Spreadbetting firm Plus500 warned it would suffer huge blow from tighter regulation nine months before it issued shock profit warning
Spreadbetting firm Plus500 was warned that it would suffer a huge blow from tighter regulation nine months before it issued a shock profit warning last week.
One of the hedge funds betting against the company’s shares told a New York conference in May last year that new rules could hit Plus500’s profits by more than 50 per cent.
The revelation will be seized on by critics who claim that Plus500 – which is listed on the FTSE 250 and sponsors Atletico Madrid football club – may have misled investors about its expectations for future performance.
Sponsor: Atletico Madrid’s Diego Costa playing against Arsenal last May
As recently as seven weeks ago, Plus500 – which allows punters to make high-risk bets on share price movements, currencies, and commodities – had reassured investors that it ‘continued to perform well’ in the wake of a regulatory crackdown on the industry in the summer of 2018.
However, its share price plunged 44 per cent last week when the company admitted that profits would in fact be ‘materially lower’ this year due to the new rules.
The regulations were intended to protect amateur traders from racking up huge losses on sites such as Plus500 by limiting the risks they can take. An industry review by the City watchdog last year found that 76 per cent of private spreadbetting customers who bought so-called contracts-for-difference – derivatives which allow investors to trade stocks without actually owning shares – lost money.
Israel-based Plus500’s value grew to more than £2 billion in August before rivals such as IG Group started to reveal the impact of the new regulations.
Its five founders offloaded more than £250 million of shares in just over a year before last week’s warning.
Philadelphia Financial of San Francisco, one of a clutch of hedge funds betting against Plus500’s shares, warned in May that the new rules imposed by the European Securities and Markets Authority (ESMA) could hit Plus500’s profits by more than 50 per cent.
In a report presented at the conference, Philadelphia Financial claimed that clients lose more money at Plus500 than at its closest rivals due to targeting of small investors.
Philadelphia Financial also said Plus500 spent a greater share of its costs on marketing than its competitors.
It was reported on Friday that Plus500 may have misled investors when it said in its annual report that it had not suffered from client losses in 2017, when in fact it took a $103 million loss.
The company said it was a drafting error.
Plus500 declined to comment on Philadelphia’s report.