New Israeli regulations pertaining to activities of trading platforms will come into effect on May 26, 2015. These regulations will directly affect the activity of forex, binary options and other trading platforms, Israeli and foreign, which operate in Israel or target Israeli clients. Companies wishing to continue conducting operations in Israel must apply for a license by May 26, 2015.
The enactment of the regulations follows the adoption of Amendment 42 to the Israeli Securities Law, which was legislated as part of an attempt to regulate activities of companies managing trading platforms and subordinates trading platforms’ activities to strict oversight by the Israel Securities Authority (ISA).
The regulations subject trading platforms to extensive restrictions, including licensing requirement by the ISA, extensive reporting duties to clients and the ISA, minimal equity requirements, duties regarding management of conflicts of interest, a prohibition on provision of investment advice to clients, rules regarding advertising, and permitted leverage on financial assets.
The regulations require the trading platform to undertake a process of determining the suitability of clients to the trading activities and associated risks. This process must be documented and should include questionnaires and other examination forms that enable the trading platform to evaluate the client’s understanding of the risks involved in the client's activities.
The regulations also require trading platforms to allocate sufficient funds to support market risks, credit risks, liquidation risks and operating risks, as well as to develop and use techniques to manage risks.
The permitted leverage rate for clients of the trading platform is as follows and depends on the traded financial asset: high risk assets, have a permitted leverage ratio of up to 20:1 of the trade's value; medium risk assets have a permitted leverage ratio of up to 40:1 of the trade's value; and low risk assets have a permitted leverage ratio of up to 100:1 of the trade's value.
The regulations require the trading platform to submit monthly reports, activity reports, credit risks reports, and market risks reports to the ISA. The trading platforms are required to provide clients with transaction approvals, which include information regarding transactions executed and the accumulated balance of the specific financial asset following the execution of the transaction, bi-weekly and detailed monthly Parties acting in the Israeli market or targeting Israeli clients without an appropriate license may be exposed to criminal and administrative proceedings (including possible sanctions of imprisonment and fines reports).
The author is a partner with Tadmor & Co. Yuval Levy & Co. and heads the firm’s Capital Markets, Securities & Financial Services Regulation practice group.
Published by Globes [online], Israel business news - www.globes-online.com - on March 31, 2015
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