China's Big Three Bitcoin Exchanges Suspend Margin Trading, But Questions Remain

Huobi and OKCoin, two of the world's largest bitcoin exchange businesses by volume, have formally announced they have halted margin trading services.In statements issued today on the OKCoin's Chinese-language website and Huobi's Weibo account, the exchanges confirmed changes rolled out quietly roughly a week ago when customers reported restrictions on lending-based services.Representatives from Huobi told CoinDesk that the exchange stopped its services two days ago, and that it will no longer offer margin trading on its China-facing website or its international alternative, BitYes. They also confirmed that Huobi was asked directly by the People's Bank of China (PBoC) to stop the services today, but that it had not previously heard from the central bank on the matter.This coincided with what appears to be a formal acknowledgement of findings circulated in China-based news outlets yesterday.According to The Wall Street Journal, the PBoC has issued a statement that reads:

"These exchanges have been in violation by getting into the margin financing business, causing abnormal market volatility. The inspection also found these exchanges didn’t put in proper international anti-money-laundering controls."

Yet, other exchange representatives sought to downplay the idea that the changes may be permanent.An exchange representative, who declined to be identified, called yesterday's news stories "sourceless reporting". "This is informal guidance that is being interpreted as formal guidance," he said.Likewise, Huobi indicated it believes the guidance to be "informal", and that it may lack the weight of formal written guidance or a legally binding edict.As with other China-based exchanges, Huobi said it would continue to cooperate with the central bank and its requestsRepresentatives from OKCoin could not be reached for official comment.

'Not illegal'

Despite the formal acknowledgement of changes, exchange representatives seemed to push back against the idea that there was full clarity on how China's regulatory climate would move forward.In statements to Reuters, BTCC CEO Bobby Lee added that the PBoC's requests were "not based on any official documentation", and that the central bank has not issued an opinion that bitcoin margin trading is "illegal".Lee could not be reached for additional comment at press time.The representative from Huobi also suggested there remains a lack of clarity on how things will develop going forward.When asked if this meant that margin trading would end in China, she noted only that smaller exchanges had not been asked to end the practice."I just know regulators asked the three major exchanges to stop," she added.A representative from OKCoin, speaking privately, said that he believes it may be possible for margin trading to continue for international customers. OKCoin operates both a China-facing bitcoin exchange (OKCoin.cn) and an international website (OKCoin.com) that operates out of Hong Kong."You could have margin go away, or there might be a situation where Chinese people can't use it," he said.

Little impact

At press time, the price of bitcoin was up 0.5% on the day, suggesting the impending announcements were already priced in by market participants.Yet, there was a sense among some traders that any prolonged end to margin trading could have an impact on the global bitcoin market.Reports have suggested China accounts for as much as 95% of global trading, though other estimates peg this figure at the lower, but still dominant figure of 85%.China-based over-the-counter trader Zhao Dong suggested that there is a fear that reduced margin trading could impact exchange liquidity.Other traders expressed that they are still in "wait and see" mode, pending any formal statements from China's regulators.

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