IG Group Holdings’ rationale for buying HedgeStreet

Chris F. Masse November 20th, 2007

For some time we have been interested in entering the US market, but regulatory constraints limit our ability to offer much of our existing product range. The acquisition of HedgeStreet marks an important step in our ongoing process of researching and developing as broad a product range as possible that can be offered to US retail clients.

The acquisition of HedgeStreet gives us the necessary regulatory approvals, technology, intellectual property and most of the staff needed to operate an exchange allowing US retail clients to trade binary options. We intend to make some modifications to the Exchange, particularly the range of contracts offered, after which we will re-launch it. We are aiming for this re-launch to take place around the end of our current financial year. We will continue to develop and extend the range of contracts that can be traded on the Exchange in order to widen the appeal of our US offering. We anticipate that the majority of the development work will be covered by the current operating costs.

While we are developing the Exchange’s product offering we also intend to activate our existing regulated US subsidiary, IG Financial Markets Inc. This already holds the necessary regulatory approvals to offer forex to US retail clients. We anticipate that this will start to trade early in 2008, offering US clients the ability to trade forex using our PureDeal and L2 platforms. In due course we plan that IG Financial Markets will also offer its clients contracts traded on the Exchange.

The US is the largest retail forex market in the world and already has a large number of providers. However, the regulatory environment is in the process of being tightened, including a significant increase in the capital requirements. It seems likely that this will reduce the number of competitors and that the time is now ripe for us, as a well-capitalised business with excellent technology, to enter this market. The ability to offer contracts traded on the Exchange, alongside a conventional over-the-counter forex offering, will, I believe, provide us with a unique proposition for US retail forex traders.

Until now it has been our policy not to accept US retail clients. That will, of course, remain our policy for our betting and contract for difference businesses. Our US subsidiaries, HedgeStreet and IG Financial Markets Inc. will transact with US clients and have the necessary regulatory status to allow them to do so lawfully.

Our acquisition of HedgeStreet represents a further step in our strategy of geographic expansion and, after some further development work, will give us the ability to offer the US market an innovative range of products. This project is likely to take some time to come fully to fruition, and the extent of its success will depend on how broad a range of contracts we are able to develop within the constraints of the US regulatory environment.