Tougher Forex Margin Trade Rules to Spur Realignment in Japan

Tokyo, July 27 (Jiji Press)--Japan's additional restrictions on foreign exchange margin trading to be introduced in August are expected to reduce trading volume and further promote industry realignment.
In order to make trading less speculative, the Financial Services Agency imposed a leverage cap for the first time in August last year, with a limit of 50 times the margin deposits of investors, and is set to lower the ceiling to 25 times next month.
When there was no leverage cap, many individual investors engaged in transactions worth as much as several hundred times their deposits and ended up suffering massive losses.
In the month the 50-times leverage cap was introduced, volume of over-the-counter foreign exchange margin trading totaled 110 trillion yen, down 30 pct from the previous month.
The monthly volume later grew back to around 150 trillion yen, or levels seen before the leverage cap was introduced, thanks to the yen's strengthening on the exchange market. But the momentum was not as strong as several years ago when volume was constantly growing.
At present, there are some 80 brokers of foreign exchange margin trading, down about 10 from before August last year.
With the lowering of the leverage cap to 25 times, many industry sources said a reduction in trading volume cannot be avoided.
Yuji Kusunoki, president of Rakuten Securities Inc., said the volume will likely fall 30 pct, while a senior official of a major service provider said it will not be easy to bring the monthly volume back to the 150-trillion-yen line.
The president of a foreign exchange margin trader predicted, "Industry realignment moves are expected to start around the year-end as brokers will keenly feel the impact of the lowering of the leverage cap."
Informed sources said major online securities brokers have already been approached by margin traders with offers of business handover.
Meanwhile, some industry officials welcome the tightening of restrictions.
The tougher rules will help dispel to a certain extent the high-risk image of foreign exchange margin trading and "could lead to an increase of individual investors in the long run," an industry official said.