Cabinet Green-lights Bill That Would Shut Down Israel's Massive Binary Options Industry

The measure, which now goes to the Knesset, would ban the sale of binary options abroad ■ Industry has come under criticism for dubious practices, with some saying it encourages anti-Semitism

The Tel Aviv Stock Exchange.
Moti Milrod

Israel’s cabinet approved legislation Sunday that would shut down Israel’s huge binary options industry by banning the sale of the financial products overseas.

The bill, which now goes to the Knesset for approval, caps a campaign by Israel Securities Authority chief Shmuel Hauser to put an end to the industry in Israel, which has drawn sharp criticism abroad for exploiting investors and often leaving them with huge losses.

The sale of binary options to Israelis was banned in April last year by the securities authority, but it has lacked the authority to stop Israeli-based companies from selling the products overseas because its mandate is limited to protecting Israeli investors. The new law would give it broader authority.

“Beyond the serious economic harm it causes to people around the world, the sale of binary options encourages anti-Semitism and hatred of Israel in particular,” Hauser said. “The law will let the ISA act in an unprecedented fashion with civil and criminal penalties against those operating in Israel with foreign clients.”

Binary options involve placing a bet on whether the value of a financial asset — a currency, commodity or stock — will rise or fall in a fixed time frame, sometimes as short as a minute. The securities authority regards them more like gambling than investing because the broker is far more likely to profit than the investor and no knowledge of the markets is required.

Binary trading has grown into a big business in Israel, and Israeli firms dominate the global industry. By one estimate they employ some 15,000 people, nearly all of them in their 20s with no special training in investment advising. Salaries can reach 30,000 to 40,000 shekels ($11,340) a month, which industry critics say is a way of assuaging any reservations about high-pressure marketing and client complaints.

Investors have accused some of these Israeli companies of transferring money between accounts without approval, and in some cases of preventing them from withdrawing their own funds.

The owner of an Israeli binary options firm was arrested on suspicion of fraud and extortion last month after an investor abroad reported losses of more than $500,000 to the online company, the first arrest since the authorities announced a crackdown.

The new law would also prohibit trading forums that sell to overseas clients — even if they do not offer binary options — without receiving a license from the country where clients reside. Transgressions would be punishable by up to two years in prison, and if money laundering is involved, the sentence could reach 10 years.

The bill, which comes in the form of an amendment to the Securities Law, was languishing until Hauser finally won the support of Finance Minister Moshe Kahlon, who brought it to the Ministerial Committee for Legislation on Sunday.

The securities authority said the amendment was slated for fast-track approval in the Knesset, but it may not go to a final vote in the six weeks before the legislature breaks for summer recess. The law would go into force three months after lawmakers approved it.

With reporting by Reuters