The Canadian Investment Regulatory Organization (CIRO) has released its latest quarterly List of Securities Eligible for Reduced Margin (LSERM).
In this update, they announced that cryptocurrency funds will not qualify for reduced margin rates. This decision is based on concerns about the volatility of cryptocurrencies, liquidity risks, and the uncertainty surrounding their regulation.
As a result, investors must maintain higher collateral for trading these funds, which increases the cost of leveraging crypto positions compared to stocks or ETFs. This also raises the risk of forced liquidations during market downturns, as reduced margin rates typically provide a protective buffer against such events.
The organization identifies characteristics of securities likely to qualify for reduced margin rates, including high liquidity, substantial market capitalization, and low volatility. To be eligible, a security must have a price volatility margin interval of 25% or less and a market value of at least CA$ 2 per share, indicating stability and lower volatility.
Liquidity is vital for eligibility, requiring a public float over CA$ 100 million and an average monthly trading volume of at least 25,000 shares. Higher-priced securities must have a minimum monthly trading value of CA$ 1 million. Additionally, securities should be listed on a Canadian exchange and margin-eligible for at least six months. If listed for under six months, they must have a market value above CA$ 5 per share and a public float over CA$ 500 million.
In a related development, Canada’s FINTRAC issued a warning on January 23, 2025, about the rising use of cryptocurrencies for laundering proceeds from synthetic fentanyl and opioid trafficking. The “Operational Alert” highlighted new risk factors, including large crypto-to-fiat conversions, multiple wallets to obscure transactions, and deposits from high-risk regions. FINTRAC urged crypto service providers and financial institutions to integrate these risk factors into their Anti-Money Laundering (AML) strategies.
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