May 31, 2015
ISA License Application Stage for Existing Trading Platforms (FOREX) is Concluded
ISA Chairman, Prof. Shmuel Hauser: “Regulating FOREX activity is designed to ensure that the platforms will be managed properly, while protecting investors’ funds. After licenses are issued, trading platforms will operate in regulated settings according to rules designed to protect the public, and will no longer operate in a vacuum.”
On Monday, May 26, 2015, the application submission stage for trading platform companies seeking an operating license from the ISA was concluded. Companies that did not submit an application for a license are no longer permitted to operate.
The ISA received 21 applications for operating licenses, however the ISA stresses that actual supervision of the licensees will commence after the ISA confirms that qualifying companies meet the regulatory conditions for obtaining an operating license.
Trading platforms are Internet trading platforms that allow investors to trade in various financial instruments (mainly foreign currency derivatives) with platform operators. The platforms continuously quote the prices of the financial instruments that they offer for trading. The main activity on these platforms is performed by investors trading in relatively small sums.
Investing through trading platforms entails numerous risks. In addition to the investment risks themselves, risks also involve the trading platforms’ stability, high leverage, investors’ insufficient understanding of transaction risks, conflicts of interest stemming from the fact that the platform is the counterparty to the transaction with the investor, as well as other risks. These risks cannot be entirely prevented, but they obviously are heightened when trading is unsupervised.
The purpose of the regulation of trading platforms is to protect the public investing through these platforms. The regulations define, among other things, the conditions that trading platforms must meet to obtain a trading platform license (such as minimum equity requirements), permitted leverage (for each asset risk category), the protection of investors’ funds and assets, permitted modes of advertising, management of conflicts of interests, information and due disclosure to investors before they enter into, and in the course of agreements with trading platforms, and the duty to confirm investors’ suitability for the trading with the trading platform. The regulations also define trading platforms’ reporting requirements to the ISA.