NFA Calls For Increases in Margin Requirements for FX Ahead of Election

The NFA will require forex dealers to collect and maintain updated margin requirements ahead of tomorrow's election.

Brokers are not the only entities cautiously watching the US election on Tuesday – the National Futures Association (NFA), the American self-regulatory group governing on-exchange traded futures, retail off-exchange foreign currency and OTC derivatives, has increased the margin requirements for foreign exchange (FX) transactions in anticipation of a tightened race, per a NFA statement.

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The US election has become a near coin toss according to recent polling, which could make it one of the most seismic events since the Swiss National Bank (SNB) crisis in 2015. As a result, the NFA will be requiring forex dealing members (FDMs) to collect and maintain a margin requirement of 2% of the notional value of transactions in the ten listed major foreign currencies and 5% of the notional value of other transactions.

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In particular, under Section 12 of its regulatory requirements, the NFA’s executive committee is allowed to increase such requirements under extraordinary market conditions – current markets are pricing in a Hillary Clinton victory, the opposite of which could effectively convulse currency markets worldwide amidst widespread volatility.

This same cautiousness was also reflected in the NFA’s stance on the British pound – forex brokers under Section 12 have been obligated to increase the margin requirements of currency pairs involving the British pound to a minimum of 1:20. Past examples also include the raising of margin requirements of the Mexican peso in early 2015.

Such strategies are designed to mitigate a potential explosion of volatility, which can potentially lead to market turmoil given a liquidity dearth and rapid price swings. The increase in security deposits will be effective as of 18:00 EST (23:00 BST) today and will be in effect until further notice.

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