Canada Says No to Lower Margin Rates for Crypto Funds—Here’s Why

The Canadian Investment Regulatory Organization (CIRO) has announced that cryptocurrency funds will be excluded from its List of Securities Eligible for Reduced Margin (LSERM), a quarterly list that identifies securities qualifying for reduced margin rates.

CIRO’s ruling, effective as of February 5, cites the “high volatility, liquidity concerns, and regulatory uncertainties” surrounding cryptocurrency funds behind this latest move.

This decision means that traders of cryptocurrency funds will need to maintain higher collateral levels compared to those trading conventional stocks or exchange-traded funds (ETFs), potentially increasing the cost and risk of leveraging crypto positions.

Eligibility Criteria For Margin Reduction

CIRO’s LSERM is designed to improve capital efficiency for eligible securities by reducing trading costs and enhancing liquidity. However, for a security to be included, it must meet specific price volatility, liquidity, and market capitalization criteria.

According to CIRO, securities must meet strict price volatility thresholds—specifically, a volatility margin interval of no more than 25%—to be considered for reduced margin.

Additionally, eligible securities must maintain a market value of at least CA$2 per share and show a consistent level of trading activity, including a public float value exceeding CA$100 million and an average monthly trading volume of at least 25,000 shares over the prior quarter.

Higher-priced securities are subject to even more stringent trading value requirements, further emphasizing the need for stable, liquid markets.

Notably, Crypto funds, which often experience significant price swings and lower liquidity compared to traditional stocks and ETFs, do not meet these criteria under CIRO’s current guidelines. In a statement released on February 5, the organization wrote:

Until further notice, cryptocurrency funds are not eligible for reduced margin. This eligibility status also applies to cryptocurrency funds against which OCC options are traded. For cryptocurrency funds, margin eligibility may be otherwise determined according to the requirements set out in subsections 5310(1) and 5311(1) of the IDPC Rules.

What This Means For Crypto Funds In Canada

This exclusion places cryptocurrency funds in a different risk category in Canada, requiring higher collateral margins and exposing traders to the potential for forced liquidations in the event of a market downturn.

As a result, crypto fund investors in Canada face more restrictive trading conditions and may need to reconsider leverage strategies. The new LSERM also stipulates that eligible securities must be listed on a Canadian exchange and maintain margin eligibility for at least six months.

For securities listed for a shorter duration, even more rigorous requirements apply, including a minimum share price of CA$5 and a public float exceeding CA$500 million. This additional layer of scrutiny appears to make sure that only the most stable and liquid securities benefit from reduced margin rates.

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