Spreadbetters experienced the most modest of recoveries yesterday, with shares in IG Group gaining nearly six per cent, Plus500 climbing around three per cent and CMC Markets edging up just 1.3 per cent. Investors, given 24-hours to reflect on the previous day’s bloodbath, clearly did not find reason to significantly alter their view of the sector.
Tuesday’s sudden announcement by City watchdog the Financial Conduct Authority (FCA) – revealing a proposed clampdown on the use of contracts for difference, and how they are marketed to members of the public – sent shockwaves through the Square Mile, with the aforementioned equities plummeting 28-38 per cent.
Of course it was not the first time shares have been sent tumbling by an unexpected change in policy.
In the recent Autumn Statement, Philip Hammond unveiled a ban on letting agent fees, prompting double-digit drops in Foxtons and Countrywide. An even bigger fall occurred following a chancellor’s statement a couple of years ago, when Hammond’s predecessor George Osborne declared an unexpected liberalisation of pension rules – thus wiping billions off the value of specialist annuity providers. And just days after Osborne’s annuity-reforming Budget of 2014, the FCA caused some chaos of its own – inadvertently hammering insurance sector shares following a now-infamous leak to the Daily Telegraph.
This week’s FCA statement was altogether more orderly and proper than the 2014 leak which got the regulator into hot water – but try telling that to bosses of the affected companies.
The early morning statement was a rude awakening for IG and its peers, with one source telling City A.M. that some CEOs – with their companies’ market value tumbling – were rushed on to a 9am conference call with the regulator in a bid to understand the proposed measures. The FCA believes it acted fairly, having sent a detailed letter to the sector’s chief execs back in February, listing concerns. Some City sources argue the letter was in no way a portent of what was to come.
The watchdog responds by insisting that it cannot brief market-sensitive information ahead of an official announcement. It learned that lesson in 2014. Whatever the tensions following this week’s drama, it is in the industry’s interest to engage constructively with the FCA’s consultation. The difference between a Draconian outcome and a more restrained set of regulations could be worth billions to the sector’s market cap.