Israeli Anti-Binary Options Legislation Harsher Than Expected

While many market analysts had previously expressed concerns that the proposed Israeli legislative ban on binary options trading was being watered down, the latest draft of the legislation appears to indicate the exact opposite to be true. The draft of the legislation that was ultimately approved by the Knesset Reforms Committee – and should turn out to be in essence the version enacted into law – is extremely far-reaching in its efforts to shut down binary options trading.

As it stands, the legislation will likely effectively shut down all Israel-based binary options providers or necessitate them completely revamping their business models.

Attacking the Requisite Technology

In the most recent changes to the legislation, the Reforms Committee significantly expanded the definition of “managing a binary options brokerage”. This is a key development, since much of the previous criticism of the proposed legislation focused on the fact that the proposed ban’s definition was so narrow that binary options firms might still be able to operate simply by changing the name of the services they provide.

The new, hugely expanded definition extends to include many critical technology functions that binary options brokerage firms rely on. The definition of “managing a binary options brokerage” as it stands now includes such things as the pricing and clearing of binary options trades, transfer and clearing of client funds, the operation of marketing or customer service centers related to binary options trading, and even operating the computer system of a binary options brokerage. In addition, the legislation will apply to activities regardless of whether they are engaged in directly or through a third-party service provider.

The new, hugely expanded definition extends to include many critical technology functions that binary options brokerage firms rely on.

Strong Statements by the Israeli Authorities

During the Reforms Committee discussion of the binary options issue, a spokesperson for the Israel Securities Authority (ISA) stated its firm belief that, “binary options are like gambling” and, “We don’t want this to be managed from Israel.” In line with the Committee’s expanded definition, the ISA spokesperson said that, in practical terms, “there is no separation between the technology companies and the (binary options) brokers.”

During the Committee’s meetings, the Israeli Police also reiterated the strong stand that it has adopted in opposition to binary options trading. Echoing in part the ISA’s statement, the Police believe that binary options trading is closely related to online gambling, and that the two enterprises share many of the same technology providers. The police have taken strong and wide-reaching action to shut down binary options trading, including contacting Google and Apple to get binary trading apps removed, asking Facebook to ban binary options trading ads, and working with credit card companies to block money transfers to binary options trading firms.

The Israeli Justice Department’s statement falls along the same lines as those by the ISA and the police, asserting that computer software companies that develop the trading platforms for binary options trading are effectively business partners of the binary trading brokerage firms. “Whoever supplies a platform for fraudulent companies is an accomplice to their crimes…The mere sale of a product that has elements of fraud is an offence.”

In short, the proposed legislation will effectively force technology providers that wish to continue operating in Israel to focus solely on trading technology that is unrelated to binary options trading.