May 21, 2021 / Sivan 10, 5781
ISA Chairwoman Appoints Two Committees on Digital Asset Trading and Clearing Settlement Platforms and Supervised Investments in Digital Assets:
The area of digital assets has gained significant momentum in recent years, reflected in the development of digital assets and trading platforms for these assets, and in the development of investment products that offer exposure to these assets. Therefore, ISA Chairwomen, Anat Guetta, appointed two committees to study the developments that occurred in the sphere of digital assets and their effects on the ISA's main areas of focus (infrastructure, supply, and demand): the Digital Asset Committee and the Digital Markets Committee.
Digital assets are becoming investment alternatives for an increasing number of retail and qualified investors. In response to the growing demand, the market has issued traditional investment products that track the prices of digital assets or that invest in digital assets alongside other investment instruments. Securities commissions in leading markets worldwide are also increasingly devoting attention and resources to digital assets.
The ISA supports the development of diverse, innovative investment products and ensures that the interests of the public are protected. To this end, the Digital Assets Committee, which will be headed by ISA's chief economist Mr. Ilan Gildin, will study and analyze the features of digital asset investment products, perform a comparative review of the relevant legislation in developed countries, and recommend an outline of regulatory policy on these investment products that strikes a balance between protecting individual investors and encouraging innovation and diversification of investment products. The Committee was appointed directly following the work by the Committee to Examine the Regulation of Decentralized Cryptographic Currency Issuance (ICOs) to the Public, whose recommendations were published on the ISA website.
Israel is considered a world leader in blockchain technology, which is the foundation of cryptographic assets. The ISA committee appointed to promote and
institutionalize digital markets in Israel reviewed this topic extensively and published its report, which is available to the public, in January 2020. According to the committee's conclusions, distributed ledger technologies (DLT) applied to the areas of securities registration and clearing and settlement services, hold great promise for further advancing Israel's capital market. The integration of DLT technologies in these areas may, among other things, reduce trading costs to customers, reduce systemic risks for the economy, and promote a technological environment that encourages financial innovation.
Since the committee submitted its report, the ISA has taken significant measures to implement its recommendations. In the most important of these steps, the ISA published a memorandum of law regarding a special purpose stock exchange, published a call to developers to present proposals for digital platforms, included this topic into its fintech pilot program, and published a legal position on a company engaged in this field.
At the same time, there is a growing need to increase the certainty surrounding the regulation of new securities clearing and settlement systems that will provide services to various types of trading systems, including to the future special-purpose stock exchange. Because a transparent, well-defined outline for regulation of this topic is essential for the development of digital markets in Israel, the ISA appointed the Digital Markets Committee, which will be headed by Mr. Asaf Erez, head of the trading platforms unit, to focus on promoting securities clearing and settlement services in Israel's digital markets.
The introduction of DLT may trigger a significant change in clearing and settlement procedures and in the identity of the entities in charge of various clearing and settlement functions. Certain stages in the clearing and settlement mechanism may be reduced or even become redundant.
Therefore, the Digital Markets Committee will analyze possible models for the design and regulation of DLT-based clearing and settlement systems. The committee will analyze the advantages of the use of "digital shekels" (CBDC) to ensure safe, rapid DvP settlements. The Committee will study the challenges to clearing and settlement principles that each model poses, and explore practice solutions for resolving these challenges.
Developing the regulatory infrastructure applicable to new trading and settlement platforms may also be an excellent opportunity to integrate Israeli fintech startups in the local financial services industry, which will have a positive impact on the Israeli capital market, both in terms of the cost of financial services and diversification of products and service offerings.