Following Israel Securities Authority (ISA) chairman Prof. Shmuel Hauser's declaration of his intention of eliminating trading in binary options by Israeli firms even for customers outside Israel, yesterday evening the ISA distributed for public comment a draft legislative amendment designed to bar Israeli firms from offering trading in binary options to such customers.
The ISA's desire to completely prohibit trading in binary options by Israeli firms is not new. At the same time, the draft bill extends the ban, as it provides that online trading arenas (also known as forex companies) will be able to act viv-a-vis non Israelis only if they hold a license to operate in the country in question, which in effect means a European or US license.
Many Israeli companies operate trading arenas in territories defined as non-regulated in other parts of the world (in Arab countries for example), and there is no doubt that the new legislation will have a considerable impact on their business. It will mean that a trading arena will not be able to operate in a non-regulated country.
The ISA explains that the current situation, in which Israeli firms can approach customers in other countries, while it only regulates trading with Israeli customers, has created a very problematic situation. "As a result of this, the ISA and enforcement agencies in other countries began to receive complaints about heavy losses by customers in various countries because of Israeli trading arenas operating without supervision and without licenses. It emerged that in many cases the trading offered in the trading arenas was a cover for criminal activity: deception and fraud. This phenomenon has reached proportions that are causing widespread negative publicity around the world, significantly damaging Israel's image in general and the reputation of its capital market in particular."
The ISA is therefore now asking the Knesset to change the legislative framework that was only recently imposed on the trading arenas, saying that "in the light of the severe damage caused to the image of the State of Israel, as mentioned, and because of the growth in the phenomenon, it is proposed to amend the law on this matter, and to give the ISA enforcement powers in relation to trading arenas managed in Israel but directed at customers overseas as well."
The ISA now seeks to set down in law that "activity of trading arenas in Israel with customers outside of Israel will be allowed only if the person or company holds a foreign license permitting activity in the country in which the customers are resident and if they do not offer a financial instrument of the binary option type or other financial instrument as determined by the minister of finance at the ISA's suggestion or in consultation with it."
The ISA's circular continues, "In this way, trading arenas run from Israel and acting without a foreign license meeting the requirements of the law will be prohibited from approaching customers, or trading with customers, from countries in which there is no obligation to obtain a license for operating a trading arena, or from countries in which there is such an obligation to obtain a license but the trading arenas do not hold one, or offering customers a financial instrument of the binary option type or any other financial instrument determined by the minister of finance."
Sanctions provided in the bill include up to two years' imprisonment for a criminal conviction.
Published by Globes [online], Israel business news - www.globes-online.com - on February 23, 2017
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