The Canadian Investment Regulatory Organization (CIRO) has ruled that cryptocurrency funds will not be eligible for reduced margin rates, citing concerns over volatility, liquidity risks, and regulatory uncertainty. This decision increases the cost of trading crypto-related funds, making them less accessible compared to traditional securities like stocks and exchange-traded funds (ETFs).
CIRO’s Decision and Its Impact on Crypto Trading
On Feb. 5, CIRO released its updated List of Securities Eligible for Reduced Margin (LSERM), a quarterly list that determines which securities qualify for reduced margin requirements. Reduced margin rates offer better capital efficiency and lower trading costs for financial institutions.
However, the latest update explicitly excludes cryptocurrency funds from reduced margin eligibility “until further notice.” As a result:
- Investors will need to maintain higher collateral when trading crypto funds.
- Crypto positions will be more expensive to leverage compared to stocks and ETFs.
- Higher margin requirements may increase the risk of forced liquidations during market downturns.
This decision reinforces the cautious stance of Canadian regulators toward crypto assets, even as institutional demand for digital assets continues to grow.
Why Crypto Funds Were Excluded
CIRO’s margin eligibility rules favor securities with high liquidity, low volatility, and strong market capitalization. Crypto funds failed to meet these criteria due to:
- High Price Volatility – To qualify for reduced margin, securities must have a price volatility margin interval of 25% or less, a level that many crypto assets exceed.
- Liquidity Concerns – CIRO requires securities to have a public float value above 100 million CAD and a minimum daily trading volume of 25,000 shares liquidity thresholds that crypto funds struggle to consistently meet.
- Regulatory Uncertainty – As Canada’s crypto regulations evolve, CIRO remains cautious about granting favorable trading conditions for crypto-related investment products.
Eligibility Criteria for Reduced Margin Securities
CIRO applies strict criteria to determine which securities qualify for reduced margin rates:
- Securities must maintain a market price of at least 2 CAD per share.
- High-priced securities must meet a 1 million CAD daily traded value per month.
- Securities must be listed on a Canadian exchange for at least six months before qualifying.
- New listings must exceed 5 CAD per share and have a public float greater than 500 million CAD.
Since crypto funds typically do not meet these liquidity and price stability benchmarks, they remain ineligible for reduced margin rates under current rules.
Implications for Canada’s Crypto Market
The exclusion of crypto funds from reduced margin eligibility could have broader effects on Canada’s digital asset landscape, including:
- Higher Trading Costs – Investors will need more capital to maintain positions, discouraging leveraged crypto investments.
- Reduced Institutional Participation – Stricter margin rules may deter financial institutions from integrating crypto funds into diversified portfolios.
- Competitive Disadvantage vs. Other Markets – While the U.S. recently approved Bitcoin ETFs, Canada’s cautious stance may slow crypto adoption among institutional investors.
As global markets progress toward greater institutional adoption of digital assets, Canada’s crypto industry will be watching closely to see whether future regulatory updates ease these restrictions or reinforce tighter controls.
Conclusion
CIRO’s decision to exclude crypto funds from reduced margin eligibility highlights Canada’s ongoing regulatory caution toward digital assets. While the move aims to protect investors from volatility and liquidity risks, it also places crypto funds at a disadvantage compared to traditional financial instruments.
