Japan’s JVCEA Suggests Margin Trading Borrowing Limits For Exchanges


Crypto Exchanges in Japan Want a Limit on Margin Trading Borrowing

An organization formed by crypto exchange in Japan for self-regulation has proposed a limit on how much investors may borrow when margin trading. According to a report that appeared in Jiji Press, the organization suggested that a limit of four times for the margin trading be established.

About The Limit

The organization decided to self-recommend so that they could be able to adjust. The aim is to prevent investors from suffering losses due to the sudden price fluctuation of crypto coins. Right now, the upper limit of margin trading has been set at 25 times. However, the association is also aware that if the limit is kept within 4 times, it might cause customers to leave.

As a result, they are taking transitional measures that will allow some of the exchange operators to operate independently of this limitation. Within one year, they expect that all members of the exchange association will have instituted the self-imposed rules.

However, for those exchanges that chose to operate outside the four times limit, they will need to report to the association if losses occur due to this decision. Besides that, the association will include other rules such as additional security measures, advertising, insider trading, and much more. Right now, the association is seeking to gain accreditation from the Financial Services Agency. This will make a legally recognized self-regulating organization that is based on the revised fund settlement law.

Why The Regulation

According to the Japanese Virtual Currency Exchange Association, the proposed plan will aim to protect the domestic investors. This is because there are currently no rules that govern the upper limit on how much crypto investors may borrow for the purposes of margin trading.

The statistics released by the Financial Services Agency of Japan in April showed that there were over 3 million crypto traders in Japan. Of these traders, about 142,000 were focused on the derivatives market in 2017.

Despite this, about 80 percent of all trading volumes in 2017 came from the derivatives market. The derivatives market recorded $543 billion last year. About 90 percent of this came from margin trading.

The data also showed that most of the crypto investors were in their 20s, 30s, and 40s. They accounted for 28, 34, and 22 percent of all crypto traders respectively. The release of the data marked the latest efforts by the financial agency to improve transparency to the crypto sector. This follows a recent hack at Coincheck, a major crypto exchange in Japan.

Why The Self-Regulation

The hack at the Coincheck is also, what led to the formation of JVCEA. The goal is to improve the regulatory environment and create a healthy crypto trading market. The major interest in margin trading is due to the extraordinary growth it has experienced in recent months. For instance, trading volumes for Bitcoin grew from $22 million in March 2014 to $97 billion in 2017. For credit, margins, and futures of Bitcoin, the volume grew from $2 million in 2017 to reach $543 billion in 2017.

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