CIRO Rules Out Reduced Margin Rates For Cryptocurrency Funds

According to Cointelegraph, the Canadian Investment Regulatory Organization (CIRO) has announced that cryptocurrency funds will not qualify for reduced margin rates due to concerns over their volatility, liquidity risks, and regulatory uncertainties. This decision was revealed on February 5, when CIRO released its updated List of Securities Eligible for Reduced Margin (LSERM), a quarterly list that identifies which securities can benefit from reduced margin rates. Financial institutions that qualify for these reduced rates enjoy improved capital efficiency and lower trading costs. CIRO's announcement stated that cryptocurrency funds would remain ineligible for reduced margins "until further notice." Consequently, investors dealing in cryptocurrency funds will need to maintain higher collateral, making it more costly to leverage crypto positions compared to stocks or exchange-traded funds (ETFs). This requirement increases the likelihood of forced liquidations during market downturns, as reduced margin rates typically offer some buffer before liquidations are triggered. CIRO outlined the criteria for securities to be eligible for reduced margin rates. Highly liquid securities with substantial market capitalization and lower volatility are more likely to qualify. Specifically, securities must have a price volatility margin interval of 25% or less, which evaluates the security's price fluctuations over a set period to determine its volatility. Additionally, the security should have a market value of at least 2 Canadian dollars per share, ensuring it maintains a minimum price level often linked with reduced volatility. Furthermore, securities must meet liquidity measure requirements to qualify for reduced margin. This includes having a public float value exceeding 100 million Canadian dollars and an average daily trading volume of at least 25,000 shares each month in the preceding quarter. Higher-priced securities require at least 1 million Canadian dollars in daily traded value each month. Lastly, securities must be listed on a Canadian exchange and eligible for margin for six months. For those listed for less than six months, the security must have a market value greater than 5 Canadian dollars per share, a public float value exceeding 500 million Canadian dollars, and belong to an industry sector known for low price volatility.