends to make a further announcement in due course, which will be made in conjunction with a year end trading update. 

Poorly timed promotions.... 

Number of CFD firms in the UK has doubled since 2010

Here's a good graphic from the FCA which shows that the number of CFD firms in the UK has doubled since 2010. 

It also shows that these companies hold around £3.5bn  in clients money (and remember from the FCA's analysis this morning it revealed around 82pc of investors lose money).  

FCA rules will drive out 'some of the private and more unscrupulous operators', says Liberum 

The FCA's has this morning followed a move by the Cypriot regulator last week and taken a tough stance on spread betting products. In its wake, shares in London-listed spread betting companies have suffered sharp losses. 

Over the medium to long-term, investment bank Liberum expects this to result in "a positive outcome". It reckons the move by the City watchdog will "drive out some of the private and more unscrupulous operators".

However, the bank added: "In the short to medium-term we will undoubtedly see a negative impact on growth and profitability."

Justin Bates, of Liberum highlights the four major directives proposed by the FCA this morning:

  1. Introduction of standard risk warnings and mandatory disclosures of profit-loss ratios on client accounts - The FCA notes that its research shows that 82pc of clients lost money.
  2. Preventing providers from using bonus benefits to encourage account opening or trading activity;
  3.  Capping leverage at a max. of 1:25 for retail clients who have less than 12 months experience;
  4. Capping leverage at a max. of 1:50 for all retail clients - CySEC proposals give clients the option to dial-up leverage from a default setting of 1:50 if they wish.

Mr Bates said: "We consider the last two points to potentially be the most damaging."

After the Cypriot regulator, the CySEC, issued new guidelines, Liberum placed IG's recommendation and target price "under review" citing "the uncertain regulatory environment". 

Mr Bates now thinks  downward revisions to forecasts look "inevitable" but in the absence of further information it is "difficult to call at the moment".

However, he continued: "For the time being, our target price and recommendation remains under review." 

Pound hits highest level in more than two months 

On currency markets, the pound has hit its highest level in more than two months. 

It climbed by as much as 0.43pc this morning to $1.2775 against the dollar, that's its highest level since October 4 when it touched $1.2872.

The latest rise in the pound comes as investors bet the government will lose its battle to trigger the Brexit process without parliamentary approval. The government is seeking to overturn a decision in the High Court last month that could derail its Brexit plans. The court ruled that Prime Minister Theresa May could not trigger Article 50 of the Lisbon Treaty and begin two years of Brexit talks with the other EU members without parliamentary backing.

The pound hit its highest level since October 4 Credit: Bloomberg

Monte dei Paschi board meeting delayed until Wednesday or Thursday

 Back to Italy, where reports have surfaced that beleaguered bank Monte dei Paschi's board meeting is said to be delayed until tomorrow or Thursday. 

FCA clampdown will come as 'a shock' to UK industry

Jake Green, regulation partner at law firm Ashurst, reckons today's clampdown by the FCA on CFD trading will come as "a shock" to the UK industry Already shares have plunged by more than 30pc following the announcement. 

"This is less an example of 'conduct regulation', rather, 'product intervention', and this will come as a shock to the UK industry, which received detailed briefings from the FCA earlier in this year where this was not indicated."

"The measures come hot on the heels of product and marketing bans in Europe. The leverage limits also trail those announced by CySec earlier in the week and will therefore lead to certain providers exiting the industry and/or consolidation."

"The industry may consider that the FCA's position misunderstands the users/clients who utilise these services. Many do understand the risk (and are aware that many lose) - they do not compare the product to less riskier ones (tracker funds as an example) and moves to reduce the risk appears to miss the point of the product ."  

Next steps for spread betters 

Back to the FCA's clamp down on CFD trading. The City watchdog has outlined the next steps spread betters should follow in its consultation paper: 

Retail CFD policy proposals

  1. Welcomes feedback on the policy measures we have proposed by 7 March 2017. Subject to these responses, the FCA will seek to publish a final policy statement and final Handbook rules by late spring 2017.
  2. In the interim, the FCA expect all CFD providers to ensure they are complying with our existing rules for the provisions of services involving retail CFD products.
  3. Expects firms to ensure they comply with current disclosure requirements. In particular, risk warnings should be clear and not diminished by other statements or their overall positioning and prominence,
  4. Risk warnings ensure clients make informed decisions on whether or not to proceed with an investment. 

Read the full consultation paper here

State aid measures for Italy's Monte dei Paschi ready

Over in Italy, reports have surfaced that state aid measures for Italy's oldest bank Monte dei Paschi are ready. Reuters has the latest: 

Measures to allow state aid for Banca Monte dei Paschi di Siena BMPS.MI are ready, with the Italian lender's hopes of pulling off a privately-backed fundraising fading, three sources familiar with the matter said on Tuesday.

The Tuscan bank is looking to raise 5 billion euros ($5.4 billion) this month to avoid being wound down, but investors are reluctant to commit funds after Prime Minister Matteo Renzi lost a referendum on Sunday, triggering political uncertainty.

One source said the bank was looking at the idea of a so-called precautionary recapitalisation, which would involve the government injecting cash.

A customer uses a Bancomat automated teller machine (ATM) outside a Banca Monte dei Paschi di Siena SpA bank branch in Milan Credit: Bloomberg

Two other sources said a government decree authorising the state recapitalisation was ready, with its implementation depending on political developments in the next few days.

An injection of cash by the state would entail losses for institutional investors who hold the bank's junior debt, in line with European banking crisis rules.

Retail investors who hold 2.1 billion euros of the bank's subordinated bonds would be either spared or would be reimbursed, according to a source familiar with the matter.

The bank's finance chief, Francesco Mele, said last week if the privately-funded plan failed, the state would probably have to launch a precautionary recapitalisation under conditions set by the European Commission for state aid. 

Sources said on Monday banks working on backing the planned 5 billion euro cash call had decided to wait three to four days until the political situation was clearer. Under the terms of their involvement, they can drop the transaction due to adverse market conditions. 

Renzi has said he will quit, but the country's head of state asked him on Monday to put his resignation on hold until parliament has approved the 2017 budget, which could be done as early as Friday.

The Financial Times said on Tuesday bankers had told the lender to prepare for a state bailout this weekend.

Ugly day for spread betters

European bourses mixed as weaker commodities weigh

Weaker commodities weighed down European bourses this morning. However, a day after Renzi's crushing defeat Italy's bencmark index bounced back (but banking stocks remained under pressure). 

Spread betting firms were the biggest drag in the UK after shares in the sector plunged around 30pc. It followed a move by the FCA to clamp down on CFD trading. 

Let's take a look at the current state of play: 

  • FTSE 100: -0.1pc
  • DAX: -0.04pc
  • CAC 40: -0.07pc
  • IBEX: +0.62pc
  • FTSE MIB: +0.78pc

 Mike van Dulken, of Accendo Markets, said: "A lacklustre European open comes in spite of a positive Asian session which echoes gains on Wall St. Advances by big Bank and commodity names are derived from relief at the absence of post-referendum turmoil in Europe (so far) coupled with a weaker USD giving a boost to metals prices and Brent Crude Oil, the latter testing $55 for the first time since July 2015.

"Italian Prime Minister Renzi has agreed to put off his resignation until the nation’s 2017 budget has been approved, reducing the risk of snap election and another populist backlash. Contagion fears also eased by suggestions of a weekend state bailout of Banca Monte dei Paschi di Siena due to concerns that a €5bn recapitalisation is at risk by the withdrawal of a key participant." 

Numis downgrades CMC Markets after FCA proposes stricter rules on CFD trading 

Numis have acted quickly after the FCA announced that it will introduce stricter rules on CFD trading. 

CMC Markets has already dropped by 29.5pc but Numis is adding to its pain, slashing its rating to "sell" as it expects the move by the FCA to "materially reduce" its forecasts. 

Jonathan Goslin, of Numis, said: "We believe rising regulation is likely to have a material impact on both the growth and the profitability of CMC across Europe and the UK."

What is the potential impact? 

Numis believes the majority of the regulation that is being discussed and/or implemented has been targeted at the lower quality end of the market (i.e. Plus500 and below). While it tends to agree with this and believe it is "long overdue", Numis is concerned the new regulations that are now being imposed (leverage caps, appropriateness tests, advertising restrictions, trading bans etc.) are "likely to have a material impact, at least in the near to medium-term, on CMC's growth and profitability across the UK and Europe". 

UK spread betting firms hammered after CFD crackdown

Ouch! Financial spread betting companies are getting hammered this morning after the FCA proposed stricter rules for CFD trading. 

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.

London-listed spread betters plunged by around 30pc in early trade. They have since eased back but are still nursing hefty losses. 

IG is down 24.5pc, CMC Markets has tanked 26.5pc and Plus 5-- has lost a third of its value and is now on track for one of its worst days ever. 

Proposed stricter rules for firms selling spread betting products: 

Let's take a look at the package of measures the FCA is proposing. They are intended to "enhance consumer protection" by limiting the risks of CFD products and ensuring that customers are better informed, the City watchdog said, after an analysis found 82pc of clients lost money on these products. 

Here's a list of the new measures: 

  1. Introducing standardised risk warnings and mandatory disclosure of profit-loss ratios on client accounts by all providers to better illustrate the risks and historical performance of these products.
  2. Setting lower leverage limits for inexperienced retail clients who do not have 12 months or more experience of active trading in CFDs, with a maximum of 25:1.
  3. Capping leverage at a maximum level of 50:1 for all retail clients and introducing lower leverage caps across different assets according to their risks. Some levels of leverage currently offered to retail customers exceed 200:1.
  4. Preventing providers from using any form of trading or account opening bonuses or benefits to promote CFD products.

City watchdog tightens rules for spread betting products amid 'serious concerns'

Britain's financial watchdog proposed tougher rules for retail financial spread betting products known as 'contracts for difference' (CFD) after finding that 82pc of customers using them lost money.

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.

Credit: Bloomberg

Christopher Woolard, Executive Director of Strategy and Competition said:

“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. We are introducing stricter rules for CFD products to ensure the sector addresses the shortcomings identified, and that firms make sure that retail clients are aware of the high risks involved in trading these complex products.

“The FCA also has concerns that binary bets pose investor protection risks and question whether binary bets meet a genuine investment need.”

​Read the full press release from the FCA here

Agenda: City watchdog clamps down on CFD market

Good morning and welcome to our live markets coverage. 

Yesterday, all focus shifted to the euro and the fragility of the Italian banking system after Renzi's crushing defeat. This morning shares in the world's oldest bank Monte dei Paschi remain under pressure, falling 2.7pc in early trade. 

Back in London, City watchdog, the FCA, has proposed stricter rules for CFD (contract for difference) products causing shares in spread betting firms to plunge by around 30pc in early trade. 

Also on the agenda today: 

Full-year results: Victrex, On the Beach

Interim results: Real Good Food Company, Iomart Group, Imagination Technologies, Gately Holdings, Consort Medical, Wolseley, Northgate, Ashtead

Trading update: Ultra Electronics Holdings

AGM: DX Group

Economics: BRC retail sales monitor (UK), trade balance (US), IBD/TIPP economic optimism (US), factory orders m/m (US), factory orders m/m (GER), retail PMI (EU), revised GDP q/q (EU)

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