Crazy times make for good times at financial bookie IG

The Supreme Court ruling that Parliament is indeed sovereign when it comes to the EU, and has to be consulted before the UK pulls out, smashed the pound, and made anyone who had bet against the UK's currency via their spread betting accounts very happy.

Political instability creates economic uncertainty creates volatility that spread betting acolytes love. Brexit, Donald Trump, and more besides, have left the world facing a frightening degree of political instability. So it really ought to be Christmas time for companies like IG.

Spread betting companies typically thrive in the midst of uncertain times, and IG has duly reported record first half revenues, record earnings, and an astonishing 59 per cent rise in clients.

Trouble is, while volatility holds out the potential for big winnings for punters, it can also lead to their facing very big losses. That has led to a regulatory crackdown that continues to hang like a dark cloud over the shares of companies like IG.

Watchdogs are justifiably worried about those losses, and their impact on clients who lack the sort of knowledge that people ought to have before speculating on financial markets. People such as the supply teachers and concert pianists who got badly burned when the Swiss central bank de-coupled the Swiss franc from the euro in 2015, leaving the industry with a nasty headache.

Some of the people who lost big were IG clients, and some of them were not the sort of people who should have been speculating on currency movements via a product that can leave its users exposed to losses many times greater than their deposits.

IG’s decision to write off a big chunk of those losses was both sensible and pragmatic. Its actions since the Financial Conduct Authority moved to place restrictions on what inexperienced, and even some more experienced, punters can get up to, have also been sensible and pragmatic.

These have included the introduction of “limited risk” accounts, that limit punters’ losses to no more than their deposits.

The “Sprints” binary spread betting product, which allows punters to speculate on the direction of market movements, will no longer be offered to new clients. Given that it is like putting a 17-year-old fresh from passing their driving test behind the wheel of a Porsche 911 turbo, that’s no bad thing.

What all this tells you is that, while IG’s hands are by no means clean, it wants to be seen as being at the responsible end of the industry and a part of the solution when it comes to its future.

It is also adding more conventional financial services products to its range, such as a stockbroking service in Australia and France and a discretionary managed investment service in the UK.

IG will still offer spreading betting and contracts for difference under the new, tighter, rules that regulators demand. It should still, also, continue to turn a healthy profit from those activities.

However, far from being referred to as a financial bookie, the IG of the future is going to look very much like a more conventional, and respectable, financial services business. One that gives every impression of being well run. That’s one reason why the shares have started to recover some lost ground and will probably continue to recover over the months ahead.

If you’d placed a spread bet on IG’s shares falling before the Financial Conduct Authority announced its crackdown, you’d have made a huge amount of money. IG’s shares lost nearly half of their value. You could do worse than re-investing some of that into their moving back up, even if IG's ride is likely to be a bumpy one.