Thousands of clients of the UK’s leading spread betting firm are throwing their weight behind a campaign against a proposed regulatory clampdown by the European Securities and Markets Authority (ESMA). Some 14,000 spread bettors have opposed ESMA’s plans to severely restrict the leverage that traders can get on their bets. Although this would limit the amount a bettor could potentially lose, it would also put a ceiling on the amount they can win. ESMA is keen to implement limits of 5 to 30 times the amount of leverage for trading CFDs, compared with the 25-to-50 times leverage proposed by the Financial Conduct Authority (FCA) – depending on the volatility of the underlying trading asset.
Peter Hetherington, CEO of IG Group, created the campaign landing page ReplyToESMA.trading as a portal for spread bettors to complain to ESMA about its proposals. IG, which provides spread bettors with stocks and shares app to attempt to earn tax-free profits on forex, shares, stock indices and commodities, has seen thousands of its customers write long complaints to ESMA on the campaign website. Mr. Hetherington said that within eight days they had “10,000 clients responding to a fairly arcane piece of financial regulation”. By the deadline for entries, more than 14,000 had been submitted, 98% of which opposed ESMA’s proposals.
Aside from limiting the amount of leverage spread bettors can access, ESMA’s proposals also include other restrictions, such as the automatic closing of some bettors’ losing positions. This has infuriated thousands of spread bettors, who insist they are fully aware of the potential risks involved and that ESMA is being overcautious in its proposals. One campaigner likened ESMA’s proposals to DIY homeowners injuring themselves using a 1,200-watt power tool – but the way to protect those DIYers is not to restrict all power tools to just 600 watts, it’s to educate DIYers of the safest way to operate the machinery.
IG predicts that some 140,000 of its 150,000 spread betting customers would be affected by ESMA’s proposals. Mr. Hetherington admits that while he agrees with some of ESMA’s restrictions, he believes they are too onerous on the company’s most experienced and relatively wealthy punters. Nevertheless, he does believe that spread betting should not be marketed to people considered financially ‘unsophisticated’. Hetherington claims spread betting is “a product for the 1 percent: rich, sophisticated people who know what they are doing”. He agrees with regulators that spread betting should not be “sold to the 100 percent”.
As a remedy to the potential ESMA restrictions, Hetherington is recommending that his spread betting clients reclassify themselves as “professionals”, removing them from the umbrella of ESMA’s proposals. By reclassifying as many as 2,000 of its biggest-spending clients – representing a quarter of its UK and EU revenue – Hetherington hopes the firm can protect around 50% of its income by utilizing this loophole. IG has recently applied for a license to allow customers to trade currencies in the U.S. and it also has a Swiss banking license, allowing it to sidestep EU rules, without being able to actively market to new spread betting clients. The fear, if ESMA proposals do go ahead. is that some spread bettors will be encouraged to use deregulated, non-EU spread betting firms. This is not good news for legitimate operators and nor would it be beneficial for punters, who would have reduced protection and security over their transactions.