Regulator Seeks More Power to Crack Down on Binary Option Firms

TEL AVIV (Reuters) —
Professor Shmuel Hauser, chairman of The Israel Securities Authority (ISA). (FLASH90)
Professor Shmuel Hauser, chairman of the Israel Securities Authority. (Flash90)

Israel’s securities regulator wants to expand his authority so he can ban the sale of binary options overseas by online trading firms based in Israel, a business that is drawing international criticism over allegations of illicit practices.

The Israel Securities Authority (ISA) in March became the world’s first regulator to prohibit the risky transactions from being offered domestically. Now its chairman, Shmuel Hauser, has asked the attorney general to consider amending the law to give him power to target groups marketing them abroad as well.

A Reuters special report published last month shed light on the extent of the industry and accusations by London-based lawyers who say hundreds of their clients were duped out of vast sums of money by some Israeli firms.

“The Israel Securities Authority is working vigorously with other enforcement agencies to deal with this issue,” the ISA said in a statement.

“Hauser is very disturbed by this ugly phenomenon that hurts innocent people and unfortunately fuels a negative image of Israelis and Jews.”

An amendment to the law would likely require parliamentary approval. A spokeswoman for the ISA said she could not estimate how long such a process might take. The attorney general’s office was not immediately available for comment.

Binary options involve placing a bet on whether the value of a financial asset – a currency, a commodity or a stock – will rise or fall in a fixed timeframe, sometimes as short as a minute. Many large operators are based in Israel.

The fast-growing industry sells itself as a legitimate investment, but clients of some of the firms say they are little more than high-pressure scams. They accuse the companies of transferring money between accounts without approval and in some cases of preventing them from withdrawing their own funds. Because they are based online and allow trading from smartphones or tablets, the industry has attracted a vast number of users who are not professional dealers.

After numerous complaints, Hauser banned the online trading firms from selling binary options to Israelis, but he did not have the authority to prevent them from marketing overseas.

Other countries, including Belgium, have since banned binary options trading. The United States requires binary options to be traded on regulated markets. Elsewhere, online operators continue to operate freely, and are effectively unregulated.

Despite the ban on selling to Israelis, several of the biggest binary options businesses are either run from Israel with Israeli technology, sales and support staff, or are registered to Israeli citizens.

Binary options trading is “in essence gambling,” Hauser said in the statement. All possible measures must be taken to stop them, he added.

The ISA said it is aiding securities regulators around the world to deal with binary options “criminals” when they request such aid.

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