ESMA Regulatory Changes Weigh on CMC Markets’ Earnings

UK-based financial derivatives dealer, CMC Markets reported a decline in pre-tax profits over the six months to September, as low volatility and new rules from the ESMA took their toll.

November 23, 2018 | AtoZ Markets - Online trading services provider, CMC Markets Plc has earlier published its interim financial results for the first half (H1) year ended September 30, 2018. The results, which were made available through the London Stock Exchange, show weak market volatility eating into earnings of the Group, weighed down by recent regulatory changes.

The Group's net operating income dropped 21 per cent to £70.6 million when compared to the same period of the company's 2018 fiscal year, which had a net operating income recorded at £89.6 million.

Two Factors That Impacted CMC Markets’ Earnings 

According to the previous announcement from CMC Markets, two main factors made a strong impact on the second quarter (H2) of the company’s fiscal year. The first of these was a sustained period of low market volatility. The second factor was range bound markets as well as the retail trading activity being affected by the implementation of ESMA regulatory changes for the last two months of the quarter.

Whilst the operating income was down, operating expenses rose by 6 per cent from £59.3 million in the first half of 2018 to £62.7 million. This uptick across CMC Markets Group was mainly due to investments in its stockbroking business and higher fixed salary costs.

Performance to Supported by Stockbroking Revenue

Meanwhile, profit before tax was down 76 per cent year-on-year, dropping to £7.2 million. As per the report, performance is expected to be weighted towards the H2 and will be supported by additional stockbroking revenue. Commenting on the results, the Chief Executive Officer, Peter Cruddas stated:

"Whilst trading in the first quarter outperformed the same period last year, as previously announced, the second quarter was particularly difficult. Volatility was low, and unusually the majority of asset classes traded in tight ranges. This was further compounded by the impact of European regulatory change that came into force on 1stAugust.

Cruddas further added that the overall profit after tax became significantly lower than the same period last year.

Amidst ESMA’s regulatory actions coming into effect during the second quarter, quite a number of trades during the first half of the Group's 2019 fiscal year rose by 14 per cent, increasing from 30.7 million trading in the first half of 2018, to 34.9 million in the first half of 2019. In addition, the value of trades was also up year-on-year, only by 4 per cent.

CMC Markets Expects Higher Operating Costs for 2019

In terms of outlook, CMC Markets continues to expect 2019 operating costs to be just bit higher year-on-year, with the second half operating expenses marginally higher than the first half. The CEO concluded:

“As we enter the second half, which is typically stronger than the first, we have seen an improvement in market conditions and encouragingly an increase in activity across retail, professional and institutional client categories.”

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