The battle has paid off: Judge Ruth Ronen ruled in the Tel Aviv District Court for Economic Affairs today that USG Capital can continue to provide algorithmic trading services. The judge granted USG Capital's petition to set aside the decision by the Israel Securities Authority (ISA) to freeze the company algorithmic trading business on the grounds that it was operating without a license.
Nevertheless, restrictions were imposed on the company's continued activity in this area, the main one being that it will not be allowed to give training to customers in the trading software they will use.
The ISA argued that providing training was not consistent with trading by customers being independent, and that the company should refrain from any interaction with the customer in relation to the use of the algorithmic trading program, other than provision of technical support.
The court accepted this position, and ruled that the training for which the company sought approval was liable to turn into investment advice, and so could not be allowed.
The court's decision is precedent-setting on the question of whether providing algo-trading services requires a license. Algo-trading has been much in the news lately, because of the collapse of Utrade and lawsuits filed by several investors against investment houses, as well as the ISA's intensive efforts against investment houses operating in this area without licenses.
Although today's court's decision was in the form of a provisional order, and was not a final ruling, the implication is that under certain circumstances companies active in algo-trading will not be required to hold trading licenses. This is contrary to the ISA's stance that anyone who wishes to manage other people's money via software must have a portfolio manager's license.
USG Capital Moshe Shalom welcomed the court's decision, saying, "This decision represents a basis for future regularization of algorithmic trading and is good news for our customers."
Published by Globes [online], Israel business news - www.globes-online.com - on April 17, 2016
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