Tel Aviv Stock Exchange’s Trading Proposal Is A ‘Closed Loop System’

When the Tel Aviv Stock Exchange (TASE), Israel’s only public exchange, announced that it had drafted a proposal for regulation-friendly cryptocurrency trading on February 27, it resonated with the crypto industry as a step forward in cryptocurrency adoption. However, some experts framed the proposal as a somewhat disappointing update to the current crypto landscape in Israel.

In short, TASE proposes that only authorized brokerages operate as fiat-to-crypto ramps, backed by licensed cryptocurrency trading providers. The exchange said it designed the framework to mitigate risks and increase consumer protection. With no timeframe specified, the proposal will be submitted for approval by the TASE board of directors after public comments have been submitted.

How TASE plans to conduct cryptocurrency trading

Non-bank members (NBMs) of the Tel Aviv exchange will play a vital role in the proposed cryptocurrency trading services. NBM is an Israeli broker authorized by TASE. The official list includes six brokerage firms with TASE members, including UBS Securities Israel, Meitav Trade and Fair Financial Technologies. If the proposal passes the board, these brokers will contact two functions, a licensed cryptocurrency trading service provider and a licensed cryptocurrency custodian, to allow clients to deposit and withdraw fiat money for use in crypto investments.

When a client wants to trade cryptocurrencies, he will have to start by depositing fiat money, Israeli shekels or foreign currency in his brokerage account. The broker will then deposit the same amount (still in fiat) into an omnibus account with a licensed crypto trading provider or crypto exchange.

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As soon as a customer places a cryptocurrency purchase order, the actual purchase will be made on the cryptocurrency exchange via an omnibus account. It will also be recorded in the client’s brokerage account. Conversely, once a sell order is initiated, the cryptocurrency trading platform will sell the coins and send the sum to the same omnibus account as the fiat money. From there, the same amount will be returned to the client’s account at the brokerage house.

One step forward

The exchange sees the regulatory framework for cryptocurrency trading as a way to modernize the Israeli capital market in line with international standards, according to the announcement, which reads:

“TASE believes that aligning local regulations with international regulations will attract more foreign investment and foreign investment and foreign investors to the Israeli market, while allowing the Israeli public to invest locally, through regulated institutions.”

Ben Samocha, CEO and co-founder of educational crypto platform CryptoJungle, referred to allowing cryptocurrency trading to authorized brokers as another milestone in the implementation of cryptocurrencies in Israel. According to him, the TASE proposal shows that the reputation of the crypto industry is back on track after the FTX and Celsius scandals damaged its credibility and trust.

Exhibition in the hall of the Tel Aviv Stock Exchange. Source: Twitter

“Leading brokers such as Excellence and Meitav Trade provide services to hundreds of thousands of Israelis,” Samocha said, adding that there have been many requests from them to offer crypto services, “especially in the last two years.”

While the nature of the TASE solution will make cryptocurrency more accessible as an investment tool, Samocha stressed that it is not the best solution for the end user:

“Users will only be able to deposit and withdraw fiat, not cryptocurrencies. The cryptocurrency itself will be held by a third party. While this is a step in the right direction, we still have a long way to go.”

Mark Smargon, founder and CEO of the blockchain-based payment platform Fuse, agreed that the proposal “doesn’t improve anything for the customers themselves.” Since the proposal only covers authorized brokerages that are members of the Tel Aviv Stock Exchange, Smargon believes it will not have much of an impact on non-public companies or banks.

Two steps back

Going into the technical details of the proposal, Smargon pointed out that it mainly concerns the purchase of cryptocurrencies “in a closed loop system”. The idea of ​​self-care goes out the window with the TASE proposal, and users would have to invest in cryptocurrencies through a select number of brokers and trustees. “This defeats the purpose of blockchain’s technological advantage and only allows users to speculate on asset prices,” he added.

Smargon highlighted the disappointing impact the proposal would potentially have on the local crypto ecosystem as “only a few licenses have been issued while overall bank acceptance is low.” He said:

“If the goal is to provide transparency for publicly traded companies that want to provide their customers with cryptocurrency trading by giving a handful of centralized, authorized entities the rights to all brokerage and storage, that sounds like a step forward and two steps back. “

In addition to developing a cryptocurrency trading framework that prioritizes tighter investor protection controls, TASE is also working to accelerate blockchain adoption in the country’s financial ecosystem. Together with the Israeli Ministry of Finance, digital asset storage service provider Fireblocks, and US technology provider VMware, TASE plans to pilot a blockchain-based digital bond trading platform.

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The pilot program is expected to be completed by the end of March and participating banks will receive a new series of tokenized government bonds in their e-wallets through the newly developed platform, transferring money held in digital currencies to the Israeli government’s digital wallet.

Shira Greenberg, chief economist at the Israeli Ministry of Finance, has released a detailed report titled “Regulation of the Digital Assets Sector – A Roadmap to Policy,” which focuses on the rise of digital currencies and how policymakers can deal with the legal aspect of cryptocurrencies. Greenberg recommended strict licensing requirements for cryptocurrency trading providers and issuers to ensure investor protection.