The Investment Industry Regulatory Organization of Canada (IIROC) today announced a pending increase in margin requirements on the U.S. dollar against Mexican peso, following a periodic change in volatility, according to an IIROC statement.
The IIROC’s decision comes on the heels of sharp losses that hit the Mexico’s peso in the wake of Trump’s victory as investors worried about how the US president-elect’s policies could hit exports from Latin America’s second largest economy. The currency slid more than 12 percent against the dollar in the last two days, one of its biggest ever slumps in more than two decades.
Based on the volatility of the U.S. dollar exchange rates, effective November 16, 2016, the margin requirements on the USD/MXN pair will be raised to 4.50% from 3.50%.
A full list of the IIROC’s rates, including its basket of twenty-one currencies as of November 16, 2016 and until replaced by a subsequent list, can be accessed by the following link.
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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.
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.
Margin requirements structure in Canada
This list of foreign exchange spot risk margin rates replaces the previous list provided in IIROC Rules Notice 16-0165, issued on October 7, 2016.
In Canada, brokers also set their own minimum margin requirements which is officially dubbed ‘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.
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.