CMC Markets first-half profit slumps as regulation, low volatility bite

(Reuters) - CMC Markets Plc CMCX.L reported a 76 percent slide in first-half pretax profit, hurt by curbs on client trading as London's online trading firms face scrutiny from global regulators and sustained low market volatility.

The company, headed by Peter Cruddas, one of the City of London’s most prominent supporters of Britain’s exit from the European Union, said pretax profit fell to 7.2 million pounds in the six months ended Sept. 30, from 29.8 million pounds a year earlier.

“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,” Cruddas said in a statement.

The company has seen an improvement in market conditions and higher client-trading activity at the start of the second half, said Cruddas, who set up CMC as a foreign exchange broker with a 10,000-pound investment in 1989.

CMC and its rivals such as IG IGG.L have been in focus as regulators tighten rules on products that allowed anyone with a bank card to make highly-leveraged bets on financial markets via apps and online platforms.

The European Union’s securities watchdog has banned the sale of ‘binary’ options to retail customers due to concerns about significant losses made on the inherently high-risk speculative products.

Binary options and CFDs are financial products that give investors exposure to price movements in securities without them having to own the underlying assets.

While the main indicator of stock market volatility .VIX has risen this year on concerns that a decade-long rally in developed markets was coming to an end, the scale of moves in major currency markets, one of retail brokers' main area of operation, has been far more subdued.

CMC said revenue per active client fell 22 percent to 1,413 pounds, while the number of active clients fell 4 percent to 44,697 in the first half.

The company also said an application to open a subsidiary in Germany, in preparation for Brexit, was being progressed by German regulators.

Reporting by Noor Zainab Hussain and Tanishaa Nadkar in Bengaluru; Editing by Gopakumar Warrier