Bumpy ride fear for AIM as spread betting firm switches technology

TRADING on the Alternative Investment Market (AIM) could be volatile on Friday as CMC Markets will be closing out any AIM share bets made by its clients.
By The Newsroom
Published 8th Feb 2011, 10:23 BST

CMC, which offers spread betting, delisted trading in the AIM index with no new positions opened via its trading platform on AIM shares after January 21.

Any AIM bets by clients that remain open will be closed out at their closing price on February 11.

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CMC’s decision follows its move last year to stop trading in stocks below a certain market capitalisation and reflects the firm’s switch to a new technology platform.

Atif Latif, director of trading at Guardian Stockbrokers, said: “It could be a very interesting day for the AIM market and AIM shares.”

The closing of the trades will have an influence on the physical AIM market as providers of the financial instruments have to hedge the trades by holding the actual stocks to protect their positions.

Mr Latif said as much as 50 per cent of AIM market positions could be held via contracts for difference, known in the market as CFDs.

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A CFD is a contract between a buyer and seller, stipulating that the seller will pay the buyer the difference between the current value of an asset and its value at contract time.

If the 50 per cent was equated to CMC’s CFD market share of around 20 per cent, it could mean 10 per cent of the AIM market would see a closing out of positions on Friday.

Most of Yorkshire’s PLCs are listed on the AIM market. Some analysts said the impact could be fairly muted.

“The main worry was that rather than close out a position, clients would be trying to pass on their position to another CFD house and those other houses would be unable to take them on,” said Les Ames, head of dealing at brokerage WH Ireland.

Yet others saw potential for short-term upheaval.

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Joe Rundle, head of trading at spread betting and CFD firm ETX Capital, said he believed CMC’s move might create volatility in the AIM market on Friday.

“It depends on how client positions are to be moved. If there is a need to close and reopen in the market, rather than just moving the positions between brokers, we will certainly see extremely high volumes and associated volatility.

But he said this was likely to only be short term.