On October 10, 2024, the Israeli Ministry of Finance published a memorandum for public comments on the Securities Law (Regulation of Broker-Dealer Activity), 2024 (the “Memorandum”).

Please note that public comments can be submitted until November 7, 2024.

The Memorandum proposes the enactment of a dedicated chapter in the Securities Law, 1968 (the “Securities Law”), which aims to regulate the “broker-dealer” industry in Israel and subject entities engaged in such activity to licensing requirement and supervision by the Israel Securities Authority (the “ISA”).

The regulated “Broker-Dealer activity” is defined broadly and applies to the following areas:

• Brokerage activity– defined as receiving and transferring orders for the purpose of executing clients’ transactions in securities, or executing clients’ securities’ transaction orders by other means, as well as bringing together two or more investors in a way that leads to a securities transaction between them.

• Dealer activity – defined as buying or selling securities for one’s own account as part of executing client orders.

Key Highlights of the Memorandum

• Licensing Requirement – According to the Memorandum, anyone engaged in broker-dealer activity, as defined above, will be required to obtain a license from the ISA. The license will be mandatory both for entities conducting broker-dealer activity in Israel and for foreign companies targeting the Israeli public, such as through advertising and marketing. Additionally, the Memorandum outlines obligations toward clients, including duties of loyalty and care, suitability of services, best execution, and more.

• Transitional Provision – The Memorandum provides a transitional provision for entities currently operating under a permit pursuant to Section 49A of the Securities Law. Such entities will be allowed to continue their activities as long as they apply for a license within three months of the law’s effective date and receive confirmation from the ISA that their application has been submitted.

• Licensing Exemptions – The proposed Memorandum outlines exemptions for certain regulated entities, primarily due to existing regulation and oversight to which they are already subject. For example, entities lawfully engaged in portfolio management, Israeli banking corporations, market makers, and Israeli licensed Trading Platforms may be exempted.

• Multilateral Trading Facility (MTF) – According to the Memorandum, the ISA Chairperson may permit a licensed broker-dealer to operate a multilateral trading facility (MTF). A licensed broker-dealer operating an MTF will be exempt from the requirement to obtain a stock exchange license, subject to the terms and obligations imposed by the ISA.

• Corporate Governance Requirement – Under the proposed Memorandum, broker-dealer activity can only be conducted through a licensed corporation or a corporation exempt from the licensing requirement. It also imposes organizational duties and corporate governance rules on licensed entities, including capital requirements, information security mechanisms, risk management, internal controls, credit oversight, cyber protection, and business continuity plans.

• Foreign Broker-Dealer – The Memorandum grants the ISA authority to grant reliefs for foreign broker-dealers, defined as corporations engaged in broker-dealer activity outside Israel under a foreign law regulating such activity.

Our firm has a dedicated team representing both international and local brokers currently operating in Israel, including in regulatory processes with the ISA. We are available to assist with any questions or issues related to these matters and invite you to contact us to discuss possible comments and responses to the Memorandum.

As a reminder – comments on the Memorandum can be submitted until November 7, 2024.

To access the Memorandum on the Ministry of Justice website (Hebrew version) >> Click here