Israeli Court Holds: Online Trading Platforms in Financial Assets are not Akin to Betting

The Tel Aviv district court’s department of economic affairs recently dismissed a motion seeking class action certification of a lawsuit filed against online platforms trading on financial assets, including binary option trading, holding that these platforms do not violate the criminal prohibition against administering unlawful betting and gaming. Judge Danya Kareth Meyer held that trading on these platforms does not implicate the penal code’s provisions governing unlawful gambling because trading platforms are regularized under the 2010 amendment to the Israeli Securities Law.
The lawsuit was filed in 2013 against Etrader, Manx Online Trading and Twenty Four Group, who all operated trading platforms in which the operator of the platform is the buying or selling counter-side of each customer transaction. The lawsuit alleged that trading on these platforms is a zero-sum game in which the operators are only profitable when their customers are unprofitable, thus resembling the commercial basis under which entities that administer betting operate.
The Israeli Securities Authority submitted a court brief in these proceedings, indicating that two of the three defendants filed an application for a trading platform permit under the amended Securities Law, and that they may therefore operate their trading platforms until the authority decides on the merits of their applications.
The Judge held that class action is not certifiable on the basis of the Israeli penal code given the fundamental change in the legal landscape with the enactment of the 2010 amendment to the Securities Law. The court indicated that the amendment provides for an expansive and sophisticated regularization that unequivocally prohibits the activities of a trading platform absent a permit from the Israeli Securities Authority. The court noted that the arrangements underlying the 2010 amendment are so radically different from the penal code’s provisions addressing unlawful betting that they render the latter irrelevant to trading platforms. Source: Globes (in Hebrew, by Ela Levy-Weinrib).