Online trading platform CMC Markets (LSE:CMCX) sank by 12.3pc to 145p today as it issued a profit warning after being hit by low market volatility and regulatory changes over the summer. In a trading update for the 1 July to 25 September, the business said it had been impacted by a sustained period of low market volatility and range bound markets towards the end of the traditional UK summer period.
It said it was also hit by a regulatory change in the period after ESMA banned the sale of binary options to retail clients at the beginning of August. The European regulator, which also introduced strict new leverage limits on CFDs, said it took the measures to protect retail investors from losing large sums of money on riskyproducts. CMC said the measures have reduced UK and European retail client activity as expected, adding that it is still too early to tell how clients will eventually adapt to the rules.
It now expects CFD and spread bet revenue for its 2019 financial year to face a 20pc year-on-year reduction, below previous guidance of a 10-15pc drop. As a result, total group net operating income for 2019 is also expected to come in below previousguidance.
However, the firm added that discretionary spend around staff and marketing costs is now expected to be lower than previous guidance. As a result, it said 2019 operating expensesare now expected to be higher year-on-year, lessening the impact of Q2 2019 revenue performance on group profitability over the broader12-month period.
The company took a more positive tone elsewhere in its update, highlighting the potential of its recent implementation of a white label stockbroking partnership with ANZ Bank in Australia.
It also said it has remained focused on increasing the proportion of UK and European revenue generated by professional clients. On a rolling 12-month view, over 40pc of UK and European revenue is now producedby professional clients, rising to 50pc with institutional business included. With ESMA’s new rules only affecting retail clients, it is likely that the firm expects a continuation of this dynamic to lessen the negative impact of the changes over time.
CMC’s results reflect a broaderdownturn in liquidity and sentiment across AIM so far this year, so could the UK market now be entering a period of sustained weakness?