Breaking News: Binary options trading outlawed in Israel as regulator deems it “similar to gambling”

In Israel, technological development is a major part of every day life, the country having given rise to success stories in medical technology, computer software and non-bank fintech, including approximately 30% of all technology vendors that provide many advanced ancillary services to the FX and binary options industry.

Whilst the country is not so prominent in the retail brokerage business, it is fair to say that a lot of technology which powers the global retail brokerage business has been developed and engineered in Israel.

The ‘Start-up Nation’ may well have been the birthplace of the facilicators, however the regulators and government are now taking a tough line on various OTC brokerages, the latest being binary options which has been today made illegal in Israel.

In Israel, as in many countries, gambling in any form is illegal, with the exception of the ‘Lotto’ sports lottery and the “Mifal HaPais” (literally dream factory) which gains its legality by donating its proceeds to the construction of new schools and other such community projects that benefit the population.

The Israel Securities Authority (רשות ני”ע in Hebrew) has decided to prohibit all binary options trading in Israel, to all retail customers.

In a report by mainstream Israeli news source Globes, the authorities in Israel have extended the prohibition to all Israeli firms wishing to market off-exchange binary options to retail customers.

A letter detailing the ruling was obtained by Globes, in which the regulatory authority explained that it has decided “not to allow companies operating in this regulated jurisdiction to offer or trade binary options to any type of customer, as the complexity of the options and difficulty in gaining ground on one hand, and lack of multilateral trading opportunities (depth of market) allows the creation of a market price on the other hand, are factors which do not constitute an approvable market for retail customers to trade.”

The Israel Securities Authority further stated “This [binary options trading] is a system for which regulation would prove difficult and ineffective and therefore the Israel Securities Authority does not consider it necessary that it will be able to be offered by regulated providers.”

Israel deems binary options similar to gambling – and gambling is illegal in Israel

The statement from the Israeli authorities continued “Due to the characteristics of retail binary options platforms resembling those of gambling services, the opinion of the Israel Securities Authority is that it resembles gambling and therefore the continued operation of binary options firms in supervised environments may not only harm the customers themselves, whether novice or experienced, but also could damage the reputation of the entire market.”

The new decision has come about as a further development in the State of Israel’s recent regulation of the entire domestic non-bank electronic trading market, and is the latest development in the implementation of a series of regulatory rulings including the restriction of trading in certain securities and the ruling that firms operating in Israel must only solicit business with Israeli citizens.

Whilst this is an interesting development indeed, and Israel’s ruling echoes that of the United States, a nation in which all OTC binary options trading is also illegal, and only on-exchange binary options are available. Additionally, the four major binary options platform providers are all based in Israel, however their solutions are often provided to brands and brokerages in other global jurisdictions, which means that it is very unlikely to affect these companies as the end user is very rarely based in Israel.

The question is, how far will the regulators expand on this ruling, and will the Israel Securities Authority insist that platform providers based in Israel are indeed that – solely software providers – and do not engage in any market making activities? This is as yet unclear and as Israel’s all encompassing regulatory framework evolves, we may well find out.

(Editor’s note. I translated the quotes from the Israel Securities Authority from Hebrew to English as accurately as possible, however as in most languages, a direct translation is not always possible, therefore every effort to retain accuracy has been made).

Featured photograph: Achziv Beach, Haifa, Israel. Inset: Tzameret Park, Midtown Tel Aviv, Israel. Copyright FinanceFeeds.