Business 26 July 2018

Gerald Fenech

Japanese crypto exchanges propose self-regulatory organization – limits margin trading

The cryptocurrency exchanges in Japan have formed a self-regulatory organization and this is now proposing to set a limit on how much investors can actually borrow when they are margin trading. It was suggested by the Japan Virtual Currency Exchange Association (JVCEA) that the domestic trading platforms should enforce a restriction for all investors which will allow them to borrow for up to four times their deposit. This came about because currently there are no market rules which govern the upper limit of how much cryptocurrency investors can borrow in terms of margin trading and so the JVCEA said that the proposed plan will aim to protect domestic investors.

There were around 142,000 crypto traders in April, according to statistics which were released by Japan’s market watchdog the Financial Services Agency (FSA). These focused on derivatives in 2017, and they comprised of a small fraction of the total of 3 million traders in Japan. The JVCEA makes self-regulatory rules in order to create healthy cryptocurrency trading market. To get the regulator’s endorsement, it is now planning to submit a proposal to the FSA.

In 2017, $543 billion was recorded as cryptocurrency trading and this is over 80 per cent of the entire total of the cryptocurrency trading volume which came from derivatives trading. Margin traders accounted for more than 90 per cent of that total.

The JVCEA imposes self-regulatory rules to try and create a healthy cryptocurrency trading market. The JVCEA was formed by Japanese crypto exchanges in a response to a heist earlier this year on the Coincheck platform.  In order to get the regulator’s endorsement for a potential wider implementation, it is now planning to submit the proposal to the FSA.

However, with the introduction of this new rule, there is the risk that this could lead to the departure from exchanges by crypto investors, the association was quoted as saying. It would allow exchanges to independently set its own limits and aims to add measures gradually to be able to eradicate this problem.

Note: Tokens on the Bitcoin Core (SegWit) chain are referenced as BTC coins; tokens on the Bitcoin Cash ABC chain are referenced as BCH, BCH-ABC or BAB coins.

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