Financial Regulator to oversee spread betting

The Financial Regulator will take responsibility for regulating spread betting next year under the terms of a new EU directive.

The Market in Financial Investments Directive will hand the responsibility for supervising spread betting to the domestic regulators in EU member states when it becomes law in November 2007.

Responsibility for spread betting firms such as Delta Index, Sports Spread and Worldspreads, will pass to the Financial Regulator at that time.

Spread betting involves gambling on share prices or currency exchange rates. Unlike conventional betting, it carries the risk of someone losing a multiple of their stake. Only the stake is lost if the bet is lost in conventional betting, no matter what the odds.

Spread betting works as follows. If someone believes that the share price of a particular stock is going to increase by 10 cent in a period, they can "buy" that position. If they believe the price will fall, they can "sell".

If they buy at €10, they get €10 for each cent that the price increases. But if it falls, they will lose €10 for every cent that it drops. They win €100 if it increases by 10 cent, but lose that sum if it drops by 10 cent.

The UK financial services authority regulates spread betting there. But in the Republic, it is in a regulatory grey area.

Even though spread betting is often focused on financial markets - particularly equities, currencies and indices - the State does not regard it as a financial investment activity. Some of the firms have bookmakers' licences, which makes them answerable to Customs and Excise. Others, like Worldspreads, apply the standards set in the UK.

According to a spokesman for the Financial Regulator, none of the firms operating in this sector in the Republic have applied to it for authorisation to provide financial services to the public.

He said the regulator expects to take responsibility for spread betting from next year, under the financial instruments directive.