At time when its business is at a peak, the share price of Israeli company Plus500 Ltd. (AIM: PLUS) was down 16% in trading in London today, following reports about the European regulator. Plus500 operates a platform for online trading in contracts for difference (CFD) for the world's leading share indices, currencies (and recently also for the Bitcoin digital currency), and commodities, in addition to major stocks. The company charges a commission on the difference between the buying and the selling price. It was reported late last week that the European Securities and Markets Authority (ESMA) had made an announcement concerning its work on the marketing of CFDs, binary options, and other speculative products for retail customers.
The announcement stated that ESMA has been concerned for a long time about the marketing of "speculative products such as CFD" and binary options to customers, and was working to monitor and supervise the sector. They mentioned that other authorities around the world had already adopted measures in this matter, and added that they were considering, among other things, banning the marketing, distribution, and sale of binary options, and also restricting the marketing, distribution, and sale of CFDs and similar products to retail customers, among other things by limiting leverage and publishing warnings. Another announcement on the matter will be published next month. According to reports in London, the Financial Conduct Authority will take the same action as ESMA.
Plus500 reported the matter today, and said that it welcomed the announcement anda strong regulatory infrastructure, and the change that this would bring to the industry. "Plus500 reiterates that the Company has never offered binary options," the company stated. "At this stage, Plus500 will wait for the conclusion of the consultation expected in January 2018 to understand where it will need to implement necessary adjustments to its business model." Plus500 CEO Asaf Elimelech said that the notice was positive and would provide more transparency about expected regulatory changes. The company's share and those of other firms in the industry fell.
Plus500 was hit hard by regulatory measures in 2015, and its share price reached a peak only a few weeks ago; the company's current market cap is £893 million ($1.2 billion). In the first nine months of 2017, the company had $305 million in revenue, 29% more than in the corresponding period last year. Plus500's net profit was $143 million, more than double the profit posted for the corresponding period in 2016.
In 2015, the UK Financial Conduct Authority reconsidered some of the verification and identification documents of Plus500's customers, due to concern about money laundering. This probe resulted in the freezing of some customers' accounts, and the company halted its recruitment of new customers. These measures results in Plus500's shares diving more than 50% within a few days. This steep drop attracted the attention of high-tech billionaire Teddy Sagi, who tried to exploit the fall in the share to take over the company. Sagi offered to buy Plus500 through Playtech Cyprus Ltd. (LSE:PTEC), a company under his control that provides software-based platforms for gambling websites, at a valuation of £460 million ($700 million, far below the company's current value). Sagi did buy 10% of Plus500's shares on the market in order to affect the price for the deal. The bid also won near universal support among Plus500's shareholders. Sagi's dream of a forex empire vanished in November, however, when the companies reported that they had not succeeded in obtaining regulatory approval from the Financial Conduct Authority for the deal, and they therefore agreed to call it off.
Published by Globes [online], Israel Business News - www.globes-online.com - on December 18, 2017
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