The US National Futures Association (NFA) said on Friday it would temporarily require traders to put down additional margins when they enter into currency trades involving the Norwegian Krone and Mexican Peso.
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.
Both Norwegian and Mexican currencies touched multi-year lows as concerns over the corona is keeping markets in a risk-off modus, which spread into investor sentiment on emerging market currencies.
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 7 percent of their trades on the Norwegian Krone. The self-regulator also said traders would have to set aside 12 percent of their leveraged bets on the Mexican Peso.
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FX brokers raise margins customers have to deposit
“Given the recent volatility in the currency markets, and the margin increases that CME and ICE have implemented with respect to foreign currency futures involving the Norwegian Krone and Mexican Peso, the Executive Committee has determined to increase the minimum security deposits required to be collected and maintained by FDMs under NFA Financial Requirements Section 12,” the NFA added.
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.
As Finance Magnates reported earlier, many FX brokers said they would take special measures in anticipation of higher volatility and trading volumes. The announcements come as most online brokers have already ironed out their plans to protect themselves and their customers from any sharp market shifts that have the potential to wipe out account balances in an instant.