Israel moves to keep cryptocurrencies off Tel Aviv Stock Exchange
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Israel moves to keep cryptocurrencies off Tel Aviv Stock Exchange

Wary of volatility, Israel Securities Authority suggests new rule that would prevent most cryptocurrency firms from being traded on TASE

Simona Weinglass is an investigative reporter at The Times of Israel.

People watch a board showing stock fluctuations at the Tel Aviv stock exchange. (photo credit: Moshe Shai/FLASH90)
People watch a board showing stock fluctuations at the Tel Aviv stock exchange. (photo credit: Moshe Shai/FLASH90)

The Israel Securities Authority announced Thursday that it was formulating new rules to prevent cryptocurrency companies from being included in Tel Aviv Stock Exchange (TASE) indices and, in many cases, would keep such companies off the TASE altogether.

The proposed rule change would ensure that for a period of two years “no company whose main activity is investment, holding or mining of cryptocurrency will be included in TASE indices,” according to an ISA press release.

The ISA proposed the new regulation after witnessing “highly irregular trading of shares on the TASE of several companies that announced that they plan to introduce cryptocurrency (Bitcoin, Ethereum, Litecoin, etc.) -related activity to their business.”

“In one recent instance, a company announced that they planned to get involved in cryptocurrency mining, leading to a spike of thousands of percentage points in the company’s share price before it even produced results that could be measured,” read the statement.

According to the ISA, cases like this one raise fears that shares of cryptocurrency companies are disconnected from their real value and that the market is responding to them in an irrational and unpredictable way.

This, it worried, could “expose Israeli investors to an investment channel that is dangerous, volatile and unregulated.”

Speculators and investors have flocked to digital currencies in recent months as their prices have skyrocketed.

The most high-profile of these, Bitcoin, saw its value rise 25-fold over 2017 to a record high above $19,500 on December 18 before tumbling to just above $12,000 less than a week later.

Nimrod Gruber uses Israel’s first Bitcoin ATM in Tel Aviv, June 12, 2014. (Photo credit: Ben Sales/JTA)

Regular investors could find themselves holding volatile cryptocurrencies without their knowledge because once companies reach a certain market valuation they automatically enter the benchmark indices in the stock exchange. Most investors, including the institutional investors who manage the public’s savings and pensions funds, invest in these indices, and so the companies in them are included in the portfolios of most Israeli investors.

The proposed amendment further stipulates that no company whose main activity is investment, holding or mining of cryptocurrencies could be registered with the TASE unless it has equity of at least 100 million shekels (some $28 million) and at least 36 months worth of audited financial reports.

The ISA clarified that the proposed rule has nothing to do with its plans to potentially regulate initial coin offerings, or ICOs, a type of fund-raising employed by blockchain-based startups.

“Blockchain technology is a developing and dynamic field that is in its early days and contains much potential for positive technological, financial and business innovation,” said the press release. “That is why a special committee appointed by ISA Chairman Shmuel Hauser is currently working on figuring out how to regulate ICOs.”

According to the press release, the committee will consider the questions of how to regulate cryptocurrencies from the point of view of taxation, prohibiting money laundering and terror financing, cybersecurity concerns and protecting investors.

Israel Securities Authority chairman Shmuel Hauser at a Finance Committee meeting in the Knesset on September 11, 2017. (Miriam Alster/FLASH90)

Last month, Hauser announced at a conference that he would not allow companies whose value is based on cryptocurrencies to be included in TASE indices. The move sent the shares of several cryptocurrency companies plunging.

The shares of Natural Resources Holdings had surged over 9,000% in the two months preceding Hauser’s December 12 announcement, after the company said in October it was considering entering into cryptocurrencies. Its market value reached almost NIS 1 billion, which would have made the stock eligible to enter into the small cap indices of the stock exchange and enabled it to automatically draw demand from investment funds that track the indices.

Natural Resources shares plunged more than 40 percent on Hauser’s comments.

Ahead of the trial period, the ISA will be accepting comments from the public, the ISA said Thursday, noting that the comment period for the ISA’s amendment to the stock market regulations is open until January 25, 2018. Comments can be sent to seclaw@isa.gov.il.

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