IG Index /spreadbetting change in regulation

[valueinvestor123]

Not sure where to post this.
I have been using IG Index spreadbetting for years but recently, due to a change of regulation (EU guidelines etc), there will be a lot of changes (margin increases, account unlinking from regular stockbroker account which could be used as a margin).
All these facilities will now only be available to 'professional clients' and retail clients are basically getting shafted.
is anyone else affected by this? What are people doing about it?

The 3 requirements to qualify as a professional client:

- 10 trades per quarter in the last 4 quarter worth 50k or more

- 500k in liquid investments

- 1 year experience as professional derivative trader


A lot of my holdings are in smaller chunks but exceed 50k in some cases and they have been rolling over and it's really annoying that IG doens't seem to view them in aggregate size.

Are there any other spreadbetting companies that are cheap and not affected by the new legislation or is the legislation industry-wide?
Thanks, vi123

[Alaric]

Are there any other spreadbetting companies that are cheap and not affected by the new legislation or is the legislation industry-wide?
Thanks, vi123

It's almost certainly industry-wide and as with many things, driven by an EU Directive. In the interests of creating as much confusion as possible, the interpretation will have been left to individual companies, so there may be others out there who take a more relaxed attitude to the definition of "professional". High net worth is another exemption.

[valueinvestor123]

Yes, i keep getting different replies, depending who i am talking to at IG. it's so irritating.

I hold an IG portfolio, of mainly bluechip shares with the notional value of around 600k. A lot of the shares are broken up in smaller sizes and I can't get a straight forward answer if I can use the aggregate size or not.

Say, 100k worth of RBS shares broken up in 20 positions, instead of 10. It's the same thing in the end (aggregate size is what counts).
Grrrr.
As a retail client, i will have to transfer around 60k to IG otherwise plus pay through the nose for margins, compared to professional.

[bobsmydog]

This from the FCA handbook:

Elective professional clients
COBS 3.5.3R03/01/2018
RP

A firm may treat a client other than a local public authority or municipality as an elective professional client if it complies with (1) and (3) and, where applicable, (2):

(1)

the firm undertakes an adequate assessment of the expertise, experience and knowledge of the client that gives reasonable assurance, in light of the nature of the transactions or services envisaged, that the client is capable of making his own investment decisions and understanding the risks involved (the "qualitative test");
(2)

in relation to MiFID or equivalent third country business in the course of that assessment, at least two of the following criteria are satisfied:
(a)

the client has carried out transactions, in significant size, on the relevant market at an average frequency of 10 per quarter over the previous four quarters;
(b)

the size of the client's financial instrument portfolio, defined as including cash deposits and financial instruments, exceeds EUR 500,000;
(c)

the client works or has worked in the financial sector for at least one year in a professional position, which requires knowledge of the transactions or services envisaged;

(the "quantitative test"); and
(3)

the following procedure is followed:
(a)

the client must state in writing to the firm that it wishes to be treated as a professional client either generally or in respect of a particular service or transaction or type of transaction or product;
(b)

the firm must give the client a clear written warning of the protections and investor compensation rights the client may lose; and
(c)

the client must state in writing, in a separate document from the contract, that it is aware of the consequences of losing such protections.

[Note: first, second, third and fifth paragraphs of section II.1 and first paragraph of section II.2 of annex II to MiFID]

[valueinvestor123]

Thanks - would ESMA still stay in effect once Britain leaves the EU? Anybody had an educated guess?

[hiriskpaul]

I have been registered as a professional client witj IG for quite some time. I opted for it in order to get 10% lower margin requirements. Glad I did that now as margin requirements for retail investors are about to leap.

I have an account with Ayondo where I am classified as retail and margin requirements are jumping there as well. In this case though I don’t care as I already use 100% margin. That avoids all funding costs, but dividends/cap gains are still tax free.

[valueinvestor123]

I don't think i will be able to classify as professional. Even if my exposure is large (600k), it is mainly dormant (HYP type shares that just rollover).
And they don't count roll overs. It needs to be an executed trade of 10k for shares or 50k for indeces/forex. (10 of those trades per quarter, over the last 4 quarters).
Really rubbish decision.

Why can't investors self-certify, like with 'high networth investor' option? Whoever wants protection can sign up as retail and get that 'protection'.

An option is to move to IG account to Australia or Switzerland but there is no possibility to spreadbet quarterly futures (only CFD) as far as I know (only available in UK).

Are there any other ways to leverage long term investments cheaply that anyone knows of?

IG used to be pretty good: you got discounts on rollovers in the past, they then stopped it. You could link your broker account and use it as collateral 9also stopping this) and now these crazy rules...I don't see myself continuing.

[hiriskpaul]

I qualified as a result of my option trading and previous work in the finance sector. I suspect that these companies may now lose a lot of retail business due to the high initial margin requirements.

You might want to look at Ayondo to see if they would work for you. Margin requirements will be high as well, but you only pay daily funding charges on the unmargined position. So if you bet on £100k of stock and put up £20k margin, you pay daily funding on the £80k. But if the position rises to £110k, you would pay funding on £90k. You would need to compare the total cost of this, with rolling quarterly forwards at IG. It might be cheaper, but might not as IG's quarterly funding is very low. Alternatively, go for a margin account with someone like IB or degiro. Returns would be taxable though, unlike those at IG.

[moorfield]

Likewise I won't be a professional client either. I was spread betting S&P options for the last couple of years and (sort of) getting to grips with making a decent return. The new margin rates will put a spanner in that plan I think.

A spread betting account can still be a useful long term investment tool. My plan B now is just to buy a plodding underlying (I'm thinking City of London IT) at a conservative margin level, and leave it rolling, topping up the position from time to time along the way, for a nice tax-free treat in years to come maybe.

[idmon]

I realise spread betting profits are exempt from capital gains tax but are dividends also exempt from inclusion in the 2000Gbp limit

[hiriskpaul]

I realise spread betting profits are exempt from capital gains tax but are dividends also exempt from inclusion in the 2000Gbp limit

Yes

[BobGe]

Thanks - would ESMA still stay in effect once Britain leaves the EU? Anybody had an educated guess?

Since the ESMA rules are being adopted and applied by the FCA, what do you think?!

Anyway, they are doing you a favour because 74-89% of retail accounts typically lose money, so given the law of averages you are bound to before long. Maybe you should take up gambing..., err, I mean another form of gambling.

[hiriskpaul]

Thanks - would ESMA still stay in effect once Britain leaves the EU? Anybody had an educated guess?

Since the ESMA rules are being adopted and applied by the FCA, what do you think?!

Anyway, they are doing you a favour because 74-89% of retail accounts typically lose money, so given the law of averages you are bound to before long. Maybe you should take up gambing..., err, I mean another form of gambling.

I would not be surprised to see that percentage rise as a result of these changes as it will drive away the more cautious and cost conscious clients such as valueinvestor. By the sound of it, he does not approach this from a gambling angle, just another form of investment.

[Muddywaters]

Thanks - would ESMA still stay in effect once Britain leaves the EU? Anybody had an educated guess?

Since the ESMA rules are being adopted and applied by the FCA, what do you think?!

Anyway, they are doing you a favour because 74-89% of retail accounts typically lose money, so given the law of averages you are bound to before long. Maybe you should take up gambing..., err, I mean another form of gambling.

I’m head of compliance for an investment manager and the simple answer is no one knows what will happen when we leave the EU yet. Esma rules are currently being adopted because we’re still in. I personally doubt we’ll diverge that much but noises from government seem to suggest that they’ll look to simplify things and loosen regulation given the chance (thats coming from the treasury not from the fca). The whole things such a mess at the moment I don’t think anyone in government or the regulator really knows tbh, despite the unofficial noises.