The Canadian Investment Regulatory Organization (CIRO) recently banned reduced margin rates for crypto funds. Volatility, liquidity risk, and uncertainty about regulatory compliance forced them to issue such a ruling. Greater collateral must now be held by investors, escalating leveraged positions in cryptocurrencies at a higher expense.
On Feb. 5, CIRO released its updated List of Securities Eligible for Reduced Margin (LSERM). This quarterly list highlights securities qualifying for reduced margins. Eligible financial institutions benefit from better capital efficiency and lower trading costs.
CIRO’s latest ruling: No reduced margins for crypto funds
The announcement confirmed that cryptocurrency funds will not qualify “until further notice.” This means investors face higher margin requirements, making forced liquidations more likely during downturns. Reduced margin rates provide breathing room, but crypto traders won’t have that advantage.
Margin in finance refers to the collateral investor’s deposit with brokers or exchanges. It covers credit risk when borrowing cash for financial instruments or short selling. CIRO states that securities with strong liquidity, high market capitalization, and low volatility stand a better chance of approval for reduced margins.
CIRO’s criteria require price volatility in a range of 25%. That calculation will specify a security’s price range over a period of time. Security will have a minimum of 2 CA$ value per share for qualification. A greater price level will mean less volatility, and security will become steadier.
Liquidity measures must also apply. There must be a public float value in excess of 100 million CA$ and an average daily trading value of at least 25,000 shares for each month. A minimum traded value of 1 million CA$ must be attained daily for high-value stocks.
Securities must have been traded for at least six months and must be marginable. There must be stricter requirements for new listings less than six months. There must have a value of more than 5 CA$ per security, a float of over 500 million CA$, and a position in a low-volatility sector.
The decision is challenging for cryptocurrency investors. Higher margin requirements make leveraged positions both costlier and riskier. Traditional stocks and ETFs have reduced margins, but not cryptocurrencies. For now, at least, investors in cryptocurrencies must work in a reduced margin environment, with regulators offering no additional guidance yet.
