The Investment Industry Regulatory Organization of Canada (IIROC) today announced a pending decrease in margin requirements on the US dollar (USD) and Canadian dollar (CAD) pairs, following a periodic change in volatility, according to an IIROC statement.
In Canada, brokers also set their own minimum margin requirements, called ‘house requirements’. Some brokers extend more lenient lending conditions than others and lending terms may also vary from one client to the other but brokers must always operate within the parameters of margin requirements set by IIROC.
Based on the volatility of the exchange rates of US and Canada’s dollars, the spot risk margin rates will be reduced for the following currency pairs, effective February 28, 2017.
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- Japanese yen versus Canadian dollar from 5.00% to 3.00%
- S. dollar versus Canadian dollar from 2.40% to 2.20%
- Canadian dollar versus US dollar from 2.40% to 2.20%
- Japanese yen versus US dollar from 4.00% to 3.00%
- New Zealand dollar versus US dollar from 3.30% to 3.00%
- Norwegian krone versus US dollar from 3.50% to 3.00%
A full list of the IIROC’s rates, including its basket of twenty-one currencies, can be accessed through this link. This list is updated when a currency’s spot margin rate is increased or reduced, because the volatility of the currency exceeds (or no longer exceeds) the volatility threshold that is set out in the Dealer Member Rule.
Margin requirements structure in Canada
Excess volatility in a currency is measured and tracked as an ‘offside day’. An offside day is triggered when the percentage change in the exchange rate of the currency over five-day intervals, through a period of 60 trading days, exceeds the margin rate for the currency. And when the number of offside base days during the period reaches 4, a margin surcharge is applied.
This list of foreign exchange spot risk margin rates replaces the previous list provided in IIROC Rules Notice 16-0165, issued on January 9, 2017.
IIROC is a non-profit self-regulatory organization (SRO). It oversees all investment dealers and trading activity on debt and equity markets in Canada. IIROC was established June 2008 through the merger of the Investment Dealers Association of Canada (IDA) and Market Regulation Services Inc. (RS). In addition, the group enjoys a unique structure as it regularly updates FX margin trading requirements subject to FX volatility.