Japan’s crypto self-regulatory body to restrict margin trading
Japan’s cryptocurrency exchange self-regulatory body is attempting to bare its teeth, saying it wants to place restrictions on margin trading in cryptocurrency derivatives markets.
Given the unpredictable volatility in the cryptocurrency market, the Japan Virtual Currency Exchange Association (JVCEA) wants to issue guidelines on margin trading – where exchanges allow users to significantly gear up their deposits with borrowed money to make bigger investments.
The practice can multiply profits, but also magnifies losses in the case of sudden downward price movements.
The JVCEA intends to reduce this borrowing power and restrict the amount of leverage customers can take on to 1:4 – meaning that if a customer deposits $10 their potential losses will be limited to $40.
Such measures help establish the association’s credibility as a self-regulatory body, even if the market it is aiming at is rather small.
Statistics from Japan’s official market regulator – the Financial Services Agency (FSA) – in April show there were just 142,000 using the derivatives market to trade cryptocurrencies.
The JVCEA was formed in March as a non-governmental body formed to help restore trust in the virtual currency market following the theft by hackers of $530m worth of NEM tokens in January.
Following punitive action from the FSA the new association formed to work alongside the official regulator to focus on three main priorities:
- Consumer protection – as common in securities exchanges, the segregation of management of customers and company assets was a priority
- Regulation – working with the FSA to monitor initial coin offerings was a principal objective
- Transparency – main goal was to prepare a system to disclose information in a timely manner
The new association met with some initial teething problems after losing two of its vice presidents – both heads of exchanges issued adherence demands from the FSA.