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Tel Aviv Stock Exchange moves toward offering crypto trading

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Israel's sole public stock exchange wants to allow its clients to trade crypto but is facing regulatory resistance.

A draft for the approval of an expansion of crypto trading activities to non-banking members has been published by the Tel Aviv Stock Exchange (TASE) for public comments.

In a TASE first, a Feb. 27 announcement stated the proposed structure will enable customers to deposit fiat money designated for investments in digital assets.

Non-banking members will act as licensed providers for crypto trading and custodial services should the proposal be approved. Customer funds will be placed in an “omnibus account” as the intermediary for crypto trading activities.

It will also allow clients to withdraw funds originating from the sale of crypto but the process is somewhat convoluted. This has been done to mitigate risks and enhance consumer protection, according to the announcement.

“This is another step in the advancement and development of the Israeli capital market that aims to encourage innovation and competition while mitigating the risks and protecting the customers.”

Once comments have been submitted, the proposal will be sent for approval by the TASE Board of Directors, however, no timeframe was provided.

*The lobby of the TASE building, located in central Tel Aviv. It is Israeli's only public stock exchange. Source: Yaniv Morozovsky*

Things may not go so smoothly for the Tel Aviv Stock Exchange and its crypto trading ambitions, however.

The regulatory outlook in Israel is becoming harsh for the sector as a proposed law plans to classify crypto assets as securities. In January, the Israeli Securities Authority (ISA) proposed a framework for regulating digital assets, placing them under the umbrella of securities.

In February, the CEO of Israeli crypto trading and custody firm Altshuler Shaham Horizon, Ilan Sterk, told Cointelegraph that the reclassification is “changing everything here,” and added, “it will kill the industry.”

The TASE announcement stated the current regulatory approach in Israel is to “impose regulation on financial activities or services in digital assets similarly to that currently applied to non-digital assets.”

However, the TASE remained confident, concluding:

“TASE believes that the alignment of local regulation with international regulation will attract more foreign investments and foreign investors into the Israeli market.”

In September, Israeli crypto exchange Bits of Gold became the first in the country to receive a license from the Capital Markets Authority.

Crypto lawyers flame Gensler over claims that all crypto are securities

February 27, 2023 Coin Telegraph

Bitcoin

Crypto lawyers weighed in on Gary Gensler’s crypto regulation claims saying the SEC has no legal standing to police the space.

Cryptocurrency lawyers have rebuffed comments made by the head of the United States securities regulator, claiming in a recent interview that every cryptocurrency except Bitcoin (BTC) is a security that falls under its jurisdiction.

In a wide-ranging Feb. 23 New York Magazine interview discussing crypto, the chair of the Securities and Exchange Commission (SEC), Gary Gensler, claimed “everything other than Bitcoin” falls under the agency’s remit.

He added other crypto projects “are securities because there’s a group in the middle and the public is anticipating profits based on that group” which he said is not the case with Bitcoin.

Gensler in @NYMag on crypto:

-everything is a security except bitcoin
-every company out there is in violation
-crypto is pointless but blockchain is kinda neat

Hard to argue you’re acting in good faith if admittedly trying to stamp out an entire industry. pic.twitter.com/Ozw8ZJ3ETO
— Alexander Grieve (@AlexanderGrieve) February 26, 2023

Jake Chervinsky, a lawyer and policy lead at Blockchain Association, a crypto advocacy group, however argued in a Feb. 26 tweet that Gensler’s “opinion is not the law” despite his claimed command over the crypto sector.

Chair Gensler may have prejudged that every digital asset aside from bitcoin is a security, but his opinion is not the law. The SEC lacks authority to regulate any of them until and unless it proves its case in court. For each asset, every single one, individually, one at a time.
— Jake Chervinsky (@jchervinsky) February 26, 2023

He added “until and unless” the SEC “proves its case in court” for its jurisdiction over each individual token “one at a time” then it “lacks authority to regulate any of them.”

Lawyer Logan Bolinger also chimed into the issue, tweeting on Feb. 26 “that Gensler’s opinions on what is or isn’t a security are not legally dispositive” — meaning it’s not the final legal determination.

Friendly reminder that Gensler’s opinions on what is or isn’t a security are not legally dispositive.

In this country, judges - not SEC chairs - ultimately determine what the law means and how it applies.

Doesn’t mean his thoughts are irrelevant. They’re just not dispositive.
— Logan Bolinger (@TheWhyOfFI) February 26, 2023

“Judges — not SEC chairs — ultimately determine what the law means and how it applies” Bolinger added.

The policy lead at advocacy body Bitcoin Policy Institute, Jason Brett, said Gensler’s comments “shouldn't be celebrated, but feared” and stated, “there are ways to win other than via a regulatory moat.”

The Gary Gensler thing is no bueno. There are ways to win other than via a regulatory moat. And anytime this is the way, the script can be flipped and before you know it, everyone is crying due process. Gensler's comments in NY Magazine shouldn't be celebrated, but feared.
— Jason Brett (@RegulatoryJason) February 26, 2023

SEC needs 12,305 lawsuits: Delphi Labs counsel

Meanwhile, Gabriel Shapiro, the general counsel at investment firm Delphi Labs, outlined in a series of tweets the seemingly impossible enforcement the SEC would have to carry out on the industry to cement its rule.

Shapiro analyzed that over 12,300 tokens worth around $663 billion are — according to Gensler — unregistered securities that are illegal in the U.S. and, as mentioned by Chervinsky, the agency would have to file a lawsuit against each token creator.

The SEC had handled crypto in two main ways according to Shapiro: Either fining token creators and requiring the issuer to register, or fining them and ordering the created tokens to be destroyed and delisted from exchanges.

so far, SEC has handled tokens in mainly 2 ways:

(1) fine + registration requirement--this failed every time so far, with the companies becoming bankrupt

(2) fine + order to destroy all premined tokens and delist tokens from all exchanges

both ways, tokens go to $0
— _gabrielShapir0 (@lex_node) February 26, 2023

“SEC registration is not only too expensive for most token creators — there is also no clear path for registration of tokens,” Shapiro said, adding:

“What is the plan here? Since registration is not feasible, it can only be [that] everyone pays huge fines, stops working on the protocols, destroys all dev premines, and delists [tokens] from trading. That would mean 12,305 lawsuits.”

“What is the plan? We are all wondering, and billions of American [dollars] are at risk.”

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Trade group accuses SEC of ‘stealthy’ overreach in Coinbase insider trading case

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amicus brief

The Chamber of Digital Commerce has accused the SEC of trying to impose securities regulations via the “back door” of an insider trading lawsuit.

The United States Securities and Exchange Commission has again been accused of overstepping its authority and unfairly labeling crypto assets as securities, this time in its insider trading case against ex-Coinbase employees.

In an amicus brief filing on Feb. 22, the U.S.-based Chamber of Digital Commerce argued the case should be dismissed as it represented an expansion of the SEC’s “regulation by enforcement” campaign and seeks to characterize secondary market transactions as securities transactions.

We have serious concerns about the SEC’s attempt to label these tokens as securities in the context of an enforcement action against third parties who had nothing to do with creating, distributing or marketing those assets. This is not a healthy policymaking process. Dismiss! https://t.co/06WAJ65Ckl
— Perianne (@PerianneDC) February 22, 2023

“This case represents a stealthy, yet dramatic and unprecedented effort to expand the SEC’s jurisdictional reach and threatens the health of the U.S. marketplace for digital assets,” wrote Perianne Boring, founder and CEO of the Chamber of Digital Commerce.

The Chamber highlighted the “SEC’s encroachment into the digital assets market” was never authorized by Congress, and noted in other Supreme Court cases it has been ruled that regulators must first be granted authority by Congress.

“By acting without Congressional authorization, [the SEC] continues to contribute to a chaotic regulatory environment, harming the very investors it is charged to protect,” it wrote on Twitter.

The Chamber also argued that in bringing claims of securities fraud, the SEC was essentially asking the court to uphold that secondary market trades in the nine digital assets mentioned in an insider trading case against a former Coinbase employee constitute securities transactions, which it suggested was “problematic.”

This novel attempt by @SECGov to impose securities regulations via the “back door” of an insider trading action raises serious due process concerns & will result in an array of consequences that will harm investors and threaten digital assets. Thus, it should be dismissed!
— Chamber of Digital Commerce (@DigitalChamber) February 22, 2023

“We have serious concerns about [the SEC’s] attempt to label these tokens as securities in the context of an enforcement action against third parties who had nothing to do with creating, distributing or marketing those assets,” Perianne added.

The Chamber cited the LBRY v SEC case in its brief, in which the judge had ruled that secondary market transactions would not be designated as securities transactions.

The judge had been persuaded by a paper from commercial contract attorney Lewis Cohen, which pointed out that no court had ever acknowledged the underlying asset was a security at any point since the landmark SEC v W. J. Howey Co. ruling — a case which set the precedent for determining whether a security transaction exists.

The latest amicus brief follows a similar filing from advocacy group the Blockchain Association on Feb. 13, which also argued that the SEC had exceeded its authority in the case and claimed it was “the latest salvo in the SEC’s apparent ongoing strategy of regulation by enforcement in the digital assets space.”

An amicus brief is filed by an amicus curiae, or “friend of the court,” which is an individual or organization not involved with a case but can assist the court by offering relevant information or insight.

The SEC in July sued former Coinbase Global product manager Ishan Wahi, brother Nikhil Wahi, and associate Sameer Ramani, alleging that the trio had used confidential information obtained by Ishan to make $1.5 million in gains from trading 25 different cryptocurrencies.

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