Turkish Regulator stuns brokers by imposing surprise reductions in leverage

Turkish Regulator Capital Markets Board (CMB)

Brokers operating in Turkey were caught off guard when today the country’s prominent regulator, the Capital Markets Board (CMB), proceeded in the sudden implementation of reductions in the leverage for all small investment account holders.

More specifically, the new playing field set by the CMB provides that small-cap accounts, i.e. those smaller than 20,000 TRY will be affected by a series of changes, which manifest themselves primarily through the alteration of spreads on various tradable assets. For gold and the popular forex pairs of EUR/USD, USD/TRY, and EUR/TRY the maximum leverage allowed is set at 50:1. Other assets, such as the currency pairs of GBP/USD, GBP/CHF, USD/CHF, saw their maximum leverage limited to 25:1. These assets will be allowed a leverage level of 50:1 for accounts greater than 20,000 TRY (be they current or future accounts), while gold and the three pairs EUR/USD, USD/TRY, and EUR/TRY will enjoy a leverage of 100:1 when traded through accounts larger than 20,000 TRY.

The explanation for implementing such changes is the CMB’s resolve to protect the rookie or least experienced traders from having to incur sizable, unbearable levels of losses. However, in a manner that is typical to how it usually operates, but in great divergence than other regulators, the CMB introduced such drastic changes without any prior warning. This meant that brokers had no time to prepare or gradually adjust and had to immediately adapt to the changes and the new landscape.

This proved particularly challenging for some that were forced to resort to ceases in trading or temporary shut downs in order to be able to calibrate accounts to meet the new leverage requirements. However, the fact that the only real problem from the implementation of such broad-based changes so suddenly and unexpectedly, were some lapses in trading is quite remarkable, especially if one considers that changes in the MiFID II regulation in Europe, which will be put into effect before another in year at the soonest, are already known to financial service providers.