Spread better pulls back on controversial options product

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U.K. spread better and online trader IG Group announced on Monday that it will cease offering a suite of its binary options products to new clients with immediate effect.

The decision follows the intensification of regulator scrutiny of many electronic trading products in recent months, with the U.K.'s Financial Conduct Authority (FCA) confirming last December that it was considering extending its oversight to include, among other products, binary options which are currently only regulated by the Gambling Commission.

Following the FCA's late 2016 announcement, the shares of industry players fell precipitously with IG Group shedding £1.2 billion ($1.5 billion) of its market value.

The products at the center of Monday's announcement comprise IG Group's "Sprints" offering which had enabled customers to place highly leveraged bets on the direction of market moves over periods as short as one minute. The business had generated annual revenues of around £15 million for the company.

The decision was undoubtedly a reaction to regulators' critical comments about the product and comes hot on the heels of its decision to change operating methods in France following a crackdown by that country's regulator earlier this month, according to Justin Bates, equity analyst at Liberum.

"Regulation is having a major impact on the industry and I would expect to see further fundamental changes to the way in which the sector operates. We believe IG will become a lower margin, more long-term, investment focused business," he said, in comments emailed to CNBC.

It is quite hard to argue that something with such a short timeframe is really an investment product rather than gambling, posited Paul McGinnis, equity analyst at Shore Capital, also via email to CNBC.

"Also, the payout structures on most binaries offered by industry players are usually loaded against clients, typically with 100 percent loss if wrong versus around only an 80 percent gain if correct."

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