The Knesset Reforms Committee, chaired by MK Rachel Azaria, approved a bill today submitted by the Ministry of Finance and the Israel Securities Authority (ISA) amending the Securities Law so as to forbid trading arenas operating from Israel from offering trading in binary options to any customers, whether in Israel or abroad. The amendment bill will now go to the Knesset plenum for second and third readings and will come into force three months from the day it is published in the Official Gazette.
A binary option is a call or put option which pays out a fixed amount of money if the underlying asset that is the subject of the option reaches a certain level at the time the option expires. The buyer of the option either receives the fixed amount or nothing.
The binary options industry has gradually been exposed in the past few years, and what came to light alarmed the ISA. The scandals, some of them exposed in a series of articles in "Globes", include confessions of former workers in this area of their working practices, such as being paid monthly salaries of tens and even hundreds of thousands of shekels to tempt investors to transfer their money to the companies they worked for, when they knew that the customers would lose all.
As the complaints grew, the ISA campaigned to eliminate the binary options industry, and forbade the marketing of such options to customers in Israel. The closure of the Israeli market, however, led the companies involved to focus on customers outside the country. Complaints started to pile up at the ISA and with local police forces from foreign investors alleging that they had been swindled out of hundreds of thousands of dollars or euros that were transferred to Israeli companies and disappeared.
The new bill gives the ISA certain enforcement powers in relation to trading arenas that operate from Israel but target only customers outside of Israel. It forbids such arenas to offer overseas customers trading in binary options, and states that to do so will be considered a source offense under the Prohibition of Money Laundering Law. This is because of the criminal characteristics that tend to be associated with such trading.
In the Reforms Committee's sessions on the bill in the past two weeks the positions of both the law's supporters and its opponents were heard. Superintendent Gabi Biton, who commands the Israel Police Money Laundering Task Force, said in his appearance before the committee, "In the past few years the phenomenon has become a monster. There is huge movement of criminal elements from one kind of activity to another, and they have come to this as well. Crime organizations involved in this area are enriching themselves massively."
Representatives of the companies operating binary options trading also appeared before the committee, and argued that the cases of fraud were a matter of "rotten apples" and did not reflect binary options trading in general. They said that the bill would have a disproportionate effect on Israeli trading and technology companies.
ISA chairman Shmuel Hauser said after the committee approved the bill, "Beyond the severe financial impact on people all over the world, the trading arenas that offer binary options cause appalling and growing damage to Israel's image and sow animosity towards Jews in general and Israelis in particular. The law will enable the ISA to act in an unprecedented fashion against those who operate vis-a-vis foreign customers, and provides both civil remedies and criminal sanctions, up to and including prison sentences."
Published by Globes [online], Israel business news - www.globes-online.com - on August 7, 2017
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