Japanese lawmakers have introduced stricter regulation around margin trading of digital assets according to the allegedly passed draft amendments to financial instruments and payment services laws.
According to a report on Nikkei Asia Review, the amendments will place a cap on available leverage for crypto margin trading, pegging it at two to four times the initial deposit.
In addition, the report, published on 19 March, states that all cryptocurrency exchanges providing margin trading will be required to register with Japan’s Financial Services Agency (FSA) in the 18 months’grace period of the new rules being implemented in April 2020.
Margin trading is described as the utilization of borrowed funds, usually obtained through a financial broker or an exchange,for the purpose of trading as a financial asset. The borrowed funds act as collateral for a loan upon which interest is paid.
The potential for significant returns has made the practice of margin trading for cryptocurrencies popular in recent years. The huge leverage being off on margin trading on trading platform such as BitMEX, are attracting more investors globally. Notwithstanding the huge potential for high yield in such investments the drawbacks are the allure to make large and risky investments with borrowed moneys.
According to the report, new rules will provide for the categorical close monitoring of exchanges to better protect consumers. It will separate regulation for exchanges that offer margin trading and those that issue tokens through Initial Coin Offerings (ICOs). The aim is enable the FSA to tackle potential scam investments as well as offer a sound environment for the crypto industry to flourish.
Japan’s reputation as a crypto destination continues to grow because of the enabling and on-going support for digital currencies.
In allusion to digital forward thinking, the FSA in October 2018 acquiesced to the formation of the Japan Virtual Currency Exchange Association (JVCEA), a self-regulatory body comprising 16 licensed crypto exchange platforms in the country. The FSA tasked the group to create regulatory guidelines that would put into place industry-wide security standards and prevent insider trading.
Before the regulator’s approval, the association had to significant proposals namely: using government bonds to insure cryptocurrencies, and a proposed ban on privacy-centric tokens.