In a bid to control market risks and restrict speculation, the Financial Services Agency of Japan is currently mulling a plan to put a cap on crypto margin trading. As per a news report by a leading media outlet in Japan, it was stated that the securities regulator is in the works to limiting the borrowing power of the crypto margin traders to 2 or 4 times of their deposits.
The news comes after statistics by the Financial Services Agency revealed a swift growth in crypto margin trading in the Asian nation. In fact, the crypto trading volume in Japan in 2017 from derivatives trading amounted to a massive USD 543 billion, of which 90 percent was accounted for by the margin traders.
At the moment, Japan does not have any regulations concerning the government of cryptocurrency margin trading space. Today, the exchanges can offer as much as 25 times of borrowing power to the traders. Essentially, it means that while crypto traders can deal in crypto worth upto 25 times their deposit in the digital currency exchange, but even a 4 percent drop in the cryptoassests will completely dimnish their deposits.
At the moment, at least 7 exchanges that have been licensed by the FSA offer marginal trading services. The discussion on putting potential regulations in this area will be taken by the FSA in collaboration with industry experts.
The self regulatory authority, the Japanese Virtual Currency Exchange Association (JVCEA), which is formed by FSA licensed trading platforms in the country, had reported early this year that it was pushing to put a cap on margin trading as low as four times. On this matter, Chair of the JVCEA, Taizen Okuyama, was quoted as saying,”This is just a provisional measure — I don’t think a ratio of 4 is adequate.”
Consequently, on October 24, 2018, the securities regulatory body, FSA, formally approved the JVCEA as a certified fund settlement association. In fact, JVCEA, can now legally police Japanese crypto exchanges.