Capital Markets Day - IG Group · Introduction Vision and values Champion the client Understand them. Be part of their whole experience. Think big, think long-term. Make every moment

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


Breakout


JON NOBLE


MATT BRIEF

ProspectAcquisition

HEIDRUN LUYT






Part I Part II


Q&A

Q&A

2


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


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

4


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


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

6


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


CommercialRisk

Business Model Risk

12 3 OperationalRisk

ConductRisk

4 5

19 subject matter experts 46 subject matter experts

7


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


CommercialRisk

Business Model Risk


ConductRisk

4 5


8


Focus on Compliance

Well established governance structure

• A proper, appropriate process for opening accounts

• Independent 2nd line functions performing 2nd line tasks


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

9


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


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


CommercialRisk

Business Model Risk


ConductRisk

4 5


10


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


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

12


Our layers of risk

1.1 Regulatory change

1.2 Expansion risk

1.3 Tax


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


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


14


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%


Some scenarios we consider in our market and credit risk stress testing

15


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


16


• 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


17


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


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


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


Breakout


JON NOBLE


MATT BRIEF

ProspectAcquisition

HEIDRUN LUYT






Part I Part II


Q&A

Q&A

2


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


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


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%





FY18e

£254m

32%

13%

34%

21%

% of revenue

15%

6%

15%

9%

45%

1 – Assuming revenue of £565m

5



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



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



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


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





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


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





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


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




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



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


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


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


Breakout


JON NOBLE


MATT BRIEF

ProspectAcquisition

HEIDRUN LUYT






Part I Part II


Q&A

Q&A

2


Regulatory Landscape

1 A history lesson

Regulatory landscape

Technology influences

2

3

Conclusion

Q & A

4

5

3


A historylesson

4


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


Industry bad behaviour

6


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

7


UK/EU Regulatory Landscape

8


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

9



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

10


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

11


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

12


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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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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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

15


Technology Influences

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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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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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Conclusion

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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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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

Documents

Capital Markets Day - IG Group · Introduction Vision and values Champion the client Understand them. Be part of their whole experience. Think big, think long-term. Make every moment