Japan announces crackdown on cryptocurrency margin trading

Lawmakers in Japan have announced new measures around cryptocurrency margin trading, in the latest tranche of legislation designed to structure domestic digital asset markets.

First reported in the Nikkei Asia Review, the Japanese cabinet approved draft amendments to financial instruments and payment services regulations to effectively limit the degree of leverage available to crypto traders.

The amendments set a maximum limit of two to four times for initial deposits. The measures bring crypto trading in line with similar caps in place for forex traders, designed to limit overall risk exposure within these markets.

Exchanges that want to offer margin facilities will also be required to register under a separate scheme from cash platforms, following on from the registration scheme for crypto exchanges first introduced back in 2017.

The measures have been designed to calm speculative, highly leveraged trading on cryptocurrencies, after volumes hit JPY8.42 trillion—approximately $75.6 billion—last December. This was over 11 times the volume of cash transactions, which came in at just over JPY777 million.

Crypto operators will also be divided into different categories under the new laws, distinguishing between margin trading platforms and those offering or promoting initial coin offerings (ICOs). According to regulators, the move will help investors avoid “unsavory offerings,” while encouraging legitimate businesses to use token issues for raising capital.

The new arrangements are expected to come into force from April 2020, and exchanges will have a further 18 months to register their margin trading facilities from there.

For those already registered, this is expected to require a ‘re-registration’ under the new scheme to ensure compliance with these updated requirements.

The package of measures are the latest proactive step from regulators in Japan, who have been amongst the most forthcoming in creating a certain, structured legal regime around cryptocurrencies and digital assets.

One of the world’s largest markets for cryptocurrencies, the legal framework in Japan is upheld by the Financial Services Agency, which has a remit of holding operators to account under the new laws.

The Financial Services Agency (FSA) said it would work with operators to ensure their compliance, noting, “We intend to motivate operators to do what they can to become registered.”