The Canadian banking regulator has adopted a tough position against cryptocurrency funds, removing them from lower margin eligibility. The Canadian Investment Regulatory Organization (CIRO) recently amended its List of Securities Eligible for Reduced Margin (LSERM), stating that crypto funds will not be eligible for lower margin rates “until further notice.” The decision, which aims to reduce the risks associated with volatility and liquidity, increases the cost of leveraged trading in cryptocurrencies.
CIRO’s LSERM, which is revised quarterly, decides which financial instruments are eligible for reduced margin rates. Lower margins assist traders by increasing capital efficiency and lowering trading expenses. However, without crypto funds, investors must supply more collateral, making it more expensive to maintain leveraged holdings than equities and exchange-traded funds.
Stricter margins and increased liquidation risk
By enforcing increased margin requirements, CIRO’s policy has a substantial influence on crypto traders who use margin accounts. Without limited margin eligibility, investors incur greater financial strain during market volatility. When margin balances fall below the required threshold, traders face forced liquidations, which amplify potential losses during downturns.
CIRO Criteria for Reduced Margin Eligibility
CIRO ranks securities according to their liquidity, volatility, and market capitalization. To qualify for a reduced margin, a security must meet certain criteria:
To achieve price stability, keep the price volatility margin interval at 25% or below.
A minimum market price of CA$2 per share, with a constant valuation.
A public float of at least CA$100 million, with an average daily trading volume of at least 25,000 shares over the previous quarter.
Higher-priced securities with a monthly trading volume greater than CA$1 million.
List on a Canadian exchange for at least six months. If a security is newly listed, it must have a market price larger than CA$5 per share, a public float greater than CA$500 million, and operate in a low-volatility industry.
Implications for cryptocurrency investors.
With crypto funds failing to meet these conditions, investors must factor in higher margin charges when trading. Traditional stocks and ETFs continue to have lower margin rates, making them more accessible and cost-effective to traders. In contrast, cryptocurrency traders face extra financial restrictions that limit their ability to engage in leveraged trading under the same terms as traditional assets.
While CIRO updates its LSERM periodically, there is no indication of when or if crypto funds would be considered for lower margin eligibility. Until then, traders must adjust to increasing collateral requirements and increased exposure to liquidity risks in the volatile cryptocurrency market.
