Israel Seeks to Ban Sale of Binary Options Overseas With Law Amendment

Securities Authority makes appeal to the Attorney General amid growing criticism of Israel's role in an industry that critics say exploits investors.

Illustration: Binary options.

Responding to growing international criticism, the Israel Securities Authority said yesterday it was seeking an amendment to the law that would give it the authority to ban the sale of binary options overseas.

The ISA said that Shmuel Hauser, the agency’s chairman, had asked Attorney General Avichai Mendelblit to examine how to rewrite the law, saying he considered trading in binary options to be “in essence gambling.”

“Hauser is very disturbed by this ugly phenomenon, which harms innocent people and unfortunately is fueling a negative image of Israelis and Jews. ... Therefore he is taking all possible measures to eradicate this phenomenon,” the ISA said in a statement.

Quoting from the Book of Isaiah, Hauser rebuked Israeli binary options firms as “the destroyers and layers of waste that go forth from among you.” He vowed that the ISA would cooperate with overseas securities regulators to crack down on the phenomenon.

Binary options involve placing a bet on whether the value of a financial asset, such as a currency, commodity, shares or a stock index, will rise or fall in a particular time-frame, sometimes as brief as a few minutes. It’s a risky investment that is usually marketed aggressively by shadowy firms.

Unlike regular options traded on regulated financial markets, traders in binary options don’t have an option to buy or sell the asset they have bet on at the end of the fixed time.

The size of the largely unregulated industry is unknown, but trading in binary options has soared over the last decade. Israeli firms have taken a leading role in the sector, with an estimated 200 or so companies employing some 15,000 people, many of them recent immigrants with language skills that can be put to use in marketing overseas.

In the United States, trading in binary options is restricted to registered exchanges or markets overseen by the Securities and Exchange Commission. But in most European jurisdictions trading remains legal both on regulated exchanges and on unregulated, Internet-based platforms.

Israel banned marketing of binary options in March, but the ISA said it didn’t have the authority to bar companies from selling the product to foreigners. It gradually realized that it had been put in an untenable position of barring the practice at home while allowing companies to offer trading platforms overseas.

In addition from unfavorable media coverage, Hauser was apparently also moved by recent arrests overseas of Israelis involved in binary options. In July Romanian officials revealed they had arrested at least 10 people in a series of raids on binary options and foreign exchange brokerages. Many of those detained as well as most of the firms they worked for were Israeli, media reports said.