It was indeed only a matter of time before the regulatory authorities began to make amendments to market parameters following the exposure experienced by many FX companies and executing venues to negative client balances on January 15 this year as a direct result of the Swiss National Bank’s decision to remove the 1.20 floor on the EHRCHF currency pair.
The National Futures Association (NFA) has taken a very proactive position with regard to this, having last week having stated that Forex Dealer Members (FDMs) are required to collect and maintain a minimum security deposit of 2% (of the notional value of transactions in 10 listed major foreign currencies (including the Swiss franc, Swedish krona and Norwegian krone) and 5% of the notional value of other transactions.
This stood the security deposits as follows:
Swiss franc – 5% (20:1)
Swedish krona – 3% (33:1)
Norwegian krone – 3% (33:1)
Following this action, the NFA has raised the margin requirements on several more currencies, this time the Japanese yen, Australian dollar, the Russian ruble, the Brazilian Real and Mexico’s peso.
At the time of the previous increases, the NFA alerted FDMs that NFA was continuing to monitor market conditions and that the Executive Committee could decide to make additional increases to these or other currencies if market conditions warranted. Given the continued volatility in the foreign currency markets, the Executive Committee has determined to increase the minimum security deposits required to be collected and maintained by FDMs under Section 12 as follows:
Major Currencies:
Japanese yen – 3%
Australian dollar – 3%
Other Currencies:
Russian ruble – 20%
Brazilian real – 9%
Mexican peso – 6%
These increases become effective at 5 p.m. (EST) on Monday, Jan. 26, 2015 and will remain in effect until further notice.
For the official announcement from the NFA, click here.