ESMA regulations impact CMC CFD currency trading in Q1 2019
In the report published by the UK-based firm, CMC markets revealed that overall performance during the first quarter of 2019 has been badly affected by a reduced clients trading activity following the implementation of European Securities and Markets Authority (ESMA) on the offering of contracts-for-difference (CFD) to retail clients. This was compounded further by challenging market conditions during much of the final quarter.
"As a result, CMC expects to report CFD and spread-bet revenue of c. £110 million for FY 2019, 37% lower than the prior year, and net operating income of c. £131 million."
XTB reports a significant drop in CFD currency trading
Meanwhile, Poland-based XTB has also felt the pinch of the recently-implemented ESMA regulations, as the brokerage has reported CFD currency trading drop in revenues in the first quarter of this year. As per the report released by the Polish broker, a 4.4 percent or PLN 1.9 million ($492,851) decline in revenues quarter-on-quarter, as it dropped from PLN 42.8 million in the last quarter of 2018 to PLN 40.9 million.
Since the introduction of the ESMA margin rules, client money has remained strong, and active client and new client numbers have remained stable resulting in the Group having confidence in meeting the consensus FY 2020 outlook.
CFD currency trading drop in Q1 for XTB
Breaking down revenues in terms of instrument classes, revenues on CFD instruments based on currency pairs amounted to 1.1 percent of total revenues in the first quarter of 2019. This is a significant decline from the same time period in 2018, as revenues for currency pairs contributed 29.2 percent to revenues.
The EURUSD currency pair, out of all the currency pairs, was the most popular for XTB clients. This is because the pair had more predictable trends and the market moved within a limited price range. During the quarter, revenues generated from currency CFDs was PLN 433,000.
The biggest CFD class of instrument to contribute to revenues was CFDs based on stock indices. Overall, the instruments contributed a significant 89.3 percent to revenues, up from 57.5 percent a year earlier.
"Revenues were particularly driven by demand for CFD instruments based on the German DAX stock index (DE30) and the US indices US500, US100, and US300," the statement said.
The report also states what to expect in 2019:
“The Management Board expects in 2019 operating expenses to be at a level comparable to that observed in 2018. The final level will depend on the variable remuneration elements paid to employees, the level of marketing expenditures and the impact of ESMA’s product intervention on the level of revenues generated by the Group.”
CMC also highlighted its enlarged stockbroking business in Australia, which migrated approximately 500,000 stockbroking client accounts as part of an ANZ Bank white label transaction at the end of H1. This and the continued strength of CMC’s institutional deals also gives confidence in the Group’s outlook.
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