Canadian regulators propose ban on crypto short selling, margin trading

Canadian regulators have proposed a ban on certain trading activity in the crypto world to safeguard investors from potential risks. 

The so-called Canadian Securities Administrators, a financial watchdog, proposed a temporary ban on crypto platforms on short trading, which sees investors betting on a certain asset depreciating over time. It also proposed a ban on crypto firms supporting margin finance. Both shorting and trading on margin expose investors to more risk, even in traditional markets. 

"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. We may revisit this once we have a better understanding of the risks introduced to the market by the trading of crypto assets," the agency said in a note March 14.

It's not surprising that Canadian government officials are looking more closely at the risks relating to cryptocurrency investing given recent news out of Quadriga, another Canadian crypto exchange. Founder Gerald Cotten's alleged death left clients on the hook for the $140 million worth of crypto stored on the platform. The CEO was the only person with access to the funds. 

The Canadian Securities Administration further elucidated the risks associated with crypto platforms in the wide-ranging memo. 

"Many Platforms have control of their participants' crypto assets (e.g. they keep participants' crypto assets in a single account on the distributed ledger under the Platform's private key or the Platform holds its participants' private keys on their behalf)," the agency said. 

"Platforms may not have necessary processes and controls in place to segregate participants' assets from their own and to safeguard those assets, including maintaining and safeguarding any private keys associated with wallets held by the Platform."