The Investment Industry Regulatory Organization of Canada (IIROC) today announced a pending increase in margin requirements on the U.S. dollar (USD), 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 October 7, 2016.
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- Euro versus Canadian Dollar from 3.90% to 3.00%
- Mexican New Peso versus Canadian Dollar from 3.90% to 3.50%
- Switzerland Franc versus Canadian Dollar from 3.90% to 3.00%
- United Kingdom Pound versus Canadian Dollar from 4.00% to 3.00%
- U.S. Dollar versus Canadian Dollar from 2.90% to 2.40%
- Canadian Dollar versus U.S. Dollar from 2.90% to 2.40%
- Mexican New Peso versus U.S. Dollar from 3.90% to 3.50%
- United Kingdom Pound versus U.S. Dollar from 4.00% to 3.00%
A full list of the IIROC’s rates, including its basket of twenty-one currencies as of October 7, 2016, can be accessed by the following 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 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.
This list of foreign exchange spot risk margin rates replaces the previous list provided in IIROC Rules Notice 16-0165, issued on August 18, 2016.
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.