NFA hikes margin requirements for Turkish lira to 25%

abdelaziz Fathi

The US National Futures Association (NFA) said it would temporarily require traders to put down additional margins when they enter into currency trades involving the British pound, Japanese yen and Turkish lira.

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 some exotic pairs.

Turkey’s lira hit a fresh record last month as a major earthquake added to pressures from a strong dollar, geopolitical risks and high inflation readings out of the country. The uncertainty over the Fed’s policy and developments of the Russia-Ukraine war also kept markets in a risk-off mode, 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 5 percent of their trades on the British pound and Japanese yen. The self-regulator also said traders would have to set aside 25 percent of their leveraged bets on the Turkish lira.

“Given the current margin requirements of CME and ICE with respect to foreign currency futures involving the British pound, Japanese yen and Turkish lira, the NFA Executive Committee has determined to increase the minimum security deposits required to be collected and maintained by forex dealer members (FDM) 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 FinanceFeeds 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. ‎

Earlier in December, NFA ordered Gain Capital and its CEO Alexander Robert Bobinski to pay a civil penalty of $700,000 for making changes to client accounts without permission. The swap dealer arm of StoneX, formerly known as INTL FCStone, also agreed to pay a $1,000,000 fine to the NFA that accused it of violating margin rules.

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