BNP Paribas’ FX Prime Brokerage Unit Halts Turkish Lira Trades

The decision comes barely one week after Turkey’s regulator lifted a ban they imposed earlier this month on BNP Paribas.

BNP Paribas has reportedly decided to suspend Turkish lira transactions over its FX prime brokerage unit, Bloomberg reports. The decision comes barely one week after Turkey’s regulator lifted a ban they imposed earlier this month on BNP Paribas and other two global banks.

The French lender’s BP unit, which serves a client segment that includes hedge funds and family offices and other buy-side institutions, has transferred trades on TRY currency pairs to the close only. This means it has stopped accepting new orders, and only settlement orders that reduce or close existing positions would be permitted for BNP customers.

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The news comes as BNP Paribas is expanding its prime brokerage focus, having recently welcomed 1,000 new staff as part of its deal with Deutsche Bank to assume control of the German lender’s prime brokerage operations.

Prime brokers often come under scrutiny during any financial crisis as their capital-intensive business inflates balance sheets since they finance their clients’ transactions by extending credit.

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Clearstream, Euroclear halt Lira trade

Turkey’s banking regulator said on May 7 that FX units of Citigroup, BNP Paribas and UBS Group can no longer process transactions involving Turkish lira. The watchdog lifted the ban that stayed in place for four days after it determined that the lenders managed to fulfill their liabilities in Turkish lira transactions with local banks.

Clearstream Banking and Euroclear Bank also temporarily halted transactions in the Turkish lira over their shared platform known as the Bridge, citing liquidity restrictions on the lira due to Covid-19.

Turkey’s currency saw wild moves as investors fretted about a lack of reserves to protect the economy from the coronavirus impact. The lira’s collapse already spread to other emerging market currencies.

The new restrictions also come as Turkey’s banking watchdog is working hard to to make it tougher to bet against the local currency. It has limited the amount of liras Turkish banks can make available to foreign investors and also barred local lenders from trading liras with three global banks.

Turkish media reported that authorities are investigating possible violations in foreign-exchange, deposit, credit and brokerage services. The banking regulator seems convinced that offshore trade is the driver of lira speculation and has specifically blamed some UK financial institutions for taking manipulative positions against the lira.

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