Japanese regulators have reportedly approved draft amendments to the country's financial instruments and payment services laws, introducing stricter regulations for margin trading of digital assets.
A report by local news publication Nikkei Asia Review noted that the amendments will place a cap on available leverage for crypto margin trading, pegging it at two to four times the initial deposit.
The report, published yesterday, also claimed that all cryptocurrency exchanges that offer margin trading will have to register with Japan’s Financial Services Agency (FSA) within 18 months of the new rules being implemented in April 2020.
Clamping Down on Margin Trading
Margin trading is the use of borrowed funds (often obtained from a financial broker or an exchange) to trade a financial asset. The funds borrowed become collateral for the loan, upon which interest is paid.
The practice of margin trading for cryptocurrencies has become popular in recent years thanks to its potential for significant returns. Platforms such as BitMEX have offered massive leverage on margin trading, increasing their appeal to investors globally. But the potential high yield from such investments can also come with downsides, including the temptation to make large, risky investments with borrowed funds.
Protecting Consumers in a Growing Market
According to the report, the new rules will allow Japan to more closely monitor exchanges in a concerted effort to better protect consumers. Exchanges that offer margin trading and those that issue tokens through Initial Coin Offerings (ICOs) would be separated and regulated differently, for instance. The hope is that this categorization will enable the FSA to clamp down on scam investment opportunities, while also providing a healthy environment for the crypto industry to continue its growth.
For some time now, Japan’s reputation as a crypto haven has been growing, thanks to its seemingly progressive stance on digital currencies.
In October 2018, the FSA approved the Japan Virtual Currency Exchange Association (JVCEA), a self-regulatory body that consists of 16 licensed crypto exchange platforms in the country. The group was given the authority to create regulatory guidelines for implementing industry-wide security standards and preventing insider trading.
Prior to the regulator's approval, the association had proposed a ban on privacy-centric tokens like Monero on crypto exchanges. It also mulled over the idea of holding government bonds to insure cryptocurrencies.
This article originally appeared on Bitcoin Magazine.