Capital Markets Day - IG Group · Introduction Vision and values Champion the client Understand...
Transcript of Capital Markets Day - IG Group · Introduction Vision and values Champion the client Understand...
Capital Markets Day
May 2018
Introduction: Vision & ValuesCapital Markets DayMay 2018
2CMD • May 2018
Introduction
Disclaimer
This presentation, prepared by IG Group Holdings plc (the “Company”), may contain forward-lookingstatements about the Company. Forward-looking statements involve known and unknown risks anduncertainties because they are beyond the Company’s control and are based on current beliefs andexpectations about future events, including the results of operations, financial condition, liquidity,prospects, growth, strategies and dividend policy of the Company and the industry in which itoperates.
No assurance can be given that such future results will be achieved; actual events or results maydiffer materially as a result of risks and uncertainties facing the Company.
If the assumptions on which the Company bases its forward-looking statements change, actualresults may differ from those expressed in such statements.
Forward-looking statements speak only as of the date they are made and the Company undertakesno obligation to update these forward-looking statements. Nothing in this presentation should beconstrued as a profit forecast.
Some numbers and period on period percentages in this presentation have been rounded oradjusted to ensure consistency with the financial statements.
This may lead to differences between subtotals and the sum of individual numbers as presented.
3CMD • May 2018
Introduction
Introduction
1 History, Vision and Values
Business Model
Plan for the day
2
3
4CMD • May 2018
Introduction
44 years of innovation
• IG has always targeted the sophisticated trader – they dominate our client base
• With a history of innovation, technological advancement and adaptation IG will continue to grow
• We are best positioned for regulatory change
Empower informed, decisive, adventurous people to access opportunities in financial markets
1974
1991
1998
2003
2007
2009
2013
2017
IG was founded offering a contract on the price of gold
First company in the sector to launch an online dealing platform
Launched browser based platform, the first with no plug-in requirement
First offered Bitcoin, now one of six cryptocurrency markets at IG
Phone and software system introduced to enable trades to be entered straight on to the computer system
Launched first mobile trading app with live price streaming
Close Out Monitor (COM) developed following the credit crunch
Rolled out IG Smart Portfolio
5CMD • May 2018
Introduction
Vision and values
Champion the client
Understand them. Be part of their whole experience. Think big, think long-term. Make every moment count and stick with them all the day. Do what matters most.
Lead the way
Be brave. Back yourself. Innovate and adapt to win. Challenge assumptions, ideas, decisions. Ask why. Stand up and speak your mind. Achieve. Do the right thing.
Love what we do
Make it personal. Care, be passionate, have fun. Respect our diversity and learn from each other. Share your enthusiasm. Take pride in each other’s achievements. Work as a team.
Our purpose is to empower informed, decisive, adventurous people to access opportunities in financial markets. We do this by underpinning our core values.
6CMD • May 2018
Introduction
Our peopleWe have a strong team driving current and future strategic decisions
Board
Andy GreenChairman(Previously CEO Logica)
Jim NewmanDirector(Previously CFO of Resolution)
June FelixDirector(CEO Verifone, Europe)
Malcolm Le MaySenior Director(CEO Provident Financial)
Sam TymmsDirector(Previously at LSE and FSA)
Stephen Hill OBEDirector(Previously CEO Betfair)
Peter HetheringtonChief Executive Officer(24 years at IG)
Bridget MesserChief Commercial Officer(13 years at IG)
Paul MainwaringChief Financial Officer(2 years at IG)
Jon NobleChief Information Officer(18 years at IG)
John AustinChief Analytics Officer(18 years at IG)
Joe McCaughranChief Risk Officer(8 years at IG)
Michelle EardleyChief People Officer(8 years at IG)
Rob BowenCommercial Director(8 years at IG)
Matt BriefDealing Director(17 years at IG)
Executive CommitteeNon-Executive Executive
7CMD • May 2018
Introduction
Our clients are informed, decisive, adventurous people with a strong affinity for the IG brand
The connection between IG and our customers runs deeper than a recognition of the quality of our platforms and execution.
When asked how IG makes them feel, the words and phrases that resonated most with our clients included safe, in control, informed, connected, proficient, reassured, looked after and ahead of the curve.
The IG brand through the eyes of our customers
“A broker is usually something abstract, with the internet, it is someone you don’t see. But with IG you can meet them, you can see them. It is real.”
“I know there were some brokers who had difficulty taking orders ... and we didn’t have that. Because in those times of stress, it was just as comfortable for us as when it is very calm.”
“...I can trade in confidence, I trust the platform, I know that if I lose money it’s only my mistake.”
“...with IG they have this way of making it simple, but then if you want to go in depth there is also in depth as well.”
8CMD • May 2018
Introduction
Business model
9CMD • May 2018
Introduction
Business model
• Revenue is driven by clients and their level of activity – not direction of market movements
• We internalise what we can and hedge the balance
• Our interests are completely aligned with our clients – we want clients to succeed
• The greater the internalisation, the less we hedge
• In the long run, our internalisation benefit will get better
REVENUE PERFORMANCE (£m)
£0m
£50m
£100m
£150m
£200m
£250m
Client commission, spread and financing
Revenue if fully hedged
Quarterly revenue
Internalisation benefit
FY13Q1 Q3
FY14Q1 Q3
FY15Q1 Q3
FY16Q1 Q3
FY17Q1 Q3
FY18Q1
10CMD • May 2018
Introduction
Who are our clients
• 50% revenue is generated by ≈ 2% of clients
• 80% revenue is generated by ≈ 10% of clients
• These clients are all informed, decisive, adventurous, prosperous individuals, who understand our products
• Half our revenue comes from clients who trade with IG longer than 3 years
• We have focused on building deeper, longer, better relationships with our clients
• Leveraged clients average revenue per month moving up over time
< 2%
50%
30%
Revenue
20%
REVENUE SPLIT FROM TRADING CLIENTS
£400
£450
£500
£550
£600
£650
£700
OTC Leveraged Revenue Per Client
2013 2014 2015 2016 2017 2018
8%
90%
Clients
11CMD • May 2018
Introduction
Why we differ
Brand44 years experience of being a global leader
TechnologyContinuously innovating and improving how clients can trade financial markets
Client FocusAccess to products and educational materials that fit their objectives
ServiceGraduated by value
Risk ManagementThoroughly tested and highly resilient in a wide range of real-life scenarios
Balance SheetStrong cash position with over £600m own funds
12CMD • May 2018
Introduction
Plan for day
13CMD • May 2018
Introduction
Plan for dayToday, we have over 100 years worth of IG experience between us
OurClient Service
ROB BOWENIAN PEACOCK
Breakout
Introduction: Vision and ValuesPETER HETHERINGTON
Risk ManagementJOE McCAUGHRAN
Cost AnalysisPAUL MAINWARING
Growth OpportunitiesBRIDGET MESSER
ConclusionPETER HETHERINGTON
Part I Part II
Our Platform& Technology
JON NOBLE
Dealing andInternalisation
MATT BRIEF
ProspectAcquisition
HEIDRUN LUYT
Regulatory LandscapePETER HETHERINGTON
Q&A
Q&A
Risk ManagementCapital Markets DayMay 2018
CMD • May 2018Risk Management
Part 1Risk Management
Our Client Service
ROB BOWENIAN PEACOCK
Breakout
Our Platform& Technology
JON NOBLE
Dealing andInternalisation
MATT BRIEF
ProspectAcquisition
HEIDRUN LUYT
Introduction: Vision and ValuesPETER HETHERINGTON
Risk ManagementJOE McCAUGHRAN
Cost AnalysisPAUL MAINWARING
Growth OpportunitiesBRIDGET MESSER
ConclusionPETER HETHERINGTON
Part I Part II
Regulatory LandscapePETER HETHERINGTON
Q&A
Q&A
2
CMD • May 2018Risk Management
Introduction
1 Importance of Risk Management
Who we are, our structure, depth of resource and what sets us apart
How we consider the levels of risk we’re willing to expose ourselves to
2
3
Our modelling and stress testing4
How we oversee management of Risk5
3
CMD • May 2018Risk Management
To answer some un-asked questions….17th May 2018
Market Move Market Risk Credit Risk
All Crypto -40% -£358,884 -£61,144
Market Move Market Risk Credit Risk
CHF 30% -£178,420 -£2,587,208
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CMD • May 2018Risk Management
Importance of Risk ManagementOur risk taxonomy lays the foundations and is all encompassing
RegulatoryEnvironment
CommercialRisk
Business Model Risk
OperationalRisk
ConductRisk
1
2
3
4
5
Market Risk Credit Risk
Liquidity Risk
Capital Adequacy
Competitor Risk
People Risk
Conduct Risk
Process Risk
Reputational Risk
Concentration Risk
Basis RiskExternal Risk
Financial Crime
Regulatory ComplianceRegulatory Change
Fraud
Strategic Risk
Terrorism
Outages
Errors
Cyber Risk
Strategic Management Risk
Market Conditions
Money Laundering
Terrorist Financing
Information Security
Operational Risk
Technology Risk
Crypto
5
CMD • May 2018Risk Management
2nd Line
1st Line
3rd Line
Three lines of defence
Risk Management
Oversight of Risk Management
Top Level Governance inc. Board
e.g. Dealing and Account Opening
Risk and Compliance
Internal Audit | Board Risk Committee | Board Audit Committee
Who we are | Our structure | Depth of resource | What sets us apart
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CMD • May 2018Risk Management
Oversight of Risk ManagementWho we are | Our structure | Depth of resource | What sets us apart
ChiefCompliance
Officer
Head of Market Risk
Head of Credit Risk
Head of Regulatory
Capital
Head of Operational
Risk
Head of Governance
JoeMcCaughran
Chief Risk Officer
RegulatoryEnvironment
CommercialRisk
Business Model Risk
12 3 OperationalRisk
ConductRisk
4 5
19 subject matter experts 46 subject matter experts
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CMD • May 2018Risk Management
Focus on ComplianceWho we are | Our structure | Depth of resource | What sets us apart
TrulyGlobal
Compliance oversight
France
Australia
Germany
Italy
Spain
United Kingdom
Singapore
USA
Switzerland
South Africa
Japan
New Zealand
Dubai
Sweden
ChiefCompliance
Officer
Head of Market Risk
Head of Credit Risk
Head of Regulatory
Capital
Head of Operational
Risk
Head of Governance
JoeMcCaughran
Chief Risk Officer
RegulatoryEnvironment
CommercialRisk
Business Model Risk
12 3 OperationalRisk
ConductRisk
4 5
19 subject matter experts 46 subject matter experts
8
CMD • May 2018Risk Management
Focus on Compliance
Well established governance structure
• A proper, appropriate process for opening accounts
• Independent 2nd line functions performing 2nd line tasks
Who we are | Our structure | Depth of resource | What sets us apart
Low Risk Appetite
• We will not take undue Regulatory and Conduct Risk for short term benefit
– we support a sustainable business
– a thorough Professional opt up process
– our Regulatory and Conduct standards are high; our risk appetite, low
Our global presence, our approach and relationships with regulators, our global expertise and boots on the ground, which makes us different
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CMD • May 2018Risk Management
Focus on Risk
Our expertise and know how
• Significant experience within the risk team and Executive Committee
• Our CEO has been at IG longer than other firms in the industry have existed
• We learn from mistakes and we plan for the unexpected
Who we are | Our structure | Depth of resource | What sets us apart
ChiefCompliance
Officer
Head of Market Risk
Head of Credit Risk
Head of Regulatory
Capital
Head of Operational
Risk
Head of Governance
JoeMcCaughran
Chief Risk Officer
RegulatoryEnvironment
CommercialRisk
Business Model Risk
12 3 OperationalRisk
ConductRisk
4 5
19 subject matter experts 46 subject matter experts
10
CMD • May 2018Risk Management
We learn from our mistakesWho we are | Our structure | Depth of resource | What sets us apart
2002: Faced too much Market Risk
• Original CEO increased our exposure by hedging less
– changed our approach to, and understanding of, market risk
– better modelling
– market risk proportionate to firm size
– stronger Governance
2008: Clients had too much time to pay
• Whole market suffered in financial crisis
• Clients given extended periods to pay margin whilst still running risk
• Resulted in credit risk losses and significant losses to, and of, our clients
– creation of our automated Close Out Monitor (COM)
– necessary for good risk management
– clients love it, and continue to love it
Lead the way11
CMD • May 2018Risk Management
We learn from our mistakesWho we are | Our structure | Depth of resource | What sets us apart
2015: Mind the Gap
• The Swiss Franc de-peg
• Resulted in IG setting higher margin on pegged currencies
• Improved exposure monitoring around concentration of stop orders
• Improved way we execute client orders –putting the clients first
Champion the client
EURO TO SWISS FRANC
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CMD • May 2018Risk Management
Our layers of risk
1.1 Regulatory change
1.2 Expansion risk
1.3 Tax
RegulatoryEnvironment
CommercialRisk
Business Model Risk
OperationalRisk
ConductRisk
2.1 Strategic management risk
2.2 Market conditions risk
2.3 Competitor risk
3.1 Market risk
3.2 Credit risk
3.3 Liquidity
3.4 Capital adequacy
4.1 Technology risk
4.2 People risk
4.3 Process risk
4.4 External risk
5.1 Our clients
5.2 The market and financial crime
5.3 Our people
1 2 3 4 5LEVEL 1
LEVEL 2
5.2.1 Market abuse
5.2.2 External fraud (via Client accounts)
5.2.3 Money laundering and Terrorist funding
5.2.4 Bribery and corruption
Risk Consideration | Exposure of risk | What sets us apart | What if
LEVEL 3 3.2.1 Client counterparty credit risk
3.2.2 Financial institution counterparty credit risk
3.2.3 Concentration risk
4.1.1 Technology resilience
4.1.2 Technology performance
4.1.3 Information security
4.1.4 Technology adoption and innovation
4.1.5 Technology change management
4.1.6 Systems maintenance13
CMD • May 2018Risk Management
What risks exist
• Risk Appetite Statement (RAS) come right from the top
• Board approved – defines level of risk IG is willing to be exposed against
• The balance to allow for a highly profitable business whilst avoiding unacceptable loss
• Modelling and stress testing performed in real time, hourly and daily
• Our proprietary technology allows this to happen
500mstime taken to
recalculate our market risk exposure
50KRIs tracked across
the business to monitor compliance
with appetite
Risk Consideration | Exposure of risk | What sets us apart | What if
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CMD • May 2018Risk Management
What risks exist
We stress at inflated levels
We stress using drastic market moves
True gaps, not just movements throughout the day
Product Type Stress Testing
Indices and Equities Macro 6.5%
Individual Equities 10-100%
FX 4%
FX Pegged/Minor 30%
Crypto 40%
Rates 2%
Energies 10%
Gold/Silver 5%
Other Commodities 8%
Risk Consideration | Exposure of risk | What sets us apart | What if
Some scenarios we consider in our market and credit risk stress testing
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CMD • May 2018Risk Management
What risks exist
Quantify our risk within a certain level of confidence and bridge the gap between daily monitoring and the extreme case of the scenario based stress tests
Based on historical data, not a guarantee that the same result will occur in future
Value at Risk and expected shortfall monitoring
Risk Consideration | Exposure of risk | What sets us apart | What if
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CMD • May 2018Risk Management
• Our Risk Appetite Statements quantifies risk limits, allowing for a profitable business whilst avoiding unacceptable loss
• We consciously accept our levels of exposure
• We act when near or outside our Risk Appetite
• We can, and do, act if the “what if” is outside of what we’re willing to accept
What risks exist
Should we find ourselves approaching or close to a position outside our Risk Appetite, we know about it, can report on it, and act on it
Risk Consideration | Exposure of risk | What sets us apart | What if
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CMD • May 2018Risk Management
Appetite, Management and Oversight
• Holding cryptocurrencies poses unique risks
• As such, we imposed a physical limit
• When close to our appetite, we manage accordingly
• This includes turning off the ability to open new, long positions, existing open positions are unaffected
• Real time oversight through via our technology
What risks existRisk Consideration | Exposure of risk | What sets us apart | What if
18CMD • May 2018
Risk Management
CMD • May 2018Risk Management
How we oversee management of Risk
Board
RemunerationCommittee
NominationCommittee
Board RiskCommittee
Governance layer
ExecutiveCommittee
Client Money &Assets Committee
Control FunctionsOversight Committee
TechnologyRisk Committee
Info SecurityCommittee
ManagementTeam
ICAAP / ILAACommittee
Best ExecutionCommittee
Management layer
Senior LeadershipTeam
PricingCommittee
Executive RiskCommittee
AuditCommittee
19
CMD • May 2018Risk Management
Conclusion
• When you think risk – think big
• Not just market and credit, but regulatory, conduct, technological etc . . .
• We have the right people, with the most experience and the best technology
• We have a low risk appetite – we do things properly
• We know our risk positions at all times, accept them and take action to manage them
• We have the governance structure to make this work
• Risk has many layers
20
Cost AnalysisCapital Markets DayMay 2018
CMD • May 2018Cost Analysis
Part 1Cost Analysis
Our Client Service
ROB BOWENIAN PEACOCK
Breakout
Our Platform& Technology
JON NOBLE
Dealing andInternalisation
MATT BRIEF
ProspectAcquisition
HEIDRUN LUYT
Introduction: Vision and ValuesPETER HETHERINGTON
Risk ManagementJOE McCAUGHRAN
Cost AnalysisPAUL MAINWARING
Growth OpportunitiesBRIDGET MESSER
ConclusionPETER HETHERINGTON
Part I Part II
Regulatory LandscapePETER HETHERINGTON
Q&A
Q&A
2
CMD • May 2018Cost Analysis
Summary Income Statement
Net trading revenue
Net interest on client money
Betting duty and FTT
Other operating income
Net operating income
Operating expenses
Variable remuneration
Total operating costs
Operating profit
Operating profit margin
491.1
4.0
(7.5)
1.9
489.5
(252.5)
(23.6)
(276.1)
213.4
43.5%
456.3
3.4
(11.2)
0.6
449.1
(211.3)
(30.1)
(241.4)
207.6
45.6%
FY17 FY16£m
388.4
4.5
(6.3)
0.6
387.2
(197.3)
(20.3)
(217.6)
169.5
43.7%
FY15
370.4
5.5
(3.8)
2.2
374.2
(154.5)
(24.3)
(178.8)
195.4
52.8%
FY14
120.7
(98.0)
Change
10%
18%
CAGR
FY18 expected FY19 guidance
Operating expenses £254m Higher
Variable remuneration £36m Lower
Total operating costs £290m ≈
3
CMD • May 2018Cost Analysis
Operating expenses - by activity
Prospect AcquisitionCost of acquiring new clients, which includes external marketing spend, internal marketing headcount and Daily FX
Sales and Client ServiceCost of servicing and retaining our client base, which includes all sales and client service headcount and retention marketing spend
Technology and InnovationCost of providing and developing the platform and product, which includes all office infrastructure costs, all IT and dealing costs and headcount, including product and platform development
Business AdministrationCost associated with governance, support and control, including corporate activities
To give more clarity on our costs, and the drivers of cost, we have split the cost base into the following activities:
4
CMD • May 2018Cost Analysis
Operating expenses - by activity
Prospect Acquisition
Sales and Client Service
Technology and Innovation
Business Administration
Operating expenses
86
30
91
46
253
18%
6%
19%
9%
52%
£m % of revenue1
FY17
42
17
63
32
154
11%
5%
17%
9%
42%
£m % of revenue
FY14
82
33
87
52
254
£m
FY18e
FY14
£154m
21%
41%
11%
27%
Prospect Acquisition
Sales and Client Service
Technology and Innovation
Business Administration
FY18e
£254m
32%
13%
34%
21%
% of revenue
15%
6%
15%
9%
45%
1 – Assuming revenue of £565m
5
CMD • May 2018Cost Analysis
Prospect Acquisition
We apply science and data analytics to target
and to optimise our investment in prospect
acquisition. The leads we generate result in high
quality new clients, who we expect to trade with IG
for a number of years.
John Austin, Chief Analytics Officer
Headcount at year end
Fixed remuneration
Advertising and marketing
Irrecoverable sales taxes
Amortisation (Daily FX)
Total
191
11
63
10
2
86
126
5
32
5
-
42
£m
March FY18
Headcount
10%
22%
46%
22%
SEO
Daily FX
Global Brand
Acquisition
FY17 FY14
200*
10
59
9
4
82
FY18e
* March FY18 headcount
The numbers presented have been rounded, this may lead to differences between subtotals and the sum of individual numbers6
CMD • May 2018Cost Analysis
Prospect Acquisition
Efficiency metric
All accounts1
OTC leveraged equivalent accounts2
Effectiveness metric
OTC leveraged equivalent accounts3
Cost per first trade £ FY17 FY16
1,000
1,400
1,700
FY18e
Cost per first trade definitions
1) Total external marketing spend including irrecoverable VAT divided by first trades in the period (excludes Nadex)
2) Total external marketing spend including irrecoverable VAT divided by first trades in the period, down-weighting non-leveraged first trades to 0.2 in the denominator to reflect the lower value of these clients (excludes Nadex)
3) Total prospect acquisition cost divided by first trades in the period, down-weighting non-leveraged first trades to 0.2 in the denominator to reflect the lower value of these clients (excludes Nadex)
1,200
1,300
1,600
1,200
1,400
1,650
Cost per first trade efficiency and effectiveness metrics
7
CMD • May 2018Cost Analysis
Sales and Client Service
I am proud that one of our values is to
champion the client. High quality client service is
part of the DNA of IG and we aim to instill that
value in to all our staff.
Bridget Messer, Chief Commercial Officer
Headcount at year end
Fixed remuneration
Advertising and marketing
Payment charges
Total
441
24
1
4
30
316
16
-
1
17
£m FY17 FY14FY18e
474*
24
1
7
33
March FY18
Headcount
64%
29%
7%
Client relationship management
Sales and conversion
Client strategy, communicationsand research
* March FY18 headcount
The numbers presented have been rounded, this may lead to differences between subtotals and the sum of individual numbers8
CMD • May 2018Cost Analysis
Technology and Innovation
The quality and sophistication of our
proprietary platform, and our market leading
product coverage, are key competitive advantages.
Our resilient technology and speed of execution is
critical to our internalisation and hedging model.
Jon Noble, Chief Information Officer
Headcount at year end
Fixed remuneration
IT maintenance and communications
Premises
Market data
Depreciation and Amortisation
Total
FY17 FY14£m
March FY18
Headcount
7%
47%
16%
30%
Dealing
IT development
Quality assurance and user experience
IT operations
684
40
14
13
10
14
91
562
30
8
10
6
9
63
FY18e
741*
40
13
13
9
12
87
* March FY18 headcount
The numbers presented have been rounded, this may lead to differences between subtotals and the sum of individual numbers9
CMD • May 2018Cost Analysis
Business Administration
IG Group recognises the value that good governance,
and good risk and control functions bring to the business.
We aim to provide a strong foundation for the business to
develop and grow, and to give confidence to all our
stakeholders that we have effective controls over our risks.
Joe McCaughran, Chief Risk Officer
Headcount at year end
Fixed remuneration
Regulatory fees
Legal and professional fees
Staff expenses, travel and training
Irrecoverable sales taxes
Other, including bad debt provision
Total
£m
March FY18
Headcount
24%
10%
52%
14%
Risk and compliance
Other corporate
Finance
Human resources
230
21
2
8
6
4
4
46
149
13
5
4
5
3
2
32
FY17 FY14FY18e
255*
20
6
8
8
4
5
52
* March FY18 headcount
The numbers presented have been rounded, this may lead to differences between subtotals and the sum of individual numbers10
CMD • May 2018Cost Analysis
Variable remuneration
Share based compensation
Sales bonuses
General bonuses
Total variable remuneration
8
4
13
24
8
3
19
30
FY17 FY16£m
7
3
14
24
7
3
14
24
FY15 FY14FY18e
9
5
22
36
The numbers presented have been rounded, this may lead to differences between subtotals and the sum of individual numbers11
CMD • May 2018Cost Analysis
16%
3%2%
4%
Headcount and location strategy
91
143
436
130
800
775
33
53
125
62
273
0
London Krakow
0
31
161
9
201
76
39
116
3
38
196
182
Bangalore Melbourne
May FY14
1,153employees
48%
16%
12%
5%
5%
7%
67%London
Krakow
Bangalore
Melbourne
Johannesburg
USA
Sales offices
March FY18
1,670employees
Client recruitment
Sales and client service
Technology and Innovation
Business administration
Headcount by location: March FY18
Total May FY14
12%
3%
Johannesburg USA Sales offices
10
56
13
14
93
58
3
39
0
1
43
23
24
36
3
1
64
39
Operational Hubs:
Other:
Operational Hubs
12
CMD • May 2018Cost Analysis
Conclusion
• We manage our costs to strike a balance between short term and long term value
– a significant proportion of our costs drive benefits over many years
• We manage our costs to ensure the spend is effective in:
– driving future growth
– providing an excellent client experience
– maintaining and extending our competitive advantage
– ensuring our business is sustainable
• Over the medium term we expect our costs to increase at a slower rate than revenue
13
Capital Markets DayMay 2018
Regulatory Landscape
CMD • May 2018Regulatory Landscape
Part 1Regulatory Landscape
Our Client Service
ROB BOWENIAN PEACOCK
Breakout
Our Platform& Technology
JON NOBLE
Dealing andInternalisation
MATT BRIEF
ProspectAcquisition
HEIDRUN LUYT
Introduction: Vision and ValuesPETER HETHERINGTON
Risk ManagementJOE McCAUGHRAN
Cost AnalysisPAUL MAINWARING
Growth OpportunitiesBRIDGET MESSER
ConclusionPETER HETHERINGTON
Part I Part II
Regulatory LandscapePETER HETHERINGTON
Q&A
Q&A
2
CMD • May 2018Regulatory Landscape
Regulatory Landscape
1 A history lesson
Regulatory landscape
Technology influences
2
3
Conclusion
Q & A
4
5
3
CMD • May 2018Regulatory Landscape
A historylesson
4
CMD • May 2018Regulatory Landscape
History
Times have changed
• This used to be an industry servicing few, rich, sophisticated clients
• In 2000, automated dealing changed the industry – making it economic to market to lower value clients
• Explosion of firms offering the product, many outsourcing functions to focus on marketing only
• Unfortunately, not many firms did this responsibility, hence where we are today with the regulators
Polarised market
• CFD and Spread Betting products are complex, high risk and involve a lot of leverage – not suitable for everyone
• The FX, CFD and Spread Betting industry is polarised between:
– compliant, well run firms catered towards sophisticated traders
– low end firms, aggressively targeting leisure audiences
5
CMD • May 2018Regulatory Landscape
Industry bad behaviour
6
CMD • May 2018Regulatory Landscape
Sustainable business model
Will this last?
• Traditional CFD Brokers report sustainable revenues < 50% vs total client money held
• New CFD Brokers are posting revenues >250%
Churn vs long term
• For marketing as percentage of total costs, average in traditional CFD industry <25%, focusing on long term client value
• Timeshare industry around 50%
• New CFD brokers spend more than 85% on marketing – focus on churning
MARKETING AS % OF TOTAL COSTS
TraditionalCFD Brokers
TimeshareIndustry
New CFDBrokers
REVENUE AS % OF CLIENT MONEY HELD
Client Money
Revenue
<50%
Revenue
>250%
Client Money
Traditional CFD Brokers New CFD Brokers
Marketing Non-marketing
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CMD • May 2018Regulatory Landscape
UK/EU Regulatory Landscape
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CMD • May 2018Regulatory Landscape
Product intervention measures
• Leverage limits on the opening of a position by a Retail client, varying by asset class
• Margin close out rule for Retail clients on a per account basis, set at 50%
• Negative balance protection for Retail clients on a per account basis
• Restrictions on the incentives offered to Retail clients to trade CFDs
• An enforced standardised risk warning for Retail clients
• Prohibiting offering Binary Options to Retail clients
What is changing for Retail clients?
And to be clear...
• There are no changes for Professional clients
• This emergency intervention is re-evaluated every three months if problems remain
LEVERAGE LIMITS BY ASSET CLASS
30:1 for major currency pairs
20:1 for non-major currency pairs, gold and major indices
10:1for commodities other than gold and non-major equity indices
5:1 for individual equities and other reference values
2:1 for cryptocurrencies
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CMD • May 2018Regulatory Landscape
CMD • May 2018Regulatory Landscape
Response to ESMA’s announcement
IG is supportive of the objectives of regulators to improve client outcomes in the industry, and the Company supports ESMA in its efforts to enhance consumer protection and achieve harmonisation of regulation across the EU
RNS 27/3/18
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CMD • May 2018Regulatory Landscape
Professional clients
• FY17 ≈ 100,000 active UK+EU leveraged clients
• Nov17-May18 ≈ 15,000 applications, 3,500 accepted
• YTD May18 ≈ 3,800 professional clients
• Currently, Professional clients contribute > 35% of UK+EU Revenue – basis those who have dealt in last 3 months
• As it stands, to reach 50% we need a little over 200 of our biggest Retail clients to opt to become Professional
• We expect this to occur when the rules come into force
35%
PROFESSIONAL CLIENTS AS PERCENTAGE OF UK+EU REVENUE
Nov 17 Now When rulecomes in
70%
10%
0%
50%
APPLIED VS ACCEPTEDPROFESSIONAL CLIENTS
0
4,000
8,000
12,000
16,000
Nov2017
Dec Jan2018
Feb Mar Apr May Today
APPLIED
ACCEPTED
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CMD • May 2018Regulatory Landscape
Professional clients
We follow a rigorous process to ensure our clients are categorised appropriately
In line with the FCA handbook, for clients to become Elective Professionals, they must pass:
1. a qualitative test and
2. at least two of the three tests below:
Trading Experience>40 significant sized leveraged trades in past year1Investment PortfolioHold > €500k in a financial instrument portfolio2Professional ExperienceMin. 1 year in a relevant role in the Financial sector3Our interpretation includes derivative traders, analysts, or wealth managersBut does not include bank branch employees, IT developers or business school professionals
Note: Supporting evidence is requested when applications are not supported by information we already have recorded about the client
77%Rejected
23%Accepted
APPLICATION STATUS AS OF MAY 2018
≈ 15%revenue
>35%revenue
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CMD • May 2018Regulatory Landscape
How did we calculate the impact?
Our assumptions did not take into account whether clients will:a) Trade different productsb) Deposit funds in excess of existing cash, to mitigate the margin shortfallc) Trade in other jurisdictions
YTD Feb18
£421m
UK/EU
£278m
Clients Outside UK/EU
£14m
Retail
£132mProfessional
£132m
Non-UK/EU
£140mNon-leverage
£3m
Professional %: 50% 45% 55%
Unaffected revenue: £157m £157m £157m
EMEA leveragedProfessional: £132m £119m £145mRetail (↓34%): £87m £96m £78m
ReforecastYTD FEB18: £376m £371m £381m
% Change ↓10.66% ↓11.73% ↓9.59%
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CMD • May 2018Regulatory Landscape
UK/EU Retail Client Reaction
1. They could fund more, trade less, or continue as is with less headroom
– Retail clients have more headroom than Professionals
– On average, clients deposit/withdraw ≈ £10m/day
– Busy days this ↑ to ≈ £40m
What could Retail clients do in response to ESMA’s announcement?
EQUITY VS MARGIN UTILISATION FEB18
2. Contract with entity outside of Europe
– Clients can, and do, choose which IG entity they want to contract with
– Expectation for leverage seeking clients who remain Retail to contract with an IG entity outside of EU
– We’re providing factual information for clients to help them make this determination:
www.ig.com/uk/compare-our-offering
3. Change product mix within CFD category
– Within CFD category expect the product mix clients use to change basis these margin rules
4. Change product mix within leverage products
– e.g. Swaps, Futures, Options
– Expect clients to switch to non-affected products: Futures and Turbos etc.
– The margin advantage that CFDs had is reversed0.00
0.50
1.00
1.50
2.00
2.50
3.00
-
£100m
£200m
£300m
£400m
£500m
UK/EU PRO UK/EU RETAIL
EQUITY MARGIN
RATIO
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CMD • May 2018Regulatory Landscape
UK/EU Retail Client Reaction
• Absent any client action you are looking at 10% hit to IG’s revenue
• We did not take into account change in retail client behaviour in our calculation of the impact of the ESMA rules.
• First three options will mitigate impact to IG
• Fourth option may impact negatively until our MTF is established
• We see lower attrition where leverage restrictions are in place
Summary
0%
20%
40%
60%
80%
100%
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
ATTRITION PROFILE FOR NEW CLIENTS FY17
UK/EU
SINGAPORE
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CMD • May 2018Regulatory Landscape
Technology Influences
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CMD • May 2018Regulatory Landscape
Technology Influences
What are they doing?
• A strong stance against unlicensed operators
• Ensuring apps or ads are served in places where firms are explicitly licenced
• Banning or restricting binaries and or cryptocurrencies regardless of whether firms are licenced or not
• Payment providers are also taking action imminently
Restrictions placed by Apple, Facebook, Google, Twitter, Bing, Baidu
Mar 2018Jun 2017 Jan 2018 Mar 2018Announced May 2018 TBD
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CMD • May 2018Regulatory Landscape
Technology Influences
What do we think of this:
• Footprint with licenced offices, where our business model is standing the test of time
• Monopolies taking regulations into their own hands is dangerous
• For those who operate on the fringes expected to be more impactful than anything regulators are doing
• On balance this is good
These actions will not have any significant impact to the business
What are we doing about this:
• A progressive web app (PWA), rolling our new platform across all devices
• Expanding and enhancing our SEO capabilities
• Changing product set to comply with these technological influences
• We are in a better position than the broader industry because of our local footprint
• We do not expect the actions being taken, if applied appropriately will have any significant impact on the business
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CMD • May 2018Regulatory Landscape
Conclusion
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CMD • May 2018Regulatory Landscape
As you were
• This is an interesting but positive period in our industry
• Firms who seek the right sort of client in an appropriate way are not the target
• Our bricks and mortar strategy allows our business to grow and remain scalable
• Clients have a lot of options
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CMD • May 2018Regulatory Landscape
Questions?
For further information, please contact:
IG Group
Liz Scorer
020 7573 0727
FTI Consulting
Neil Doyle / Ed Berry
020 3727 1141 / 1046
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Capital Markets Day
May 2018