On Monday, the Tel Aviv Stock Exchange (TASE) published a draft document to allow Non-Banking Members (NBMs) including crypto service providers to trade cryptocurrencies on the trading platform. The recommendation paper is currently out for public comment.
As per TASE’s proposed document, Non-Banking Members will provide the services in two categories; firstly as licensed providers of cryptocurrency trading services and second as licensed custodians for crypto assets. This setup will allow investors to buy and sell cryptocurrencies on the Israeli stock exchange through supervised intermediaries.
Customers that wish to purchase cryptocurrencies will need to have an account with the registered NBM where they deposit fiat currencies, either Israeli Shekel or other foreign currency. The amount will then be deposited in an “omnibus account” held by the NBM’s licensed intermediary that facilitates crypto trading services. This will be similar to how investors purchase foreign securities on the Tel Aviv Stock Exchange.
What omnibus accounts are
By definition, Omnibus Accounts are securities accounts used by brokerage firms or their affiliated clearing firms to maintain custody of underlying securities for the sole purpose of satisfying the broker’s obligations to customers.
Once a customer sends in a request to purchase any cryptocurrency, the order will be executed on the omnibus account and the transaction will be reflected in the customer’s account with the Non-Banking Member firm, where they will receive the purchased asset. Likewise, when the customer wants to sell the cryptocurrency, the trading firm acting as an intermediary for the NBM will sell the token and credit the omnibus account with the amount received in fiat. This amount will then be transferred to the customer’s account with the NBM.
TASE’s proposal comes in light of the latest events in the cryptocurrency market and Israel’s approach to digital financial assets. After the crypto market reached all-time highs between 2020 and 2021, the industry saw a sharp decline last year as several cryptocurrency projects collapsed and top firms like FTX, Celsius, and Three Arrows Capital filed for bankruptcy.
This raised the notion that the industry needs to be regulated by government agencies to protect investors as the adoption of crypto assets was on the rise. Jurisdictions across the world are now working on creating laws that can be applied to all sectors of the blockchain industry.
In January, the Israeli Securities Authority (ISA) published a consultation paper proposing amendments to the country’s existing securities laws to classify cryptocurrencies as financial securities. The securities watchdog argued that crypto assets are “virtual representations of value” that have similar characteristics to that of other financial instruments, hence need to be regulated as such under its watchful eye. The proposal which has largely been criticized by crypto investors and companies is supported by the country’s Ministry of Finance.
Benefits of this decision
TASE says regulation is necessary to mitigate the various operational, legal, and cybersecurity risks that are usually associated with cryptocurrencies. Currently, in Israel, digital financial assets are subject to regulations that apply to non-digital assets.
However, the agency is confident that as local and international crypto regulations align, it will attract more foreign investors and investments into the Israeli market. This will also allow the general public to invest in cryptocurrencies through regulated institutions based in the country.
Companies that wish to provide cryptocurrency-related services in Israel must first obtain an operational license from the ISA and the Capital Markets, Insurance, and Savings Authority (CMISA). In 2022, crypto exchange Bits of Gold became the first firm to be granted a license by the state’s financial regulators.