Japanese Exchanges Try To Win Back Trust

Japan’s 16 licensed cryptocurrency exchanges could be set to self-impose a limit on so-called margin trading.

A number of Japan’s leading exchanges offer margin trading services – allowing customers to borrow tokens to boost their buying capacity, using their existing holdings as leverage.

However, per multiple Japanese media sources, the Japan Virtual Currency Exchange Association (JVCEA) now wants to bring in a universal cap on the amount that traders can borrow to boost their gains (or magnify their losses). The proposed cap would limit margin trading leverages to 4:1 as of 2019 – a considerable reduction, considering Japanese foreign exchange trading platforms currently impose a 25:1 cap.

The proposed margin trading cap appears to be yet another step in the direction of gaining acceptance from the public – and winning back customer trust in the wake of the cataclysmic Coincheck hack in January this year.

According to media outlet Gigamen, the association stated, “Cryptocurrency transactions are totally different to foreign exchange margin trading. We will need to carefully consider this fact and create a set of rules that is suitable for Japanese cryptocurrency transactions, using successful case studies as a benchmark.”

Margin trading has drawn criticism from a number of Japanese customer watchdog associations, who claim that exchanges have allowed overly-leveraged investors to chalk up heavy losses without due care.

The JVCEA, whose members comprise most of Japan’s leading exchanges, is on a credibility drive, and is hoping to convince the government and the Financial Services Agency (FSA) to recognize the association as an official self-regulatory body.

The association has already proposed measures to address two of the FSA’s biggest bugbears: with measures to improve data management security and ditch trading in so-called anonymous tokens, such as Monero and Dash.

However, the JVCEA was rocked last month when its two vice presidents – the CEOs of Bitbank and bitFlyer – stepped down from their roles at the association after their exchanges were hit with FSA business improvement orders.

Both exchanges this week handed over written responses to the FSA’s orders. The agency will likely look to follow these responses up with further inspections in the weeks ahead.