The Canadian Securities Administrators and the Investment Industry Regulatory Organization of Canada (IIROC) have jointly proposed a framework for cryptocurrency exchanges that would halt short selling and margin trading of digital assets.
Ban on Cryptocurrency Short Selling and Margin Trading
The Canadian Securities Administrators and the IIROC have filed a joint consultation paper called Proposed Framework for Crypto-Asset Trading Platforms on March 14th, 2019, seeking community feedback regarding the direction cryptocurrency regulations should partake.
At the very beginning of the paper, the regulators outline their main concerns:
Although DLT may provide benefits, global incidents point to crypto assets having heightened risks related to loss and theft as compared to other assets.
The framework, if approved, will likely cause a massive turmoil amid cryptocurrency traders, mainly because it intends to strip them off two of the most commonly used trading instruments, namely, short selling and margin trading.
To reduce the risks of potentially manipulative or deceptive activities, in the near term, we propose that Platforms not permit dark trading or short selling activities, or extend margin to their participants.
Removing short selling and margin trading as instruments on cryptocurrency exchanges would essentially limit traders to only execute regular spot trades.
As Bitcoinist reported, Japanese regulators approved legislative amendments to their existing payment services law, limiting the amount of leverage cryptocurrency exchanges may offer their users to two-to-four times their initial deposit.
However, it’s worth noting that Japan hasn’t stripped away the possibility to short trade digital assets.
The proposed framework comes following the scandal with what used to be Canada’s largest cryptocurrency exchange QuadrigaCX and the death of its CEO.