Draft Law for Regulation of Broker Dealer Activity in Israel
9 November 2020
Dear Friends and Clients,
On November 5, 2020, the Ministry of Finance published for public comments a Memorandum of Law: The Securities Law (Regulating the Activities of Broker Dealers), 5720-2020 (the “Memorandum of Law”).
Currently, the activities of members of the Tel Aviv Stock Exchange (the “TASE”) are regulated in the TASE regulations and are supervised by the TASE. The Supervisor of Banks at the Bank of Israel also supervises members of the TASE that are banking corporations. However, broker dealer activity of entities in Israel that are not banks or TASE members is not currently regulated or subject to supervision.
It is proposed to enact a designated chapter in the Securities Law, for the regulation of broker-dealers in Israel and to subject the entities engaged in this activity to the supervision of the Israel Securities Authority. The Memorandum of Law defines the regulated “broker-dealer” activity. The proposed definition is broad and captures: (1) the implementation of instructions for the execution of securities transactions for clients; (2) the receipt and transfer of instructions for the purpose of effecting transactions for clients; and (3) the purchase or sale of securities for its own-account by executing client instructions.
The main points of the Memorandum of Law are as follows:
- According to the proposal, the designated chapter will include prudential regulation of broker dealers, the level of service they provide to their clients and their conduct in situations where a client’s investment instructions may raise a conflict of interest between their interests and those of their clients.
- According to the proposal, only a licensed corporation will be permitted to conduct broker-dealer activities, but the employees of the corporation themselves will not be required to have a license in order to engage in broker-dealer activities.
- The proposal provides for exemptions from the licensing requirement for certain supervised corporations, mainly those subject to other regulation and supervision – for example: it is proposed to exempt those who lawfully engage in asset management, banking corporations, market makers, and more.
- It is also proposed to exempt from the licensing requirements entities that hold a foreign license for broker-dealer activity who operate exclusively with qualified clients (broadly speaking, institutional clients and qualifying high net worth individuals) in Israel (subject to registration in a designated registry). The proposal allows for granting regulated foreign broker dealers further exemptions from prudential and other requirements, by the Israel Securities Authority.
It is also proposed as part of this legislation to create a legal infrastructure that can provide regulatory incentives for entities that will establish a platform for providing technology-based brokerage services to retail customers in Israel, thus encouraging fintech innovation and solutions for the capital market in Israel. These incentives will be determined within the framework of regulations and provisions under the Securities Law.
Our firm has a dedicated team that represents international and local brokers currently active in Israel, including in regulatory processes with the authorities in general and the Israel Securities Authority in particular.
Public comments can be submitted until 26/11/2020
We will be happy to advise and assist in this matter and any other.
Corporates, Securities and Capital Markets Department,
Herzog Fox & Neeman