Year in Review – Capital Markets

Israeli Securities Authority Classifies Cryptographic Coins as Commodities Rather Than Securities

On March 19, 2018, the interim report of the Committee for Examination and Regulation of Cryptographic Currencies, which was established in August 2017, was submitted. The interim report examines the applicability of the Securities Law to offerings to the public in Israel based on decentralized registration. According to the report, the committee distinguishes between a cryptographic currency used only as a means of exchange and a “token,” which it defines as “a unique crypto coin that grants rights in a specific venture.” In addition, in relation to tokens, the committee distinguishes between a “security” (or “investment”) token and a “utility” token. A “security” token confers ownership rights, participation, or membership in a particular venture or rights to future cash flow from such an enterprise, while a “utility” token grants rights to use a product or service offered by a specific enterprise.

In general, cryptocurrencies intended to serve as a means of payment, clearing, or exchange only, other than in a specific enterprise, and which do not confer additional rights and are not controlled by a central entity, are not considered securities. “Cryptographic currencies will be considered a security according to the totality of the circumstances and characteristics of each case against the background of the purpose of the law,” explained a member of the Securities and Exchange Commission.

The Dual-Listing Arrangement

On June 5, 2018, the Knesset Finance Committee approved the addition of three foreign stock exchanges to the dual-listing arrangement—the Singapore Exchange, the Hong Kong Stock Exchange, and the Toronto Stock Exchange. According to the dual-listing arrangement, in the event a company registered and issued on one of the aforementioned exchanges also wishes to register on the Israeli stock exchange, its reports to the foreign stock exchange must also be provided to the Israeli stock exchange in accordance with reporting requirements under Israeli law. Pursuant to the above, on June 26, 2018, the third addendum was updated in the Israeli Securities Law, 1968.

Raising Funds for Startups through Crowdfunding

On April 9, 2018, an amendment to the Securities Regulations (Offer of Securities through Offer Coordinator), 2017 came into effect, enabling crowdfunding in exchange for shares for individuals who are not qualified investors. Companies are now able to raise up to NIS 4 million a year from an unlimited number of investors. The maximum amount of capital raised per investment for individual investors (whose income, according to their declaration, is up to NIS 350,000) per year is NIS 10,000, while an investor’s maximum investment amount over several investments can reach up to NIS 20,000. There is no requirement in the regulations for a minimum investment amount.

Cyber Threats: Public Companies to Report Cyber Events

In view of the increase in the scope of cyber threats and the fear of harming the activity of public companies, the Israel Securities Authority published a position paper on the manner of disclosure required of public companies regarding their conduct of cyber activities. This position paper did not create new disclosure obligations, but was intended to clarify the existing disclosure obligations that apply to public companies and reporting corporations. The position paper also noted that any disclosure in accordance with it is subject to the relevant “essentiality tests.” In addition, since cyber risks are a risk like any other, disclosure must be made in the prospectus, the periodic report, and the directors’ report, and companies must prepare an immediate report in accordance with the position of the Israel Securities Authority.

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