Tel Aviv Stock Exchange’s crypto trading proposal a “closed-loop system”.

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

In short, TASE proposes that only authorized brokerages act as fiat-to-crypto onramps, supported by licensed crypto trading providers. The exchange said it designed the framework to mitigate risks and improve consumer protection. Without a specific deadline, the proposal will be sent to TASE’s board of directors for approval, after submitting public comments.

How TASE envisions crypto trading

The non-banking members (NBM) of the Tel Aviv Stock Exchange will play a vital role in the proposed crypto trading services. An NBM is an Israeli broker authorized by the TASE. Official list the shows Six brokerage firms that are members of TASE, including UBS Securities Israel, Meitav Trade and Fair Financial Technologies. If the proposal passes the committee, those brokers will contact two functions, an authorized crypto trading service provider and an authorized crypto manager, to allow customers to deposit and withdraw escrow money for use in crypto investments.

When a client wants to trade with crypto, they must deposit fiat money, Israeli shekels, or a foreign currency into their brokerage account. The broker will then deposit the same amount (still fiat) into an omnibus account at the licensed crypto trading provider or crypto exchange.

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As soon as the customer places an order to buy cryptocurrency, the actual purchase will take place on the crypto exchange through the omnibus account. It will also be recorded in the client’s brokerage account. Conversely, when a sell order is initiated, the crypto trading platform will sell the coins and send the money to the same omnibus account as fiat money. Thereafter, the same amount will be credited back to the client’s account at the brokerage.

One step forward

The exchange sees a regulatory framework for crypto-trading as a means to upgrade Israel’s capital market to international standards, according to the announcement:

“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 at the same time allowing the Israeli public to invest locally through supervised institutions.”

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

Exhibition at the entrance of the Tel Aviv Stock Exchange. Source: Twitter

“Major brokers like Excellence and Meitav Trade are providing services to hundreds of thousands of Israelis,” Samocha said, adding that they have received numerous requests to provide 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 stressed 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 stored 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 blockchain-based payments platform Fuse, agreed that the proposal “doesn’t improve anything for customers.” Since the proposal only covers licensed brokerages that are members of the Tel Aviv Stock Exchange, Smargon believes it will not have a significant impact on non-public companies or banks.

Two steps back

Delving into the technical details of the proposal, Smargon noted that it is primarily for the purchase of crypto “within a closed-loop system.” The idea of ​​self-policing goes out the window with the TASE proposal, requiring users to invest in crypto through a certain number of brokers and custodians. “This misses the point of blockchain’s technological advantage and only allows users to speculate on asset prices,” he added.

Smargon highlighted the potential dramatic impact of the proposal on the local crypto-ecosystem, as “only a handful of licenses have been issued while overall bank acceptance is low.” He said:

“If the goal is to create clarity with listed companies that want to offer crypto trading to their clients, by giving all the brokerage and oversight rights to a few centralized, authorized entities, then it seems like one step forward and two steps back.”

In addition to drafting a crypto trading framework that prioritizes stricter control for investor protection, TASE is also working on the adoption of blockchain in the country’s financial ecosystem. Together with Israel’s Ministry of Finance, digital asset custody 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, participating banks will receive a new batch of tokenized government bonds in their electronic wallets through the newly developed platform, transferring money stored in digital currencies to the Israeli government’s digital wallet.

Shira Greenberg, Chief Economist at Israel’s Ministry of Finance, published a detailed report entitled “Regulation of the Digital Assets Sector – A Policy Roadmap”, focusing on the rise of digital currencies and how policymakers can address the legal side of cryptography. Greenberg recommended strict licensing requirements for trading providers and cryptocurrency issuers to keep investors protected.

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