Canadian Securities Regulators Ban Crypto Margin Trading

With FTX’s collapse spurring global regulators into action against the crypto industry, the Canadian Securities Administrators (CSA) are no exception.

On Monday, the association announced an expanded ruleset pertaining to crypto trading platforms in Canada, which would bar them from offering margin or leverage trading to Canadian clients. 

No More Leverage

As announced by the regulator on Wednesday, its new rules will apply to any platform within the country subject to securities legislation, including crypto trading platforms that are yet to register. 

Unregistered platforms will soon be given a deadline by which they must submit a pre-registration undertaking (PRU) to its principal regulator, in which it promises to comply with the requirements expected of already registered entities. If they don’t, they may face enforcement action. 

The expanded terms for compliant platforms include requirements to keep Canadian clients’ assets held with an “appropriate custodian,” and to segregate those assets from the company’s proprietary business. They also prohibit  “offering margin or leverage for any Canadian client.”

“Custodians will generally be considered qualified if they are regulated by a financial regulator in Canada, the U.S., or a similar jurisdiction with a supervisory regime for conduct and financial regulation,” read the regulator’s statement. 

Though the regulator did not mention FTX by name, both custodial and margin trading issues are widely understood to have been key contributors to the exchange’s downfall. Specifically, bankruptcy lawyer John Ray alleged under oath on Tuesday that FTX commingled client assets with Alameda Research, where they were traded and lost on margin. 

Multiple crypto firms including Celsius, Voyager, and BlockFi have gone bankrupt this year after using client assets to margin trade, contributing to some higher-than-expected drawdowns in the crypto market. 

Stablecoin Securities

The CSA added that stablecoins – tokens that are price pegged to fiat currencies, like USDC and USDT – are viewed by the regulator as securities. 

“Crypto trading platforms… are reminded that they are prohibited from permitting Canadian clients to trade, or obtain exposure to, any crypto asset that is itself a security and/or a derivative,” it stated. 

Gary Gensler, head of the U.S. Securities and Exchange Commission (SEC), has also posited that stablecoins could constitute securities, alongside most other cryptocurrencies. Only Bitcoin, in his view, can be definitively categorized as a commodity. 

While other politicians within the country once considered Ether to also classify as a commodity, both senator Cynthia Lummis and Commodities and Futures Trading Commission chair Rostin Benham have recently flipped on this issue.