Japanese Financial Regulator to Limit Crypto Exchanges’ Margin Leverage

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Japan’s Financial Services Agency (FSA), the country’s top financial regulator, would implement margin trading limits on crypto exchanges this coming spring. News about the impending restrictions was first reported by Japan Times, a local news outlet. 

In part of the FSA’s continuous efforts against the crypto market’s volatility, the agency has decided to limit the traders’ margin leverage to twice their total deposits. The decision follows what domestic exchanges had imposed upon themselves last year. As governed by a self-regulatory body, clients of such exchanges were given a trading limit that accounts for four times of their total deposit. 

Japan Times also clarified when the new rule would go into force. Notably, it would be a part of a Cabinet Office order which links to the Financial Instruments and Exchange Act that had already undergone revision. However, the FSA is yet to confirm if the Act’s introduction also means immediate compliance from crypto exchanges. 

The news prompted several reactions from industry experts. As emphasized by some, margin trading can significantly impact the movements of the market due to the potential gains or losses, especially when a significant pool of investors comply with the new rule at once. Meanwhile, other analysts claim that margin trading plays a crucial role in manipulating the price of cryptocurrencies. Notably, in October, Japan recorded an all-time high for open interest in margin trading.

Interestingly, crypto exchanges operating in Japan might have gotten news of the plan before the FSA could even publicly disclose it. In December, Coincheck had announced that it would shut down margin leveraged trading from March 2020. 

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