ISA to Adopt ESMA-Like Restrictions on FX Trading

The Israeli Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term industry is about to face yet another blow to its operations in the country. The Israeli Securities Authority (ISA) on Sunday published its intentions to follow in the footsteps of its European colleagues.

The proposed framework will include a reduction in Leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term on trading, alongside transparency demands on the traders’ profit and loss figures.

Less leverage, more transparency

The new three-level tiered leverage will be as follows:

• Low-risk trading: from 1:100 to 1:30
• Medium-risk trading: from 1:40 to 1:20
• High-risk trading: from 1:20 to 1:5

Brokers will also be required to report on the share of gains and losses among their traders. Currently, this data is not public and is gathered by the ISA on a monthly, quarterly, and yearly basis.

Joint efforts

In a talk with Finance Magnates, Tzah Druker, Head of Israeli Trading Arena Association (ITAA) and Chairman of the Board at TGL Colmex Capital Markets LTD (one of the four ISA licensed brokers), stated that he is not worried about this move.

According to Druker, the Association and its members are working with the regulator to further such legislation."This decision derives from a long process that the ISA is leading, and in which we are involved for around a year's time," Druker said.

"Not only that, we are not against this plan; we are even supporting most of its components. Adjusting the Israeli regulations to those of the EU and other countries is a much-needed action,” he added.

Possible self-regulation

Israel is currently facing a political deadlock after two consecutive election cycles resulted in a virtual tie between the political camps. It is not clear whether the various parties will be able to form a government, or if the country is headed to the polls for the third time in one year. "The current political situation may cause this initiative (along with other no-less important financial legislation) to be postponed. Currently, the Knesset barely has an active legislation process. Same goes for its committees and the various ministries. Beyond that, if and when there will be a functioning government, it will have to deal with a major backlog, and regulating the FX industry is not necessarily at the top of their list."

However, if the ISA and ITAA reach an understanding, these restrictions might be implemented by brokers themselves. "We are aiming to come to an understanding with the ISA, regardless of the legislation process. If we find a middle ground, the Israel-licensed brokers will adopt the measures on their own," Druker said.

Having said that, Druker believes that this move must be a part of a bigger change in the legislation on trading. “The mere reduction of leverage isn't sufficient," he stressed. "The ISA should also expand the array of the financial tools that an Israeli broker can offer its investors. Offerings like low-leveraged cryptocurrency trading, for instance, can be a good step forward."

Consolidation is coming

This is yet another milestone in the ISA’s efforts to regulate the Israeli forex market, along with the elimination of its binary options industry. This process that began in 2015 has already caused most forex companies to close their operations in the country, and others – like eToro – to revoke their license application.

Druker thinks that while this move will not cause more brokers to abandon the Middle Eastern country, it will definitely have a major impact on brokers’ activity.

“This move will probably lead to a consolidation in the Israeli industry, similar to what we’ve seen in Europe,” Druker warned.