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Leveraged FX Currency Restrictions for Israeli Retail Clients

Due to a June 2018 ruling by the Israeli financial court, Interactive Brokers is no longer permitted to offer spot forex trading to Israeli retail clients. While IBKR's forex offering is a deliverable "spot" transaction, the ruling interpreted a 2014 amendment to Israeli Securities Law 5728-1968 to cover spot/cash transactions in addition to derivative/contract style transactions.

The restriction applies only to clients deemed to be "retail" investors.  Non-retail investors (i.e. Qualified Investors and clients who are included in the First Schedule of the Israeli Securities Law 1968) are exempt from this restriction.
The new forex restriction goes into effect on 1 August 2018:
  • Forex transactions that would create a negative balance or would increase a pre-existing negative balance in either component currency will not be allowed to Israeli retail clients.
  • The negative cash balance test applies only to the component currencies and for the cash movements created directly by the forex trade. There is no restriction regarding the creation of negative balances by other means such as cashiering activity or trading activities in securities (stocks, bonds, options, etc).
The relevant Israel Securities Authority (ISA) regulation can be found here (ISA_6025) with sections 44L-M defining the relevant issues.
 
Example: Prohibited Transaction
 
An account is not allowed to go negative cash upon execution of a cash conversion or FX trade. 
Have USD 1,000 and try to buy EUR 3,000 @ 1.17 USD-EUR (USD Value of 3,510) would create a negative balance of USD -4,510.
Currency Cash Cash
ILS 10,000 10,000
USD 1,000 -2,510
EUR 0 3,000
Example: Permitted Transaction
 
The rule will not prevent you from trading on margin or engaging in any other investment transaction on the IBKR Platform.
 
Example: Having USD 1,000 and buying stocks worth USD 3,000 USD would create a balance of
USD -2,000.
Currency Cash Stock Cash Stock
USD 1,000 0 -2,000 3,000

Example: Having USD 1,000 and converting to ILD, value of ILS 3,600 (1 USD = 3.6 ILS) 

Currency
Cash
Cash
ILS
0
3,600
USD
1,000
0

Example: Have USD 1,000 USD and withdraw EUR 600

Currency
Cash
Cash
EUR
0
-600
USD
1,000
1,000

 

Procedure

In order to be consider a "Qualified Investor" IB requires client to meet the following criteria and procedural requirements.

Qualified Investor qualification need to be recertified every 3 years.

For Individuals

Individuals, which comply with at least one of the following alternatives:

  1. Total value of Liquid Assets greater than NIS 8 million; or
  2. Annual income in each preceding two years is greater than NIS 1.2 million or the income of the Household to which he belongs is greater than NIS 1.8 million.; or
  3. Total value of Liquid Assets greater than NIS 5 million and the annual income in each proceeding two years is greater than NIS 600,000 or such annual income of the Household to which he belongs is greater than NIS 900,000.

"Liquid Assets" means cash, deposits, securities, equities and funds.

"Household" means an individual and the persons living with him or who are dependent on him for their living.

The client must:

  • compete the Qualified Investor Representation form and
  • provide a written signed confirmation from a registered attorney or accountant certifying their qualification. This certification should be no older than 3 months.

For Corporates

The following entities can be exempted:

  1. Authorized mutual funds or fund managers
  2. Provident funds or fund managers
  3. Insurers
  4. Banking corporations
  5. Portfolio managers
  6. Investment advisors, who acquire for themselves
  7. Stock Exchange members
  8. Underwrites, who buy for themselves
  9. Venture capital funds
  10. Corporations (including funds, partnerships) other than corporations which were incorporated for the purpose of purchasing securities in a specific offer, with equity exceeding 50 million NIS
  11. Corporations, wholly owned by one of the aforementioned investors

Entities qualifying under exemptions 1-9 must provide confirmation of their status from a governmental register.
Entities that wish to be considered under exemptions 10 and 11 must:

  • complete the Qualified Investor Representation form and
  • provide a written signed confirmation from a registered attorney or accountant certifying their qualification. This certification should be no older than 3 months.