BNP shrinks Turkish lira trading after regulator imposed brief ban

French bank BNP Paribas stopped offering clients new trading in the Turkish lira via a special unit after it was briefly banned from the market by regulators.

BNP will only accept trades at its forex prime-brokerage subsidiary that maintain or reduce clients’ lira positions, Bloomberg said late on Monday, citing a person familiar with the matter. The unit provides services to hedge funds and other institutions, it said.

Turkish regulators barred BNP, Citigroup and UBS from the lira market for four days this month, saying the banks had failed to meet their liabilities to local financial institutions. A probe of the banks' activities continues. Clearstream Banking and Euroclear Bank have also stopped transactions in the Turkish lira over a shared platform known as the Bridge, Bloomberg reported at the weekend.

BNP spokesman Murray Parker declined to comment, Bloomberg said.

Turkish President Recep Tayyip Erdoğan said Turkey had been attacked via the currency markets but had foiled the plan.

“We will never show any mercy to those who smuggle foreign currencies outside the country,” he said on Monday after chairing a cabinet meeting by teleconference from Istanbul.

Turkey is seeking to squeeze investors’ ability to short or hedge the lira in the offshore market to help prevent a repeat of a currency crisis in 2018.

Foreign financial institutions and local retail clients have sold the currency this year, pushing it to an all-time low of 7.269 per dollar on May 7, prompting the central bank to spend tens of billions of dollars in its defence. The outbreak of COVID-19 and a series of aggressive central bank rate cuts have exacerbated selling pressure on the currency.

The lira rose 0.2 percent to 6.87 per dollar on Tuesday, paring losses this year to 13 percent.