So-called penny stocks have recently attracted the attention of not only retail traders but also regulators. The unhealthy hype created by hobbyist investors around these securities on social media has put many brokers in a tough spot.
In this course, IG Group has imposed limits on margin trading in small-cap stocks. The sanctions hit 900 securities, including the shares of the insurance company Hiscox, the operator of shopping centres Hammerson and the clothing brand Superdry. In general, the restriction will affect less than 8% of all instruments available for margin trading on the IG Group platform.
“Our interests are aligned with that of our clients, we operate a hedged business model, externally hedging risk where appropriate. We want our clients to trade well and successfully. Where a client experiences problems we will support them through this” said the IG Group spokesperson.
“IG does not close out positions in the way described” continued the IG Group spokesperson. “In keeping with ESMA and FCA rules, positions for retail clients are automatically closed out when the equity on the account falls to 50% of the required margin. This would also apply to pro clients unless they have made an express alternative arrangement with IG. It is difficult to comment further without knowing the individual circumstances and arrangements in place for this client.”
It should be noted that the broker’s clients still have the opportunity to trade the shares of these companies, but without using leverage. This means they have to pay the entire purchase price themselves.
As a regulated broker, IG is required to comply with a host of requirements, including the requirements for maintaining net capital and clearing deposits. Some of them change depending on the degree of market volatility.