IG Group Shares Plummet After CEO Resignation

Earlier on Thursday, IG Group announced that the company’s CEO Peter Hetherington is resigning after 24 years with the firm. The news impacted the shares of the company materially.

After the close of the London Stock Exchange Stock Exchange A stock exchange, also known as a securities exchange or bourse represents is a facility where stockbrokers and traders can buy and sell securities.This includes shares of stock, bonds, exchange-traded funds (ETFs), or other financial instruments. By extension, stock exchanges can also provide facilities for the issue and redemption of such securities and instruments and capital events including the payment of income and dividendsStock exchanges have developed into a permanent fixture in the fin A stock exchange, also known as a securities exchange or bourse represents is a facility where stockbrokers and traders can buy and sell securities.This includes shares of stock, bonds, exchange-traded funds (ETFs), or other financial instruments. By extension, stock exchanges can also provide facilities for the issue and redemption of such securities and instruments and capital events including the payment of income and dividendsStock exchanges have developed into a permanent fixture in the fin Read this Term, IG Group’s stock is 13 percent lower. A move which opens a second consecutive week of significant losses. After trading as high as around 955 pence per share, the value of a single share of the retail brokerage today is 640 pence.

Question of Timing

Hetherington’s exit comes at the worst possible time for the firm. The ESMA’s new regulatory framework in Europe has been implemented in August, capping Leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term for retail clients at 30:1 for FX.

The limits are even lower for CFDs on indices, commodities, and stocks. The retail brokerage business is suddenly not as attractive for the shareholders of IG.

The resignation of Hetherington comes almost two months after the introduction of the new regulatory framework. He has been with the company for over 24 years, spending the last three as CEO after the resignation of Tim Howkins.

Speaking of the former CEO of IG Group, a video clip from CNBC’s Squawk Box from 2013 is worth watching:

Stock Performance of Listed Brokers

The shares of the big four brokers that are traded publicly have been punished during the last couple of months. Plus500 appears to be the outlier, however, the trend in the company’s stock has clearly been lower since August.

As we can see on the chart below Plus500 is the only company still in the green since the start of 2018. Shares of CMC Markets are lower by 7 percent, IG Group is lower by 12 and GAIN Capital is down 30 percent since January 1st.

Whether or not the share prices of the companies manage to stabilize, depends on certain conditions. The diversification of revenues and the geographical shift will definitely play a role.

Another significant change may happen if the brokers manage to somehow convert retail traders to institutional ones. Proactive solicitation, however, is explicitly forbidden by the European regulators.

In any case, it appears as if the market has been misplacing trust in the ability of retail brokers to conserve revenues after the regulatory changes.