Israeli Watchdog Warns against Algo Trading Robots

The Israeli Securities Authority says it has received an increased number of queries from the public about the subject recently.

The Israeli Securities Authority (ISA) has issued a warning to the public today about the practice of algo trading or automated portfolio management. The watchdog explains this is done against a background of an increase in the number of queries from the public, including “those who consider themselves victims.”

The ISA now clarifies 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. It stressed that a trading arena license (as an online broker license is referred to in Israel) is not an appropriate license for this activity.

The ISA defines Algo Trading as when a company is making investment decisions for its customers using computer programs that include an algorithm for selecting investments. There was indeed an increase in the number of online ads for robot trading in Israel recently but not all firms would define their service in this manner.

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Copy trading services, for example, offer the ability to follow the trades of algo robots on FX or CFDs and will argue that they are not making investments for the clients. It remains to be seen if the ISA will require from regulated brokers now that only licensed portfolio managers will be able to become trade leaders in Israel.

Importance of Regulation

The ISA also reminds the public today that it issued a warning last year about the risks of trading with unregulated entities, including risks relating to the illegality of the financial operations of those entities; Their inability to meet their obligations to investors; Lack of full disclosure and more.

The purpose of the law in this context is to protect customers whose money is managed, and includes provisions regulating conflicts of interest and incentives for investment portfolio managers, obligations of confidentiality and the obligation to report transactions, the watchdog says.

As noted in the warning, any financial investment by its nature involves risks. However, investment through entities that have not received the appropriate license, and that their activity is not regulated, are much more exposed to risks, which may result in the loss of all investments in them.

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