On June 2017, the government of Israel approved a draft bill to amend the Securities Law that is intended to tip the scales in the battle being waged in the financial trading sector over binary options.

The draft bill has two key components:

The objective of the first component is to anchor in legislation the directive of the Israeli Securities Authority (ISA) banning the offering of binary options trading to Israeli customers through trading rings by virtue of the following three elements: the imposition of an express prohibition in this regard; a requirement that any person applying for a license to manage a trading ring from the ISA shall not offer binary options for trading as stated, whether at the time of its license application or at any time after receiving the license; the imposition of sanctions for a violation of this prohibition, including by making the violation of this prohibition a predicate offense pursuant to the Prohibition of Money Laundering Law.

The second component seeks to expand the prohibition of trading of binary options even in relation to customers located outside of Israel. In this regard, the draft bill prescribes that managing a trading ring that solely serves customers located outside of Israel and through which trading in binary options is offered is prohibited, and that the offering to trade in binary options through such trading ring is prohibited as well. For the purpose of this component, management of a trading ring includes (but is not limited to): (1) strategic decision-making of the company that is managing the trading ring; and (2) operating the trading arena, including the operation of the computerized system used for managing the arena, pricing and clearing the financial instruments as well as processing the customers’ payments, and the operation of telephone or online marketing or service centers, whether directly or by a service-provider. The explanatory remarks of the draft bill clarify that paragraph (2) shall apply to all of the material operations that facilitate the provision of the services by the trading ring, including in relation to the party that is selling software for managing the trading system for the trading ring and that continues to operate the software and to provide support to the trading ring; on the other hand, paragraph (2) shall not apply to merely selling shelf software products.

There is no disputing that the second component of the draft bill is quite revolutionary: it imposes a criminal prohibition in respect of the management of the trading ring or the offering of binary options for trading to customers located outside of Israel, including where these are conducted according to a foreign license; thus, the draft bill is seeking to prohibit activities that are completely legal according to the trading ring’s license, as is also expressly stated in the draft bill’s explanatory remarks. It seems that this is a radical concept, since it is seeking to subordinate the laws of a foreign country to a prohibition of binary options that the ISA is seeking to impose.

The Israeli Securities Authority is attempting to promote this draft bill speedily and, by doing so, to promote the legislative proceedings relatively quickly. To be continued!