London-listed trading platforms' shares were hit on Tuesday morning after the European Union's markets regulator said it has agreed to temporarily ban the provision of binary options trading products to retail investors, and implement tighter leverage limits on contract-for-difference products.
The European Securities and Markets Authority (ESMA) said binary options--which offer all-or-nothing bets on market movements--lead to consistent losses for retail clients, and it will ban their marketing, distribution or sale to retail investors.
On contract-for-difference (CFD) products, which allow investors to make leveraged bets on an asset's price movement, ESMA said it will enforce leverage limits on retail clients' trades.
Those leverage limits will range from 30-to-1 for major currency pairs, down to 2-to-1 for cryptocurrency trades. Non-gold commodities will have a 10-to-1 limit and individual equities will have a 5-to-1 limit.
ESMA also said it will enforce guaranteed limits on retail client losses, a restriction on incentives to trade CFDs and a standardized risk warning.
The measures will come into force after their publication in the official journal of the EU, one month after in the case of binary options, and two months after in the case of CFDs, ESMA said.
The measures will be in place for an initial three months, after which it will consider the need for further intervention.
The U.K.'s Financial Conduct Authority said it supports the application of EU-wide measures and will consult on whether to apply them on a permanent basis.
London-listed trading provider IG Group Holdings PLC (IGG.LN) said the announced measures would have reduced its revenue by 10% in the first nine months of financial 2018, but it doesn't believe there will be any financial impact in its current year ending May 31. However, the company said it expects its financial 2019 revenue will be lower on year due to the impact of regulation and an expected decline in cryptocurrency trading, before returning to growth thereafter.
IG shares at 0846 GMT were down 69 pence, or 8.5%, at 747 pence.
CMC shares were down 1.6% at 156.60 pence. CMC wasn't immediately available for comment.