Retail Forex broker FxPro has abandoned plans for a London stock market flotation as a result of the UK regulator’s plan to crackdown on the growing financial spread betting market, Sky News reported earlier.
FxPro has tens of thousands of UK clients but the sector received an unexpected blow in December when the Financial Conduct Authority announced plans to cap the amount that retail investors can risk when using such services.
According to Sky News, FxPro has written to a number of prospective non-executive directors lined up for boardroom positions following the IPO to inform them that the company will remain in private hands for now.
FxPro is not the only retail trading platform to be unnerved by the FCA’s move. UK-based derivatives dealing platform CMC Markets (LON:CMCX) is considering a move to Germany where the banking regulator BaFin has also announced new measures for spread betting investors that are felt to be less draconian than the FCA’s proposals.
Shares of publicly traded online brokers took a large hit late last year following the FCA’s announcement of the leverage cap and bonus ban, making this a fairly tough environment for an IPO.
Sky News cited sources that FxPro was set to add new board members, including Owen O’Donnell, a director of the gaming group Rank.
Richard Kilsby, a former director of the London Stock Exchange and the online gambling group 888, joined FxPro as its chairman last year, and will continue in the role “for the foreseeable future”, according to a source cited by Sky News.
Credit Suisse and Morgan Stanley had apparently been lined up to oversee the London listing.
Of particular concern to regulators is the trading of contracts for difference (CFDs). Back in December the FCA said it had “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”.
A sample of CFD retail traders examined by the FCA found that 82% of them lost money on these products.
The FCA’s proposals would include the use of standardised risk warnings and a cap on leverage to 50 times the original stake.
Meanwhile the BaFin proposals aim to prevent traders losing more than their initial deposit (i.e. negative balance protection) but do not plan to limit either leverage or the marketing plans of spread betting companies.