CMC Markets, one of UK’s major forex, CFD and spread betting broker that went public earlier this year, is mulling to relocate a significant portion of its business to Germany in response to UK’s Financial Conduct Authority (FCA) intentions to impose a 1:50 leverage cap on CFDs.
According reports of Sky News, quoting own sources in the company, the board of the company is planning to discuss the idea of moving CMC’s headquarters as well as its London-based contracts-for-difference (CFD) operations, with approximately 300 staff, to Germany.
Sources told Sky News that the idea is still in a very early stage and no decision will be taken before the end of the consultations with the FCA early next year.
The news of the pending changes wiped out a significant portion of the market capitalization of the major UK forex brokers and spread betting companies. Some of them, including CMC Markets and IG Group, announced they are setting up a CFD association to react to FCA’s plans.
On one hand, the relocation appears to be quite logical, considering that CMC Markets is already the largest CFD provider to retail clients in the country. On another, however, Germany’s financial markets regulator, BaFin, announced its intentions to “limit the marketing, distribution and sale of financial contracts for difference (CFDs) with an additional payments obligation” to retail clients. This would in effect stop margin trading on CFDs and renders the eventual relocation an exercise in futility.
In a statement immediately following the report of BaFin’s intentions, however, CMC Markets said it would not affect its operations significantly and called it “a balanced approach”.
Analysts point out, however, that fairly soon the new limits and regulations could spread throughout Europe.
“I don’t see much point in (CMC relocating to Germany), it is a huge operation to move to another country and attempting to move 300 people would result in a huge amount of disruption,” Jonathan Goslin, associate director at the investment company Numis, told CNBC in a phone interview.
“Currently, it appears more likely than not that these (FCA) rules and regulation changes will soon apply throughout Europe anyway. So what are they going to achieve? I suspect not a lot. Okay, there is a temporary gain to be had but of course it does not make sense long term,” he added.
Meanwhile, Sky News reports, the chief executive of another major UK forex broker IG Group – Peter Hetherington – was in Germany last week and met with BaFin representatives to discuss the pending changes.
CMC Markets was set up back in 1989 and now it runs offices in 14 countries across the globe, focusing on the markets in the UK, Australia, Germany, and Singapore. The broker offers trading in more than 10,000 financial instruments, including forex, shares, indices, commodities and treasuries via its proprietary trading platform Next Generation.
Its chief executive and majority stakeholder, Peter Cruddas, is one of the most influential people in the City and was among the main donors of the Brexit campaign.