Court Approves Algo Trading for an Israeli Broker for First Time

The Israel Securities Authorities (ISA) has hit a roadblock in its drive to curb retail algo trading in the country. A Tel-Aviv district court has ruled against the ISA in the case of USG Capital - allowing the broker to offer platforms that support Algo Trading Algo Trading Algo trading sometimes referred to as algo, may be defined as computerized trading that employs proprietary algorithms or pre-programmed commands that are tailored to take into consideration variables like price, volume, and timing. First introduced in American financial markets in the 1970s, algo-trading is generally utilized in trading scenarios such as arbitrage, trend trading strategies, and order execution while approximately 60% of all trades were executed by computers in 2010. Today, algo Algo trading sometimes referred to as algo, may be defined as computerized trading that employs proprietary algorithms or pre-programmed commands that are tailored to take into consideration variables like price, volume, and timing. First introduced in American financial markets in the 1970s, algo-trading is generally utilized in trading scenarios such as arbitrage, trend trading strategies, and order execution while approximately 60% of all trades were executed by computers in 2010. Today, algo Read this Term without it being considered portfolio management.

The ISA previously stated that computerized portfolio management services often require a portfolio management license and people who offer this activity without being a licensed portfolio manager are allegedly acting in violation of the law. The watchdog specifically stressed before that a trading arena license (as an online broker license is referred to in Israel) is not an appropriate license for this activity.

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The ruling rejects this notion of algo trading as portfolio management, which retail brokers should hope becomes a strong precedent for future cases. The court did place two restrictions on UGC Capital that the ISA can see as an achievement. The court says that actively promoting algo trading is not allowed for the trading arena, however, in cases where a client asks for support for it the firm is not expected to withhold information on the possibility. Additionally, the court says that USG Capital can only offer technical support on the algo trading platforms and nothing else.

Speaking with Finance Magnates, the Chairman of Israeli Trading Arena Association (ITAA) Tzah Druker said in response: "This is a measured decision by the court which considered all the different aspects regarding algo trading and found the appropriate balance between the need for ISA supervision on the one hand and making the world of algo trading accessible to Israeli clients on Israeli trading arenas on the other hand. We hope and believe that this decision will serve as a guideline for the ISA when it examines regulating other aspects of the operations of trading arenas."

Back in December 2015 a class action lawsuit was filed against USG Capital – Israel for a total of 70 million NIS (approximately 18 million USD) at the Tel-Aviv District Court, on the basis of unlicensed investment activities. In addition to the local firm, the class action suit targets International USG Capital Ltd., USG’s owner Atlantic Brokers, and Tomer Sinai, a major shareholder of all of these.