The US National Futures Association (NFA) said on Thursday it would temporarily require traders to put down additional margins when they enter into currency trades involving the Turkish lira and South African Rand.
The Chicago-based regulator, which is responsible for policing the US futures industry, is moving to restrict the amount of borrowed money, or leverage, to counter the massive recent devaluation of these exotic pairs.
The South African and also touched multi-year lows as concerns over the Turkish lira’s stability spread into investor sentiment on other emerging market currencies.
Legal Risk Factor Beneath Ripple’s Lawsuit from SECGo to article >>
As per a notice published on NFA’s website and requiring the immediate attention of its Forex Dealer Members, the move will require investors to put a “minimum security deposit” of 12% of their trades on the Turkish currency. The self-regulator also said traders would have to post 7% of their bets in the South African Rand.
The timing of the decision is relatively late, considering that since early August Turkey’s currency saw wild moves, and the lira’s collapse already spread to other emerging market currencies.
The NFA statement says its executive committee can temporarily boost security deposits—a move that limits leverage—during periods of “extraordinary market conditions.”
The National Futures Association self-regulates futures trading and is itself supervised by the US Commodity Futures Trading Commission (CFTC). Both watchdogs were given massive new responsibilities under the Dodd-Frank law, including setting requirements for how much borrowed money, or margin, the firms’ clients can use on currency trades.