Court: "Binary Options not Gambling, but Financial Assets"

The Tel Aviv District Court, according to the Honorable Justice Danya Keret-Meir, in Case No. 25717-10-13 Shira Bar-Or v. Itreider Ltd., ruled that binary options are not gambling, but financial assets.

This is a request for approval of a class action lawsuit against a number of long-standing companies that provide binary options services, claiming that trading in binary options is in fact gambling for all intents and purposes, when gambling is an offense under the Penal Code.

The request for approval of the class action lawsuit against the companies states that "these arenas operate in the way that professional gambling organizations operate and they market to the public a distinct gambling product under the guise of a financial product ... "On the occurrence of a certain option from a closed list of options. The realization of the option on which the consumer gambled entitles him to a return in a fixed ratio out of the amount of money on which he gambled."

It is further contended in the application that "the bet on binary options is a bet on price fluctuations of financial assets, where one can bet on the occurrence of one of two possible situations in a short time and known in advance: the price of the underlying asset will rise or fall."

The court addressed the claim in light of Amendment 40 to the Securities Law, which added an entire chapter to the law that deals with the regulation of the field of Internet trading sites in foreign currency - Forex - as well as binary options.

The court held, and rightly so, that the court cannot treat binary options trading is a gamble under the Penal Code, with the legislature treating binary options trading as trading in financial assets in the Securities Act.

In the words of the court: "There is no longer room to adhere to the provisions of the Penal Code prohibiting prohibited gambling, lottery or gambling - which no longer reflect the relevant evidence for trading venues and financial assets, including binary options ... The question of the legality or illegality of trading venues Binary - will be examined in accordance with this special arrangement [the new chapter in the Securities Law] and the penal provisions set forth therein. "

If so, the question of whether or not to trade in binary options under a license granted by the Securities Authority and by virtue of the Securities Law should be addressed.

In a decision of the Securities Authority dated 22.3.16, it was determined that all applications for licenses to operate trading venues [Internet trading sites] in binary options will be rejected.

Is it possible to market binary options trading services to foreign residents abroad?
A "customer" was defined in section 44L of the Securities Law as "a person who seeks to buy or sell a financial instrument, through a trading venue." In short, this definition stipulates that a binary options trading site that markets its services to anyone, whether an Israeli or a resident of a foreign country, will need a license to exercise binary options on behalf of the Securities Authority. However, the role of the Securities Authority is to protect the Israeli investing public.

In an article dated October 19, 2016 on the Economic Night program on Channel 10, a statement was issued by the Securities Authority as follows: “[Chairman of the Securities Authority] Shmuel Hauser believes that binary options are essentially gambling. Since the authority of the authority is limited only to the supervision of entities that market them [binary options] to Israelis, Hauser turned to the Attorney General to change the law so that marketing from Israel abroad can also be banned ... "

In an article by Amar Cohen dated November 18, 2016 in the newspaper "Davar Rishon", Adv. Sarah Kendler, the Legal Adviser of the Securities Authority, was interviewed and stated as follows: "... There we are legally restricted at the moment because the entire Securities Law talks about the need to protect the investing public in Israel ... "

It seems that in the absence of the state's interest in imposing sanctions against Israelis who export Internet commerce services abroad only, and without harming Israelis, in exchange for taxable income for the State of Israel, enforcement against trading sites exporting services to residents abroad will be minimal, if any.