Shares in spread-betting firms took a hammering on Tuesday (6 December), after the Financial Conduct Authority (FCA) unveiled a proposal to implement stricter rules to cover the industry.
The watchdog's decision follows an investigation into the sector which revealed 82% of customers using retail financial spread-betting products known as "contracts for difference" (CFD) lost money on them.
"We have serious concerns that an increasing number of retail clients are trading in CFD products without an adequate understanding of the risks involved, and as a result can incur rapid, large and unexpected losses," the regulator said.
The FCA said it has identified instances of poor conduct across the sector over a six-year investigation, ranging from firms failing to adequately consider if CFDs were appropriate for their customers to failing to provide adequate risk warnings and offering excessive levels of leverage to retail clients.
A selloff following the announcement, saw shares of spread-betting market leader IG Group, which accounts for 40% of the UK financial spread-betting market by number of active primary accounts, fall by 41.27% at 2:22pm GMT, while rival CMC Markets saw a drop of 35.47%.
With its major spread-betting constituents in negative territory, the FTSE 250 traded 0.10% or 16.47 points lower at 17,445.30. However, the blue chip FTSE 100 was marginally up, notching a 0.13% or 9.00 points gain at $6,755.83 points.
In afternoon trading the biggest risers in the FTSE 100 Index were Royal Bank of Scotland at 206.20p (+8.40p, +4.25%), HSBC at 651.30p (+24.60p, +3.93%), Barclays at 224.15p (+7.35p, +3.39%), British Land Company at 599.00p (+13.00p, +2.22%) and Land Securities at 969.00p (+20.00, +2.11%).
The biggest fallers in the FTSE 100 Index were Anglo American at 1188.00p (-55.00, -4.42%), BHP Billiton at 1297.50p (-42.00, -3.14%), Legal & General Group at 235.20p (-6.50, -2.69%), Johnson Matthey at 3026.00p (-67.00, -2.17%) and Rio Tinto at 2988.00p (-66.00, -2.16%).
The biggest risers in the FTSE 250 Index were Drax Group at 313.90p (+36.30p, +13.08%), OneSavings Bank at 335.90p (+20.90p, +6.63%), AA at 276.80p (+14.90p, +5.69%), Thomas Cook Group at 89.05p (+3.10, +3.61%) and Victrex at 1769.00p (+61.00, +3.57%).
The biggest fallers in the FTSE 250 Index were IG Group at 462.20p (-324.80p, -41.27%), CMC Markets at 119.00p (-65.40p, -35.47%), Berendsen at 798.50p (-48.00p, -5.67%), Tullow Oil at 316.30p (-16.10p, -4.84%) and Evraz at 224.60p (-10.40, -4.43%).