The Tel Aviv Stock Exchange’s proposal for crypto trading is a “closed-loop system”
When the Tel Aviv Stock Exchange (TASE), the only public exchange in Israel, announced that it was preparing a regulation-friendly crypto trading proposal on February 27, it echoed across the crypto industry as a step forward for crypto adoption. However, some experts have framed the proposal as a somewhat underwhelming update to the current crypto landscape in Israel.
In short, TASE proposes that only authorized brokers act as fiat-to-crypto onramps, aided by licensed crypto trading providers. The exchange said it designed the framework to reduce risk and improve consumer protection. Without a specific time frame, the proposal will be sent for approval by the TASE board once the public comments have been submitted.
How TASE plans to operate crypto trading
Non-bank members (NBM) of the Tel Aviv Stock Exchange will play an important role in the proposed crypto trading services. An NBM is an Israeli broker authorized by TASE. The official list shows six brokerage firms with TASE membership, including UBS Securities Israel, Meitav Trade and Fair Financial Technologies. If the proposal passes the board, these brokers would come into contact with two functions, a licensed crypto trading service provider and a licensed crypto custodian, to enable customers to deposit and withdraw fiat money for use in crypto investments.
When a customer wants to trade crypto, they must start by depositing fiat money, Israeli shekels, or a foreign currency, into their brokerage account. The broker will then deposit the same amount (still in fiat) into an omnibus account with the licensed crypto trading provider, or crypto exchange.
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As soon as the customer places the order to buy cryptocurrency, the purchase itself will be carried out on the crypto exchange via the omnibus account. It will also be registered on the customer’s brokerage account. Conversely, when a sell order is initiated, the crypto trading platform will sell the coins and send the sum to the same omnibus account as fiat money. From there, the same amount will be returned to the customer account at the brokerage house.
One step forward
The exchange sees a regulatory framework for crypto trading as a means to upgrade the Israeli capital market in line with international standards, according to the announcement, which reads:
“TASE believes that the alignment of local regulation with international regulation will attract more foreign investment and foreign investment and foreign investors into the Israeli market, while enabling the Israeli public to invest locally, through supervised institutions.”
Ben Samocha, CEO and co-founder of educational crypto platform CryptoJungle, referred to enabling crypto trading for authorized brokers as another milestone for crypto adoption in Israel. According to him, TASE’s proposal shows that the crypto industry’s reputation is back on track after scandals surrounding FTX and Celsius damaged its credibility and trust.
“Leading brokers like 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 vehicle, Samocha emphasized that it is not the best solution for the end user:
“Users will only be able to deposit and withdraw fiat, not crypto. The crypto itself will be held in custody by a third party. While it is a step in the right direction, we still have a long way to go.”
Mark Smargon, founder and CEO of blockchain-based payments platform Fuse, agreed that the proposal “doesn’t improve anything for the customers themselves.” Since the proposal only includes authorized brokerages that are members of the Tel Aviv Stock Exchange, Smargon believes it will not have a major impact on non-public firms or banks.
Two steps back
Delving into technical details of the proposal, Smargon pointed out that it is mainly for buying crypto “within a closed loop system.” The idea of self-custody goes out the window with the TASE proposal, and users have to invest in crypto via a select number of brokers and custodians. “It misses the point of the technological advantage of blockchain and allows users to only speculate on asset prices,” he added.
Smargon highlighted the overwhelming impact the proposal would potentially have on the local crypto ecosystem, as “only a handful of licenses were issued while overall bank acceptance is low.” He said:
“If the goal is to create clarity with publicly traded companies that want to offer crypto trading for their clients by giving a handful of centralized, authorized entities the rights to all brokerage and custody, then that sounds like one step forward and two steps back.”
Aside from drafting a framework for crypto trading that prioritizes tighter controls for investor protection, TASE is also working to promote blockchain adoption within the country’s financial ecosystem. Together with the Israeli Ministry of Finance, digital asset provider Fireblocks and US-based technology provider VMware, TASE plans to pilot a blockchain-backed platform for trading digital bonds.
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Expected to be completed by the end of March, the pilot will see participating banks receive a new series of tokenized government bonds in their e-wallets via the newly developed platform, transferring the money held in digital currencies to the Israeli government’s digital wallet.
Shira Greenberg, Chief Economist at the Israeli Ministry of Finance, published a detailed report titled “Regulation of the Digital Assets Sector – Roadmap to a Policy” which focuses on the rise of digital currencies and how policy makers can deal with the legal aspect of crypto. Greenberg recommended strict licensing requirements for trading providers and issuers of cryptocurrencies to keep investors protected.
