In a landmark ruling earlier this month interpreting the application of the Israeli Securities Law to online trading platforms, the Financial Department of the District court in Tel-Aviv held that an online binary options trading platform is required to obtain a license to operate as an exchange, from the Israeli Securities Authority. This landmark decision affects all companies that operate platforms with similar characteristics.
The court decided against the petitioner, G.G. Fairtrade, which runs an internet platform that enables multi-party binary option trading between offerors and offerees. Within the platform, the company assumed the role of an intermediary between offerors and offerees and was not in itself a party to the transactions, unlike many other online trading platforms. The respondent, the Israeli Securities Authority, asserted that Fairtrade’s activities were unlawful because they effectively amounted to a securities exchange, whose operation without a license is a violation of the Israel Securities Law. The Authority ordered Fairtrade to cease its operations. It also published a notice warning the public from using Fairtrade’s platform. Fairtrade denied being subject to the license requirement, asserting that it is not a “securities exchange” as defined in the statute.
The Court recognized that the dispute stems from whether traded binary options fall within the definitions of “securities” in the Israel Securities Law. The court adopted a purposive interpretation of the statute and found that derivative trading in general, and binary options specifically, could expose traders to risks that they are not aware of. This type of trading raises concerns for the safekeeping of traders’ money, fair trading principles, and complete and equal access for all traders to information about trading rules and pricing. The court concluded that reducing these risks requires regularizing this type of trading. The court conceded that regularizing this market could diminish it, but indicated that such a result does not raise concerns because the social necessity of this type of trading is doubtful.
The court went on to explain that even if Fairtrade takes precautions in order to protect users from the risks associated with this type of trade, regulating this market is still required to ensure that other similar platforms apply appropriate protections and safeguards. Given the absence of any other regulation governing this type of trading, the court concluded that it must hold that binary options fall within the definition of “securities” in the statute. The court ultimately dismissed the company’s petition and upheld the Israeli Securities Authority’s decision ordering Fairtrade to cease its operations.
The court decision, in Hebrew, is available here.