Japan gets in the ring with margin trading exchanges

Japan, one of the countries at the forefront of cryptocurrency regulation, took another step towards regulation. The regulation in question was passed on to all crypto exchanges providing margin trading services to its customers.

According to a local news portal, Nikkei, “Japanese financial authorities will expand on already pioneering rules for cryptocurrency trading to bring further order to one of the world’s biggest virtual currency marketplaces.”

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The report further stated that Japan’s cabinet gave a green light to a draft amendment for the Financial Instruments and Payment Services Law, on Friday. This amendment will not allow cryptocurrency exchanges to provide leverage of up to 2 to 4 times on initial cap and will come into effect from April 2020 onwards.

Simply put, margin trading is a trading service that enables users to participate in cryptocurrency trading activities with borrowed money/leverage. Here, lenders will lend their coins to traders in exchange for some interest on the borrowed cryptocurrency.

Further, in a practice similar to that of foreign exchange trading, all the exchanges involved in leveraging will be required to re-register with the regulatory authorities of Japan, including top brokerage firms. This action would not only allow financial bodies to take anti-money laundering measures but would also ensure investor protection.

The 18-month timeframe for the implementation of the new rules also present an opportunity to the Financial Services Agency, the regulatory body of Japan, to crack down on unregistered cryptocurrency exchanges, reported Nikkei. Additionally, virtual currency operators would be divided into categories, including exchanges involved in margin trading and exchanges involved in initial coin offerings.

This marks a significant development as previous reports suggested that the total cryptocurrency margin trading in Japan was much more than cash transactions. The sum of cash transactions in Japan, towards the end of December, was around 777.4 billion JPY, according to Japan Virtual Currency Exchange. The sum of margin trading was noted to be 8.42 trillion JPY, around $75.6 billion, almost 11 times more than that of cash transactions.

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