BY Fintan Ng - October 25, 2018
Japanese financial regulator considering leverage cap for crypto margin trading
Japan’s financial regulator is mulling a cap on margin trading for cryptos in order to curb speculation and limit investors’ exposure to risks.
The Nikkei says in an Oct 25 report that the Financial Services Agency (FSA) is considering the cap after concerns were voiced by investors following two hacks of crypto exchanges this year that saw nearly US$600mil stolen.
The media outlet says an FSA panel will discuss new rules for the possible legal changes.
It noted that following the Coincheck exchange hack in the beginning of the year, the FSA received 218 inquiries from January to March. From July to September, inquiries quintupled to 68. The Zaif hack, which saw US$62mil stolen, happened in September.
Hacks are just one problem as a system outage can also block investors from placing orders critical in margin trading where even small changes in prices can lead to either amplified gains or losses.
For now, the industry is lightly regulated, with operators of exchanges needing to register with the FSA. There are no clear regulations governing transactions on the exchanges per se.
The Nikkei says certain exchanges have voluntarily capped leverage at 25 times the deposit, the same as for forex margin trading.
Of the 16 FSA-registered exchanges who are also members of the self-regulating Japan Virtual Currency Exchange Association (JVCEA), seven provide margin trading.
It says experts are proposing caps of between two and four times for crypto margin trading.
According to the JVCEA, about 80% of the US$613bil in crypto transactions last year were conducted through margin trading.
The JVCEA as a whole has set a leverage ratio of four to one for its members although the association’s president Taizen Okuyama says the limit is provisional as the ratio may not be adequate.