“From June 28, NatWest Stockbrokers entered into an introductory broker agreement with CMC Markets UK for the provision of spread betting and contracts for difference (CFD)/foreign exchange trading. All customer transactions, dealing, administration and monitoring of account margin will be carried out by CMC Markets UK,” says an RBS spokesperson.
“The RBS service went live on July 10. The service was introduced following research with existing customers who are active traders, which confirmed that there was a demand for these products. The service responds to our customers’ needs and the requirements of today’s modern investors,” the spokesperson adds.
It is an open secret that RBS had been conducting trials of CMC’s platform internally for several months before the two platforms’ launch. However, there was speculation that the deal stalled after RBS took an undisclosed stake in TTT Moneycorp at the start of the year. Although TTT Moneycorp’s primary business is to provide cash foreign exchange services, it has branched out into the speculative sector with a white-label solution from one of CMC’s rivals.
That has not proved the case and RBS has gone ahead with CMC, which is recognized as one of the leaders in its sector. The company was established by Peter Cruddas in 1989 with £10,000 of his own money as a foreign exchange service provider for what was then the very much neglected retail sector. The company claims to have pioneered internet-based FX in 1996 and it has subsequently branched out to provide its now global client base with other products.
The company was scheduled to list on the London Stock Exchange in May 2006 but Cruddas pulled the initial public offering at the last moment. That sparked widespread gossip, much of which focused on the valuation that Cruddas, who still effectively owns 95% of the company, had put on CMC. In February 2007, Cruddas told Euromoney that there was nothing sinister behind the decision to postpone the flotation and added, in direct reference to RBS, that he was in no urgent hurry to float. “There is no rush, we are cash-rich, we are making good profits and we have no outside shareholders… we are sitting on some big potential business that is beginning to come through… I knew that CMC has tremendous growth opportunities and I can wait another year if it means getting double the valuation for the company.”
Spread betting and CFD trading have proved extremely popular in the UK. A white paper on spread betting by Chris Brady and Richard Ramyar of the Cass Business School published in May 2006 highlighted the products’ tax efficiency for UK market participants. “One of the main attractions of spread betting and contracts for difference are the various tax benefits compared to conventional investments. CFDs and spread bets do not grant ownership of the underlying asset or related voting rights and so are not subject to stamp duty,” the authors wrote. “Whilst financial spread betting has the tax benefits of gambling, the dominant industry players are not part of the traditional gambling industry. They are owned by financial firms whose businesses specialize in currencies, commodities and financial derivative products.”
RBS highlights what it sees as the benefits of CFDs and spread bets on its NatWest Index website. “We’re delighted to announce the launch of an exciting investment opportunity that potentially allows you to take advantage of movements in the markets – whether they are up or down. We’ve teamed up with CMC Markets to bring you NatWest Index – a service which offers the opportunity to trade in Spread Bets and Contracts for Difference (CFDs).”
If that were not compelling enough, the pitch adds: “If you open a NatWest Index Account (either a spread betting or a CFD account) between June 28 and November 30, and deposit a minimum of £2,000 and also place your first trade before 31 December 2007, you will automatically qualify for a Nicklaus Dual Point Driver.”
RBS’s move follows that of Deutsche Bank, whose dbFX platform is white-labelled from FXCM and ABN Amro, whose market index is provided by Oanda. Other big banks are known to be about to form their own partnerships to tap into what is seen as an increasingly important sector, especially in FX. Read more in the weeklyFiX on Friday.
