Betting on 'an interesting opportunity' in Irish market

Chief executive of IG Index, Tim Howkins, is confident the financial spread trading specialist can carve out a decent share of the market

The promissory notes might be gone, but it still hardly looks like the right time to launch a retail investment business that depends almost entirely on clients with plenty of discretionary spending power.

That didn’t stop financial spread trading specialist, IG Index, announcing this week that it is setting up shop in the Republic. It has hired Declan Bourke, who previously headed CMC’s Irish business, to front the operation, and believes it can quickly carve out a decent share of the market here.

But is that market worth chasing? “We think there’s an interesting opportunity here,” IG’s chief executive, Tim Howkins, says.

He believes the company may already have between 10 and 20 per cent of the market, either through local brokers offering contracts for difference (CFDs) to private clients or people accessing its site from the Republic.

“There’s a good opportunity to grow that quite rapidly. There’s been quite a change in the local providers here and so we think that the time is right to have a presence.”

There has been a shake up. Worldspreads disappeared amid a scandal over lost client funds almost a year ago. It did not have a huge Irish customer base, but its founders and biggest shareholders were from here.

Apart from Worldspreads, CMC closed its Irish office and Delta was sold to a small UK operator.

In terms of substantial local operators, that leaves Marketspreads. IG thinks that there is room for another. It calculates that the market here is worth in the region of €20 million in revenue terms.

Howkins points out that IG has 44 per cent of the British market in the face of a lot of competition. With fewer rivals, he believes the Irish operation can get a “decent per cent of that” quite quickly.

Part of the shake up to which Howkins refers was due to the controversy that embroiled the spreadbetting industry here and in Britain last year.

In March, Worldspreads – an Irish-founded, London-based company – ceased trading after it emerged that it had a £13 million shortfall in client funds.

In April, the Central Bank suspended the licence of Marketspreads – which had been spun out of Worldspreads in 2009 by way of a local management buyout – for three weeks. There was no issue with its client funds, however the regulator had concerns over capital adequacy and audit. The actual problem was with transactions by long-departed directors.

Howkins describes the regulator’s actions as “fairly brutal” and “aggressive”, and points out that there was never a problem with client funds.

“I can understand why they felt the need to do it,” he says. “When MF Global [another industry player] went bust [in 2011], we saw quite heavy-handed reactions from regulators. For instance, in Singapore they turned up on everyone’s doorstep demanding to do a client funds audit.

“It is the role of the regulator to protect the individuals and sometimes the providers get bruised by it; it’s the cost of doing business in a highly regulated industry.”

Worldspreads

In terms of Worldspreads, he argues that “it was a small, badly run business”. He agrees that it’s not great for the industry’s image, but argues that it happens in lots of businesses.

Financial spread-trading involves betting on movements in markets, stocks, commodities or currencies.

“We make a two-way price,” Howkins says. “The FTSE we might quote at 6300-6301, you buy at 6301, you sell at 6300, so you buy if you think it’s going to go up and you sell if you think it’s going to go down.