Online trading platforms saw shares drop significantly on Tuesday, after the Financial Conduct Authority announced plans to tighten the regulation of CFD products.
IG Group saw its value decline by 25 percent, with Plus500 down by a third and CMC Markets shares also down 27 per cent.
The FCA announced several proposals to tighten regulation in the sector, including making changes to the way CFDs like spread bets and rolling spot foreign exchange products are advertised to consumers.
Proposed measures include the mandatory disclosure of profit-loss ratios on client accounts as well as introducing lower leverage limits for more inexperienced retail clients who want to begin trading CFDs. The FCA also wants to prevent providers from luring new customers with “any form of trading or account opening bonuses or benefits” used to promote CFD products, a common method currently used by trading platforms.
Christopher Woolard, executive director of strategy and competition at the regulator, 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.”
The FCA’s new proposals follow those of Australia’s regulatory authority for non-bank financial markets, ASIC, who began considering a ban on CFDs products within its jurisdiction in the final quarter of 2015.
IG Group (LON:IGG) are currently trading down 26.60 percent at 578.00, with CMC Markets (LON:CMCX) down 28.07 percent at 133.10 (0914GMT).