The NFA has lowered leverage on the JPY, AUD to 33:1 (3% margin vs 2% margin) as well as the Russian ruble, Brazilian real and Mexican peso as they more actively regulate brokers.
Interestingly, the EURUSD which just had a 570 pip trading week was left unchanged, while the USDJPY had a 194 pip trading range and the AUDUSD had a range of 363 pips.
I wonder if the NFA is willy nilly reacting after the horse has left the barn, or are the changes a reflection of risk to customers/to brokers?
I personally do not put a lot of faith in the commitment of traders report (it is old, it is not static, and other reservations), but the JPY net short position was reduced in the current week (see numbers below and from Adam’s post from Friday). The AUD position remained steady and net short which is good for clients as the AUDUSD fell this week.
The CHF thing – which this is all about – was about everyone being one way, with a floor in jeopardy and limited upside. Is that what the NFA sees for JPY, AUD now? Probably not. Is the NFA reacting because they have an “aha moment” that leverage is too high (margin too low)? That may be what they are saying now. It seems they might think that they had their “eye off the ball” with regard to the CHF. One can argue, if the NFA made the judgment (before the fact) that CHF risk was too great/too one way, and therefore margin needed to be raised to 10% or 20%, then perhaps the damage could have been reduced. However, the CHF story is different than the AUD and JPY (regarding ruble, real and peso I can appreciate that perspective).
- EUR net short 181K vs short 168K prior
- JPY net short 78K vs 94K short prior
- GBP net short 46K vs short 37K prior
- AUD net short 47K vs short 45K prior
- CAD net short 29K vs short 21K prior
- CHF net short 10K vs short 26K prior
- NZD net short 2k vs short 2k prior
- Gold net long 162K vs 130K prior
Below is the release: (see: https://www.nfa.futures.org/news/newsNotice.asp?ArticleID=4534)
January 23, 2015
Immediate attention required – Financial Requirements Section 12 – Additional increases in required minimum security deposit for forex transactions
As you know, on Jan. 21, 2015, NFA’s Executive Committee exercised its authority under NFA Financial Requirements Section 12 and increased, until further notice, the minimum security deposits required to be collected and maintained by FDMs under Section 12 for transactions involving the Swiss franc (5%), Swedish krona (3%) and Norwegian krone (3%). At the time of those increases, 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:
Japanese Yen – 3% (33:1)
Australian Dollar – 3% (33:1)
Russian ruble – 20% (5:1)
Brazilian real – 9% (11;1)
Mexican peso – 6% (16.6:1)
These increases become effective at 5 p.m. (EST) on Monday, Jan. 26, 2015 and will remain in effect until further notice.
If you have any questions on these requirements, please contact Valerie O’Malley, Director, Compliance (firstname.lastname@example.org 312-781-1290) or Rachel Brandenburg, Senior Manager, Compliance (email@example.com or 312-781-1472).