The Securities Authority has published for public comments an update that addresses two key issues – the creation of a new service that will replace the signaling service and also an update of instructions regarding a social trading service.
According to the Authority, these two changes will make it possible to improve the protections for the investing public on the one hand, and to expand the options for providing services to the public, on the other hand. As a reminder, in 2016 the online services directive came into effect. The provision is intended to improve the services provided to the public, in light of technological developments, through refinement, improvement and discounting of the services. Since the entry into force of the directive, the authority’s staff has followed the developments of these fields in Israel, and the trends in the world. Accordingly, the Authority’s staff formulated a number of insights and proposes to update the directive with reference to two issues – signaling service, and social trading service.
The signaling service is the provision of uniform investment recommendations that are sent in real time to customers who subscribe to the service. This service is considered investment advice. Today, a small number of license holders operate in this field, although there may be a demand for the service. In light of the insights gathered by the authority’s staff in recent years, an outline is proposed in which instead of the signaling service, a new type of service will be defined, which will be called “consulting service for independent trading”.
This service is designed to enable the dispatch of current investment recommendations by online means to the customer who wishes to trade independently. The investment recommendations will be adjusted to the client’s needs, therefore the service will require an inquiry and adjustment to the client’s needs and even an update of needs.
What will actually happen? The license holder providing the service will not monitor the current investment activity of the client. Therefore, he will make it clear to the client that he does not monitor the actual implementation of investment recommendations sent to him, with the aim of preventing a misleading presentation. Also, he will be prevented from providing a signaling service and a traditional personal consulting service to that customer. “As part of the amendments, it is proposed to allow the provision of both types of services to the same customer, given the obligation to make a clear distinction between the two types of services, so that the difference between them will be clear to the customer,” the Securities Authority said.
In addition, the license holders will be obliged to present data to the customer that will reflect the value of the service and the professionalism of the signaller, in a way that will not make a mistake. That is, in the amendment it is proposed to oblige the service provider to present to the client all the results of the investment recommendations he received in a fair and non-deceptive manner while ensuring the truthfulness of the presentations, in order to allow the client a means of control that will help him examine the efficiency and suitability of the service to his needs.
In addition, the license holders who provide the service and wish to refer the customer to carry out the transaction, will be required to present at least two options of different exchange members for the purpose of carrying out the transaction.
As for social trading, the Authority proposes to make amendments aimed at increasing the duration of the activity, along with improving the protection of investors. Social trading is a service that allows the customer, known as a “follower”, to view the portfolio composition and investment activity of other investors and receive information about them. The investor whose investment portfolio is exposed on the social trading platform is called a “follower”.
The Authority claims that “there is a need to regulate issues relating to full disclosure to the customer and the framework of the activity of those tracked on the platform, who are not licensed. The proposed amendments are intended to prevent situations that may harm the interests of customers who use the platform and do business.”
Among other things, it deals with the following issues: providing the possibility to manage an account with an appropriate license, opening up additional reward options for followers while adding an appropriate disclosure obligation, establishing a disclosure mechanism for transactions with conflicts of interest, adding an explicit prohibition on misleading presentations to customers, prohibiting followers from marketing their tracked account, unlike the platform operator’s option to market the service provided within the platform and even the names of the tracked by publications on his behalf, regulating the dialogue between the tracked and the followers.
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