Spreadbetters' shares hit amid crackdown by City watchdog FCA

The Financial Conduct Authority (FCA) has announced a crackdown on the spread betting market amid worries of "unexpected" losses among punters and "poor conduct" by providers.

The City watchdog said it was proposing tougher rules for retail financial spread betting products known as 'contracts for difference' (CFD) after finding that 82% of customers using them lost money.

CFDs include spread bets and rolling spot foreign exchange products. They are essentially agreements between two parties to exchange the difference between the opening price and closing price of a contract.

The FCA's executive director of strategy and competition, Christopher Woolard, 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."

The proposed measures include standardised risk warnings and mandatory disclosure of profit-loss ratios on client accounts and the setting of lower leverage limits for inexperienced retail clients.

Companies would also be banned from giving account opening bonuses or benefits to promote CFD products.

Listed firms with exposure to the planned rules saw their share prices fall sharply on the FTSE 250 in early Tuesday trading.

IG Group, which holds 40% of the UK financial spread betting market by number of active primary accounts, closed 38% lower while shares in retail brokerage CMC Markets (LSE: CMCX.L - news) were also down 38%.

IG (Frankfurt: A0EARV - news) said it would respond to the FCA consultation by its deadline of March, saying it believed in "robust and proportionate regulatory oversight of the CFD sector in the UK and Europe.

It added: "The company recognises that there are shortcomings in the approach to marketing of CFDs and binaries by certain firms, often operating from outside the UK.

The company has operated and will continue to operate to the highest standards in the industry, and its initial view is that certain FCA proposals could enhance client outcomes."

CMC (BSE: CMC.BO - news) said it was looking forward to working closely with the FCA, adding that it shared its desire for high standards and that its focus is purely on clients who "understand markets and the products they are trading."