While most online trading platforms were initially nervous about offering speculators exposure to the volatile cryptocurrency market, Plus500 had no such qualms. The Aim-listed company was among the first to offer derivatives based on bitcoin several years ago, and today offers numerous ways to invest in cryptos.
This early bet on the embryonic marketplace has paid off. As the hype around cryptocurrency gathered last year, new customers flocked to the Plus500 platform, boosting its financial performance even amid warnings from regulators that the company “specialises in toxic products”.
Nevertheless, over the past 18 months, Plus500’s shares have rocketed more than 300 per cent. Now worth nearly £2bn, the company is riding the crypto wave to London’s main market in spite of misgivings about the market from financial watchdogs. It will upgrade its listing on Tuesday as part of efforts to attract new investors, joining the ranks of long-established rivals IG Group and CMC Markets.
It is a bold move for a company that has been dogged by regulatory and reputational challenges since it was founded in Israel a decade ago. Critics argue that Plus500, a sponsor of football club Atlético de Madrid, is overly reliant on luring inexperienced traders to its platform and point to a string of regulatory hiccups. As recently as last year, the company agreed a settlement with Belgium’s financial regulator.
Its move to the main market also comes at a tough time for the online trading sector more broadly, as regulators clamp down on risky speculative products to protect amateur traders from heavy losses. Meanwhile, excitement around cryptocurrencies is dying down.
But Plus500 argues that it has matured in terms of governance and compliance as it seeks to win new investors.
When the company first floated on Aim in 2013 with a market capitalisation of about £150m, “people questioned” Plus500’s valuation, said Asaf Elimelech, chief executive. Today, he flags its recent share performance. “We have delivered to investors what we promised.”
Founded in 2008 by six Israeli students of the Technion Israel Institute of Technology, Plus500 specialises in so-called “contracts for difference” — popular products that track the price of an underlying asset — and targets a retail audience.
The group’s focus on developing in-house technology from the outset, along with a careful process for hiring developers, helped propel it from a start-up of 45 to a 450-strong global operation, according to Mr Elimelech.
“What we brought to the market was basically a technology that didn’t exist [before],” he said, adding that the group only recruited “relevant, high-end employees”.
“Instead of there being 10 employees that are doing quite good work, we were after that one specific employee, the ‘genius one’,” he said.
But Plus500’s path to the main market has not been smooth-sailing.
In 2012, the UK’s Financial Conduct Authority slapped a £205,000 fine on the company for breaching transaction reporting rules. More dramatic for shareholders, the FCA ordered Plus500’s UK subsidiary to freeze customer accounts while it reviewed lax anti-money laundering controls in 2015, shaving about 60 per cent off its value.
Last year, the company agreed a €550,000 settlement with Belgium’s financial regulator for allegedly offering CFDs to Belgian citizens without the correct procedures in place. Plus500 said at the time that the move did not amount to an admission of guilt.
Mr Elimelech acknowledged the group should have put greater “focus on the compliance side”, including shoring up its customer services teams, as it grew its client base rapidly.
He added that the company had since made significant hires — compliance and account management now make up more than half of headcount — and revamped its board last year with the appointment of Penelope Judd, a former UBS and Nomura compliance chief, as chairman.
Regulation remains a bugbear for the entire sector. In August, Europe’s markets regulator will bring in tough curbs on the amount of leverage retail customers can use to boost their bets.
Analysts expect the changes to knock profitability in the sector in the short term — but allow more established operators to pick up market share in the longer run as smaller bucket shops fold.
IG Group has said the rules could impact about 10 per cent of their revenues initially, while CMC has guided it may affect between 10 and 15 per cent of its CFD revenues. Both are increasingly targeting wealthier, professional clients, many of whom may fall out of the scope of the rules if they meet certain requirements.
But Plus500 — vulnerable to the new rules as it offers some of the highest leverage in the sector — has been coy about how much it sees at stake.
“There will be an impact in the short term, we are not hiding it,” Mr Elimelech said, but did not give precise figures. According to the group’s prospectus, 12 per cent of its clients might be able to sign up as professionals, and that this cluster of clients generates 75 per cent of its European revenues.
Some question whether Plus500 can maintain momentum after its recent growth, particularly if the crypto boom fades further. Its five founders sold 7.3m shares in an overnight placing in March, cashing in on £80m between them.
“The fundamentals of the business model relies on getting people in the door at a faster rate than as they leave,” said an analyst with knowledge of the sector. “Can they carry on getting enough people in, particularly when regulators have made it fairly clear they do not want the casual or leisure client?”
Javier Paz, managing director at Forex Datasource, a boutique advisory and research firm, said: “Retail interest in bitcoin is following the decline in price, which is a big minus for the retail brokers like Plus500 — and there’s increased competition in the market.”
“For now, they are facing more negatives than positives for this year particularly when it comes to cryptos,” he added.
Plus500 argues that the lifespan of its customers is getting longer, and that it will be able to offset the changes by continuing to diversify geographically and developing cutting-edge technology.
“We see the new rules as an opportunity . . . the regulatory framework is now much clearer for providers in this space,” Mr Elimelech said. “The industry is here to stay rather than be shut down.”