Forexbrokerz.com learned that financial spread-betting and CFD giant CMC Markets is thinking over moving away from the UK after the FCA’s decision to cap leverage to 1:50 and to introduce other restrictive measures to forex and CFD trading. According reports of Sky News, the broker is mulling to relocate chunks of its business to Germany, where it has already established itself as a leading CFDs provider.
Sky News quoted own sources in the company, according to which the board of directors of CMC Markets is planning to discuss the idea of moving the its headquarters, as well as approximately 300 employees (from its London-based CFD operations) to Germany.
The news of the pending regulatory changes in the UK wiped out a significant portion of the market capitalization of the major LSE-listed forex brokers, including CMC Markets. The stock price of the company fell by 36.7% on the day the news broke and has not recovered ever since.
CMC Markets’ shares traded for GBX 117.34 apiece on December 5 at market close and after FCA announced its decision their price fell to GBX 185.30 (at market close on December 6).
On one hand, the relocation idea appears to be quite logical, since CMC Markets is already the largest retail CFD provider in the country. On another hand, however, the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) has also announced its intentions to “limit the marketing, distribution and sale of financial contracts for difference (CFDs) with an additional payments obligation” to retail clients.
The Cyprus Securities and Exchange Commission (CySEC) also undertook measures to tighten the rules for margin trading and CFDs, proposing a default leverage of 1:50. In fact, these measures are in line with the recommendations of the European Securities and Markets Authority (ESMA), issued earlier this year.
It looks as if a new regulatory trend is forming in Europe, (more or less) following the steps of the US, where the Dodd-Frank Act (2010) capped leverage to 1:50 and introduced the FIFO rule, that in fact prohibited hedging. As a result, US retail forex market shrunk (currently there are only six brokers operating legitimately) and most brokers moved their business outside the country. Probably many EU brokers will soon find themselves in a similar situation and will have to find ways to move on.