Israeli court rules in favor of USG Capital – no extra license for algo trading is required

Israeli court rules in favor of USG Capital – no extra license for algo trading is required

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A district court in Israel’s capital Tel Aviv has ruled in favor of the local forex broker USG Capital. It said algorithmic trading is not portfolio management and does not require additional license, reports the website Bizportal.co.il. The decision comes after the country’s financial watchdog, the Israel Securities Authorities (ISA), has stated that companies who offer computerized portfolio management services, such as algorithmic trading, are violating the law, if they don’t have a specific license.

The dispute between ISA and USG Capital started last year when the company applied for a license and the watchdog started an inspection of its activities. The ISA found the broker was also running an algorithmic trading platform, which it ruled was a violation of the Israeli law on financial markets. Earlier this year the ISA ordered USG Capital to stop the platform. This according to the Israeli website Bizportal, led to considerable losses for the broker’s clients and a wave of claims.

In turn USG Capital claimed in court that ISA’s order to stop the algorithmic trading platform was illegal and argued that it does not program the software that runs the platform, hence this is not portfolio management.

Ultimately the Tel Aviv district court ruled in favor of USG Capital, but imposed several restrictions. One is that the broker cannot actively promote and advertise its algorithmic trading platform and cannot explicitly train its customers how to use it, as this might constitute investment advice, for which USG Capital does not have a license. Should a customer specifically asks about the algorithmic trading platform, however, the broker should not withhold any information. The court also ruled that the broker can only provide technical support for the algorithmic trading.

It is expected that the court decision, which is the first of its kind, would set a precedent for Israel and would ease the operation of algorithmic trading platforms for the local brokers.

USG Capital is a privately owned company. It offers trading in forex on the MetaTrader 4 platform. It also provides personal training programs, an affiliate program, economic calendar, analysis, etc.

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