The Japanese cabinet has approved amendments to the country’s financial laws dealing with cryptocurrency to make margin trading on these assets more strict, according to a report in the Nikkei Asian Review. Japan is one of the most crypto-friendly nations in the world and also one of the biggest crypto marketplaces.
Capping Margin Trading
The amendments to the law will cap leverage in margin trading at two to four times the initial deposits. Margin trading is done by borrowing funds from a broker or an exchange to trade in assets.
As per new laws, all cryptocurrency exchanges that offer margin trading services to their clients will be required to obtain new government registrations, separate from the original registrations that helped these exchanges to offer trading services in a framework that recognized cryptocurrencies as legal tender, a first-of-its-kind in the world.
Margin trading in cryptocurrencies is very popular in Japan with total margin trading reaching over $75 billion in December 2018. However this has given rise to speculative trading and many investors have had to incur massive losses. The new laws are said to protect investor interests by monitoring cryptocurrency operators.
New laws will protect investors
The new set of laws will also monitor cryptocurrency exchanges that issue tokens during initial coin offerings with a view to protect investors from scam offerings and Ponzi schemes. The new regulations will seek to encourage genuine companies to use initial coin offerings to raise funds.
The new set of rules will go into force from April 2020 and all cryptocurrency exchanges will need to register under new laws within 18 months from the date of enforcement. Existing cryptocurrency exchanges will need to re-register and new entrants will have to obtain new registrations to provide margin trading services.
The Financial Services Agency of Japan states that the time limit of 18 months is given to motivate all exchanges to complete the registration formalities. It also gives them enough time to unregistered players and clean up the crypto market.