During the course of 2017, an amendment was introduced to the Israeli Securities Law, 1968, which prohibited the offering of securities trading services other than through a securities trading system managed by a licensed exchange in Israel. However, the amendment also provided that the Chairman of the ISA would be authorised to grant a permit for the provision of such services via a non-Israeli securities trading system, subject to certain conditions.
Following the publication in June of a draft of such a permit, the final version thereof has now been published (dated 27 December 2018).
The permit provides that permission will be granted for the provision of securities trading services via a non-Israeli securities trading system provided the conditions therein are met – meaning, and contrary to certain other exemptions in the securities law field which apply automatically if the appropriate conditions apply, that even an entity which is in compliance with the conditions will nevertheless need to apply for a specific permit.
Two sets of conditions are set out in the permit – the first for foreign stock exchanges, and the second for other entities.
Stock exchanges, firstly, will be permitted to provide such services, provided that these are offered and provided only to the corporate entities (ie not including individuals) which appear in the First Schedule to the Securities Law (generally referred to as “Sophisticated Investors”), trading for their own account. The services which are offered must relate only to financial instruments which are not traded in Israel, other than those of dual-listed entities. This activity must represent only a very small part of the exchange’s overall activity, must be supervised by the relevant foreign regulator, must not constitute activity specifically directed at Israeli investors, and all clearance of transactions must take place outside Israel.
Other entities may operate pursuant to two permitted courses. The first is the offer and provision of services to Sophisticated Investors only, whether corporate entities or individuals, provided that any approach or publication states clearly that it is only for the benefit of Sophisticated Investors.
The second course permits the offer of services to non-Sophisticated Investors, provided that the offeror is either a) the holder of an Israeli banking licence, b) a member of the Tel Aviv Stock Exchange, c) an entity which is regulated as a broker-dealer in the US or as an investment firm or credit institution authorised to provide investment services under the MIFID directive in an EU member country, or d) the holder of an Israeli investment advice or investment marketing licence, provided that such services are offered via one of the entities in a) to c). In addition, the offeror must not be operating on behalf of the stock exchange on which the securities trading would be carried out, and must not market a specific exchange or market.
Applications for specific permits are made to the ISA, accompanied by a declaration that the applicant meets the relevant conditions, which declaration must be renewed every three years.
The general permit provides finally that any entities which have to date been providing services on the basis of the ISA’s November 2017 no-action letter must file an application within four months of the date of the permit, failing which they will cease to be entitled to operate without a permit, and the terms of the no-action letter will no longer apply to them.