Referencing sources at Japan’s finance regulator, the Financial Services Agency (FSA), local English-language news outlet Japan Times revealed plans to limit margin leverage to twice the total of traders’ deposits.
FSA seeks to counter crypto volatility
The move follows on from a limit of four times traders’ deposits which the domestic exchange industry imposed on itself through a self-regulatory body last year.
The reason, according to the FSA sources, is to guard against periods of volatility on cryptocurrency markets.
On the timeframe for implementation, Japan Times added:
“The new rule will be included in a Cabinet Office order linked to the revised Financial Instruments and Exchange Act which will go into force in spring.”
It remains unclear whether the restrictions will take effect immediately following the introduction of the Act.
A worthwhile trade-off?
Margin trading can involve significantly larger market moves due to the potential size of the wins or losses, particularly when large numbers of investors engage in the practice at once.
As Cointelegraph reported, the tool’s impact has become a cause of controversy for some, who attribute it to manipulation of cryptocurrency price performance.
In October, data showed open interest in margin trading was at an all-time high in Japan.
Exchanges appeared to at least in part forecast the changes, meanwhile, with Coincheck announcing it would halt leveraged trading altogether from March.
Japan has sought to become a friendly jurisdiction for cryptocurrency, fostering permissive regulations and closely monitoring exchanges. At the same time, authorities have said they see no demand for a central bank digital currency, or CBDC, among consumers.