Regulation of Investment Advising, Investment Marketing and Investment Portfolio Management Law, Chapter A: Interpretation

Transcription

1 The following translation is intended solely for the convenience of the reader. This translation has no legal status and although every effort has been made to ensure its accuracy, the ISA does not assume any responsibility whatsoever as to its accuracy and is not bound by its contents. Only the original Hebrew text is binding and reader is advised to consult the authoritative Hebrew text in all matters which may affect them. Regulation of Investment Advising, Investment Marketing and Investment Portfolio Management Law, Chapter A: Interpretation Definitions [Amendments: 1997 (Amendment 2), 2004, 2005 (Amendment 2), (Amendment 4), 2010, 2010 (Amendment 2), 2011) 1. In this statute Foreign stock exchange a stock exchange that has received authorization from the party that is empowered by law to grant such authorization, in the country in which the stock exchange operates. 1 Sefer HaHukkim (Book of Laws), 1539, 5755 ( ), p Amendments: Sefer HaHukkim (Book of Laws), 1599, 5756 ( ), p. 379; Sefer HaHukkim (Book of Laws), 1604, 5757 ( ), p. 10; Sefer HaHukkim (Book of Laws), 1614, 5757 ( ), (Amendment 2) p. 80; Sefer HaHukkim (Book of Laws), 1671, 5758 ( ), p. 250; Sefer HaHukkim (Book of Laws), 1823, 5762 ( ), p.98; Sefer HaHukkim (Book of Laws), 1955, 5764 ( ), p.498; Sefer HaHukkim (Book of Laws) 1965, 5765 ( ), p.41, (effective date , as specified in notice published in Yalkut Pirsumim (Publications Register) 5381, 2006, p. 2058); Sefer HaHukkim (Book of Laws), 2006, 5765 ( ), p. 504 (Amendment 2) (See effective date provisions and transition provisions in sections 24 and 25 of the Amendment, and the amendment thereof in Sefer HaHukkim (Book of Laws) 2229, 5770, p. 379) Sefer HaHukkim (Book of Laws), 2020, 5765 ( ), p. 745, (Amendment 3); Sefer HaHukkim (Book of Laws), 2024, 5765 ( ), p. 840 (including change of name) (Amendment 4) (See effective date provisions, transition provisions and temporary provisions in sections 8 and 9 of the Law to Increase Competition and Reduce Concentration and Conflicts of Interest in the Israel Capital Market (Legislative Amendments) 2005); Sefer HaHukkim (Book of Laws), 2189, 5769 ( ), p. 75; Sefer HaHukkim (Book of Laws), 2204, 5769 ( ), p. 286, (Amendment 2); Sefer HaHukkim (Book of Laws), 2209, 5770 ( ), p. 370; Sefer HaHukkim (Book of Laws), 2232, 5770 ( ), p. 409, (Amendment 2); Sefer HaHukkim (Book of Laws), 2253, 5770 ( ), p. 618, (Amendment 3); Sefer HaHukkim (Book of Laws), 2274, 5771 ( ), p. 239; Sefer HaHukkim (Book of Laws), 2280, 5771 ( ), p. 380, (Amendment 2). Sefer HaHukkim (Book of Laws), 2320, 5771 ( ), p. 12.

2 Foreign bank a corporation incorporated in a foreign country regarding which all of the following conditions are met: (1) it is engaged in activity which, if carried out in Israel, would require a banking license pursuant to the Banking (Licensing) Law; (2) it has received authorization, from the party that is empowered by law to grant such authorization, in the foreign country, to engage in activities described in paragraph (1), and is under the supervision of the party authorized for this purpose in that country; Licensee a holder of an adviser s license, a marketing license or a portfolio management license, which has been granted pursuant to this law; Institutional body a management company, fund manager or insurer; Immediate report (deleted). Offense an offense under any of the laws listed below, other than an offense the penalty for which is a fine only: this law, the Provident Funds Control Law; the Pension Counseling and Marketing Law; the Securities Law, the Joint Investments Law; the Companies Ordinance; the Banking (Licensing) Law; the Banking Ordinance, 1941; the Banking (Customer Service) Law, 1981; the Insurance Business Control Law, 1981; the Currency Control Law, 1978; the Income Tax Ordinance; the Value Added Tax Law, 1975; the Customs Ordinance, 1991; the Trade Tariffs Law, 1991: the Prohibition of Money Laundering Law, 2000; or any other offense which due to its nature, severity or circumstances a person who has committed such an offense is not fit to be a licensee; The ISA the Israel Securities Authority, which was established pursuant to the Securities Law; Underwriting commitment as defined in the Securities Law 1968; Connection of a person to a financial asset any of the following: (1) The financial asset is managed by such person or is offered or issued by such person; (2) Such person, or another person acting on his behalf or in his name, is entitled, directly or indirectly, to a benefit - other than the reimbursement of a commission or distribution fee, as described in sections 17(b)(3) through (5) - which does not come from the purchaser or holder of the financial asset, in connection with performing a transaction involving the financial asset or in connection with the continued holding thereof; for the purpose of this definition the word person shall include a person controlling or controlled by one of the above, an office holder in any of these, a party employed by any of these, or a party that employs any of these. Stock exchange member as defined in section 50A of the Securities Law; Company as defined in the Companies Ordinance; 2

3 Banking (Licensing) Law the Banking (Licensing) Law -1981; Companies Law the Companies Law 1999; Pension Counseling and Marketing Law the Control of Financial Services (Pension Counseling and Marketing and Pension Clearing System) Law -2005; Joint Investments Law the Joint Investments Trust Law ; Penal Code the Penal Code ; Securities Law the Securities Law ; Provident Funds Control Law the Control of Financial Services (Provident Funds) Law ; Underwriter a party that has made an underwriting commitment Investment adviser or adviser a party engaged in investment advising; Investment advising providing advice to others regarding the advisability of an investment, holding, purchase or sale of securities or financial assets; for this purpose, the word advising shall refer to either direct or indirect advising, including through publications, circulars, opinions, mail, facsimile transmission or by any other means, excluding publication by the State or by a corporation carrying out a statutory function, in the framework of its function; Qualified client a client who was included among those listed in the First Schedule and regarding whom the conditions listed in the Schedule have been met, at the time the business relationship regarding the provision of services was established. ; Insurer and insurance agent as defined in the Control of Financial Services Law (Insurance) -1981; Structured product an investment, either in a deposit or in another form, the yield from which or the risk involved in which is determined by a formula based on changes in one or more of the following: (1) The index or a number of indices; (2) The price of a security or of a number of securities; (3) The price of a commodity or of a number of commodities; (4) The price of options or of futures contracts; (5) An interest rate or the differences between interest rates; (6) An exchange rate or the differences between exchange rates; 3

4 The term structured product does not include an investment that unconditionally guarantees the repayment of the principal, with the changes resulting from paragraphs (1) or (2) below, if stipulated in the terms of the investment, and that unconditionally guarantees the payment described in sub-section (3) below, if so stipulated, provided that if a choice is given between two or more of the following, then the highest amount will be paid: (1) Index differentials, other than related to a securities index; (2) Currency exchange rate differentials; (3) Fixed or variable interest; The Minister of Finance, in consultation with the ISA, and with the approval of the Knesset Finance Committee, may establish that, notwithstanding the above, certain types of investments will be included in this definition or will be excluded therefrom; Index products index linked notes, commodity certificates, or reverse certificates or covered warrants, as defined in the stock exchange by-laws, and any other index product as such is defined in the stock exchange by-laws, as specified by the Minister of Finance, in consultation with the ISA and with the approval of the Knesset Finance Committee. Fund manager as defined in Section 4 of the Joint Investments Law; Investment marketing agent or marketing agent a party engaged in marketing investments; Investment portfolio manager or portfolio manager a party engaged in investment portfolio management; Foreign service providers register as defined in Part C of Chapter B-1; Blind trust investment portfolios that are managed for a client who is not entitled to issue instructions or directions regarding the purchase, holding or sale, on his behalf, of securities or financial assets; Office Holder as defined in the Companies Law; Investment portfolio management executing transactions at the portfolio manager s discretion, for the accounts of others; Securities 2 as defined in Section 1 of the Securities Law, except for securities that are not listed for trading on the stock exchange and index products including governmentissued securities and foreign securities. Or as determined by the Minister of Finance in consultation with the ISA and with the approval of the Knesset Finance Committee; 2 Regarding an investment adviser who properly held an interest in a company that issues exchange-traded notes prior to 1 June 2010, the words index products will not, through 10 August 2013, be considered to be part of the definitions of securities and financial assets. 4

5 Foreign securities securities that are listed for trading on a stock exchange which is not in Israel, or on a regulated market which is not in Israel; Financial assets units, as defined in the Joint Investments Law, shares or units in a fund which is registered outside of Israel, options, futures contracts, structured products, index products and supplementary training funds. Or as determined by the Minister of Finance, in consultation with the ISA and with the approval of the Knesset Finance Committee; Transaction a transaction involving securities or financial assets; Companies Ordinance the Companies Ordinance (New Version) 1983; Investment marketing advising others regarding the advisability of an investment, holding, purchase or sale of securities or financial assets, if the party providing the advice has a connection to the financial asset; for this purpose the term advising shall be as defined in the definition of investment advising ; Services all or some of the following: investment advising, investment marketing or investment portfolio management; Licensed corporation a corporation holding a license granted pursuant to this law; Affiliated corporation a corporation which is affiliated to another is a corporation regarding which any one of the following conditions is met: (1) It controls the other corporation; (2) It is controlled by the other corporation; (3) Another person has control of such affiliated corporation and the licensed corporation; Savings scheme a savings scheme which has received the approval of the Minister of Finance and of the Knesset Finance Committee pursuant to the Encouragement of Savings, Income Tax Discounts and Loan Guarantees Law 1956; Index linked notes (deleted); Stock exchange by-laws as defined in Section 46 of the Securities Law; Bank, foreign bank and Banking Corporation as defined in the Banking (Licensing) Law; Management Company and advanced training fund as defined in the Provident Funds Control Law; 5

6 Family member, principal shareholder, equity, misleading item, control, stock exchange, holding and purchase as defined in section 1 of the Securities Law; Option, futures contract as defined in section 164(b) of the Joint Investments Law; Partnership, and limited partner as defined in the Partnership Ordinance [New Version] Chapter B: Licensing Requirement Licensing requirement [Amended 2005 (Amendment 4), 2010] 2. (a) Investment advising may only be engaged in by a licensed adviser; an individual holding an adviser's license may engage in investment advising as an individual or as the employee of a company that holds an adviser s license, or as the employee of a licensed portfolio manager company which is also engaged in advising, or as an employee of or partner in a partnership that holds an adviser s license. (b) (b1) (b2) (c) A person shall not engage in portfolio management unless he is a licensed portfolio manager, and if the person is an individual, he holds a license and works for a licensed investment portfolio manager company. A person shall not engage in investment marketing unless he is a licensed marketing agent; an individual who is a licensed marketing agent may engage in investment marketing either as an individual or as the employee of a licensed marketing agent company, or as an employee of a licensed portfolio management company which engages in marketing, or as an employee of or partner in a licensed marketing agent partnership. Notwithstanding the provisions of sub-section (b1), an institutional body, even if it does not have a marketing license, may engage in the investment marketing with respect to financial assets that it manages or which it has offered or issued and with respect to these only, and all persons engaged in investment marketing in the name of such an institutional body will be required to be licensed marketing agents. If the institutional body is a fund manager all such persons will be required to be either a licensed marketing agent or a licensed portfolio manager. The provisions of Chapters C and of Chapters E through I that are applicable to a licensed marketing agent will apply to an institutional body which is engaged in investment marketing pursuant to this sub-section. Notwithstanding the provisions of sub-sections (a) and (b1), a licensed portfolio manager may also engage either in investment advising or in investment marketing, but not in both; however, if the licensed portfolio manager is an affiliated corporation of an institutional body or of a licensed marketing agent, it 6

7 may not engage in investment advising. The provisions of this law that are applicable to a licensed investment adviser will apply to a licensed portfolio manager who engages in investment advising other than in the context of portfolio management. The provisions of this law that are applicable to a licensed marketing agent will apply to a licensed portfolio manager who engages in investment marketing. (d) The provisions of sub-sections (a) through (b1) will not serve to prevent (1) a party serving as an intern prior to receiving a license pursuant to this law from working under the supervision of a licensee in a manner and under conditions to be established in the regulations, provided that such party does not provide investment advice or engage in investment marketing or manage investment portfolios; (2) a party who is not a licensee from working for a licensee, provided that such a person does not provide investment advice or engage in investment marketing or manage investment portfolios; (3) a party who is a licensee as defined in the Pension Counseling and Marketing Law from engaging in pension counseling or pension marketing, whichever is relevant, as defined in the said law, with respect to a pension product as defined in that law, which is also a financial asset. Occupations that do not require a license [Amended: 1997 (Amendment 2), 2005 (Amendment 2), 2010] 3. (a) The following occupations do not require a license pursuant to this law: (1) (Deleted); (2) (Deleted); (3) Investment advising or investment portfolio management for no more than five clients during the course of a calendar year, by an individual who does not engage in investment advising or investment portfolio management in the framework of a licensed corporation or a banking corporation; (4) Investment advising through the media; (5) Investment advising or investment marketing which the person provides by virtue of his membership in an investment committee or a board of directors of a corporation, and which is provided only to that corporation in the course of carrying out his function as a member of the committee or board of directors, whichever is relevant; 7

8 (6) Management of a corporation s investment portfolios, by a party doing so as part of carrying out his function in that corporation or in a corporation which is affiliated with that corporation. (7) Investment advising or investment portfolio management for a family member; (8) Investment advising by a corporation whose main occupation is the appraisal of corporations, provided that it does not engage in other investment advising or in portfolio management; (9) Investment advising or investment portfolio management by an accountant, attorney or tax adviser, when such activities accompany a service provided to a client within the field of their respective professions; (10) Investment portfolio management by a party that has been appointed by a court order or by the order of a competent tribunal to act with respect to the assets of another party, in the course of carrying out such duties; (11) Investment advising, investment marketing or investment portfolio management, for a qualified client. (a1) Notwithstanding the provisions of paragraph (3) of sub-section (a), a party who, without having a license pursuant to this law, engages in investment advising or investment portfolio management as described in that paragraph (1) will be subject to the provisions of Chapters C or D, whichever is relevant, as if such party did have a license; (2) will notify the client to whom he provides investment advice or on behalf of whom he manages an investment portfolio, prior to entering into a business relationship with such client, that he is not a licensee, and if he was a licensee in the past, he will also indicate the circumstances due to which he ceased to be a licensee, and will also indicate in such notice whether he carries the insurance required of a licensee pursuant to the provisions of this law; (a2) Notwithstanding the provisions of paragraph (11) of sub-section (a), a party which is engaged in investment advising, investment marketing or investment portfolio management as described in that paragraph, without having a license pursuant to this law 8

9 (1) will be subject to the provisions of Chapter C, excluding sections 12, 13, 14, 16 and 18, as if such party did have a license and with respect to a party who is engaged in investment portfolio management, such party will be subject to the provisions of Chapter D as well, excluding section 24; the Minister of Finance, in consultation with the ISA and with the approval of the Knesset Finance Committee, may establish an exemption from further provisions regarding all or some of the said services, which are provided with respect to all qualified clients or with respect to a particular category of such clients; (2) will notify the client to whom he provides services, prior to his entering into a business relationship with the client, that he is not a licensee, and if was a licensee in the past, he will also indicate the circumstances due to which he ceased to be a licensee, and will also indicate in such notice whether he carries the insurance required of a licensee pursuant to the provisions of this law; (a3) (b) (c) Notwithstanding the provisions of paragraph (5) of sub-section (a), a party which is engaged in investment marketing as stated in that paragraph, without having a license pursuant to this law, will notify the investment committee or the board of directors, whichever is relevant, of his connection to the financial asset and of the nature and details of that connection. Notwithstanding the provisions of sub-section (a), investment advising which is provided through the media, either by a licensee or by a party that is not a licensee, will include a notice from the party providing the advice as to whether or not he has a personal interest in the matter, and a notice that the advice provided does not serve as a substitute for advice which takes into consideration the details and special needs of any person. The provisions of sections 12, 13, 14, 16, 18, 24 and 25, whichever are relevant, will not apply to investment advising, investment marketing or investment portfolio management carried out by a licensee for a qualified client; the Minister of Finance, in consultation with the ISA and with the approval of the Knesset Finance Committee, may establish an exemption from additional provisions regarding all or some of the said services, which are provided with respect to all qualified clients or with respect to a particular category of such clients; Offer to provide services (Amended 2010) 3a. No offer may be made for the provision of services unless the service is provided by a party holding an appropriate license pursuant to this law, or by a party who is entitled to provide such service even without a license, pursuant to the provisions of sections 3 or 9 9

10 or Chapter B-1; in this subsection the term making of an offer shall refer to the making of an offer either directly or indirectly, including through advertising, circulars, opinions, by mail, facsimile, telephone, or in any other manner. Activity which is prohibited for a licensee [Amended 1997 (Amendment 2), 2005 (Amendment 2), (Amendment 4), 2010, 2010 (Amendment 2)] 4. (a) An individual licensee shall not hold or purchase securities or units - as such are defined in the Joint Investments Law - for himself. (b) (c) An individual who is an investment portfolio manager may not manage investment portfolios for a member of his family or for a corporation of which either he or a member of his family is a controlling shareholder. The prohibition described in sub-sections (a) or (b) will not apply to the following: (1) Securities issued by the State; (2) Securities issued by a corporation employing the licensee or his spouse (referred to hereinafter in this sub-section and in sub-sections (2a) and (2b) as the licensee ) or which were issued by a corporation controlling such a corporation and which were offered to the licensee within the framework of an employee benefit plan pursuant to section 15(b)(1) or (2) of the Securities Law, provided that the licensee places them in a blind trust within seven days from the date of their purchase, and if there are restrictions that are imposed on the sale of the securities pursuant to section 15C(a)(1) of the Securities Law within seven days from the date on which the restrictions period established pursuant to that section terminates. If, after the purchase of securities as described in this section, the licensee holds only the said securities, either alone or together with securities as described in paragraphs (1), (2a), (2b), (3), (4), (6) or (7), the licensee will not be required to place them in a blind trust, and the provisions of section 52I (b) of the Securities Law, will apply to the sale of such securities mutatis mutandi. (2a) Securities of a corporation held by a licensee at the time of the initial public offering, and for the purpose of this paragraph- (a) The provisions of paragraph (2) will apply, mutatis mutandi, to the placement of the securities, as stated, in a blind trust; if the licensee holds such securities other than in a blind trust, the provisions of section 15 will apply to advising or executing a transaction with respect to the said securities; (b) Notwithstanding the provisions of sub-paragraph (a), if the licensee is an interested party and an employee or an interested party and an 10

11 office holder in the said corporation, he is not required to place the securities in a blind trust and may execute transactions on his own behalf regarding the said securities; in such a case, the licensee may not give advice and may not execute transactions on behalf of his clients regarding the securities of the said corporation, and he must notify all his clients immediately of the fact that he is an interested party in the said corporation and that he is prohibited from advising or executing any transactions on their behalf with respect to such securities. (c) The provisions of this paragraph will apply with respect to the holding of securities in a single corporation only, or in a corporation affiliated with such a corporation; (2b) Securities of a corporation that were held by a licensee prior to his having obtained a license, provided that the licensee had, within seven days from the date of his having received the license, placed the securities in a blind trust, and if restrictions apply to the sale of the securities pursuant to section 15c(a) of the Securities Law such securities must have been placed in a blind trust within seven days from the date on which the restrictions period established pursuant to that section terminated. If the licensee is an interested party and employee or an interested party and office holder in the said corporation, he is not required to place the securities in a blind trust and may execute transactions on his own behalf regarding the said securities; in such a case, the licensee may not provide advice and may not execute transactions on behalf of his clients regarding the securities of the said corporation, and he must notify all his clients immediately regarding the fact that he is an interested party in the said corporation and that he is prohibited from providing advice or from executing transactions on their behalf with respect to such securities. The provisions of this paragraph will apply with respect to the holding of securities in a single corporation only, or in a corporation affiliated with the corporation. (3) Units in an open fund` nevertheless, the provisions of this paragraph shall not apply to the purchase of units in an open fund by a licensee who is one of the parties listed below, if after the said purchase of the units he holds no more than twenty-five percent of the total units in the fund at the end of the day preceding the date of the purchase: (1) A controlling shareholder of the fund manager; (2) A director, member of the investment committee or employee of the fund manager or of a company that controls the fund manager or which is controlled by such a company; 11

12 (3a) Shares or units in a fund which is registered outside of Israel; (4) Investments in supplementary training funds; (5) Securities purchased by a trustee of a blind trust, and which are held for an individual licensee by such a trustee; (6) Foreign securities issued by a corporation whose securities are not listed for trading on a stock exchange, and the value of whose securities are listed for trading is higher than the New Israeli Shekel equivalent of two hundred million United States dollars, or than a different amount which has been determined by the Minister of Finance in an order, at the recommendation of the ISA or in consultation with it, and with the approval of the Knesset Finance Committee; for this purpose - Foreign securities does not include shares or units of a fund which is registered outside of Israel; Value listed for trading the amount of foreign securities listed for trading, issued by the corporation in the place in which they have been purchased, multiplied by the price set for such securities at the end of the trading day preceding the trading day on which they were purchased; (7) Index products. Application for a license [Amended 2005 (Amendment 4)] 5. (a) A party wishing to engage in investment portfolio management, investment marketing or investment advising must submit an application to the ISA to receive an appropriate license. (b) - In an application to receive a license as described in sub-section (a), the applicant shall include details, documents and reports as decided by the Minister of Finance in consultation with the ISA. (c) The ISA may require additional details, documents or reports from the applicant, if it appears to be necessary for the purpose of reaching a decision concerning the application. The ISA s decision concerning an application 6. The ISA will grant a license to the applicant if it decides that such action is appropriate; if the ISA decides that a license should hold certain conditions or that it should not be granted, it will notify the applicant of its reasons for the decision and will give the applicant an opportunity to bring his claims regarding the decision before the ISA, prior to its issuance. 12

13 Conditions for granting an adviser s license or a marketing license [Amended 2002, 2005 (Amendment 2), 2005 (Amendment 3), (Amendment 4), 2010, 2010 (Amendment 2), 2011] 7. (a) The ISA shall grant an adviser s license or a marketing license, accordingly, to an individual applicant, if the applicant is found to meet the following conditions: (1) He is an adult; (2) He is an Israeli resident or has proved that although he is not an Israeli resident, he is able to comply with all the provisions established in this law, and that they can be enforced with respect to him; (3) He has not been convicted of an offense; (4) He has passed the required examinations, the topics and procedures of which are specified in the regulations; (5) He has completed an internship for a period and in accordance with procedures as specified in the regulations; (6) (Deleted). (b) The ISA will grant an adviser s or marketing license, whichever is relevant, to an applicant which is a partnership, if it finds that the partnership meets the following conditions: (1) The partners are licensees; (2) The partnership has undertaken that anyone who engages in investment advising or investment marketing, whichever is relevant, in its name, will be an employee of the partnership or a partner thereof, and will hold an appropriate license, or that at least one employee or partner will be a holder of an appropriate license and the other parties acting in its name will be foreign service providers who are authorized to engage in investment advising or investment marketing pursuant to the provisions of Section 10B; (3) The partnership is in compliance with the insurance conditions and amounts specified in the regulations; (4) The partnership has undertaken that it will not allow anyone to serve as an office holder in the partnership whom the partnership knows to have been convicted of an offense, or whom it knows to be prohibited from serving as an office holder because of enforcement measures described in section 52DDD of the Securities Law, which were imposed on such person pursuant to Chapter 8-D of the Securities Law, pursuant to Chapter 7-B of this Law, or 13

14 pursuant to Chapter 10-A of the Joint Investments Law for the period of time during which such prohibition applies; (c) The ISA will grant an adviser or marketing license, whichever is relevant, to an applicant which is a company, if it finds that the company meets the following conditions: (1) The company has undertaken that anyone who engages in investment advising or investment marketing, as relevant, in its name, will be an employee of the company and will hold an appropriate license, or that at least one employee will be a holder of an appropriate license and the other parties acting in its name will be foreign service providers who are authorized to engage in investment advising or investment marketing pursuant to the provisions of Section 10b; (2) The company has undertaken that no person will be allowed to serve as an office holder in the company whom the company knows to have been convicted of an offense or whom it knows to be prohibited from serving as an office holder because of enforcement measures described in section 52DDD of the Securities Law which were imposed on such person pursuant to Chapter 8-D of the Securities Law, pursuant to Chapter 7-B of this Law, or pursuant to Chapter 10-A of the Joint Investments Law for the period of time during which such prohibition applies; (3) The company has capital in an amount not less than the amount prescribed in the regulations; (4) The company has insurance,or bank guarantees, or a deposit or securities, in the amounts, rates and conditions specified in the regulations; (5) The company does not engage in underwriting. (c1) The ISA will not grant an adviser s license to an applicant, even if the applicant complies with the conditions listed in subsections (a) through (c), if the applicant is one of the following: (1) A licensed marketing agent or an institutional body; (2) A pension counselor as defined in the Pension Counseling and Marketing Law; (3) An insurance agent; (4) A party that controls or holds more than ten percent of any type of the means of control in any of those listed in paragraphs (1) through (3); (5) A party which is controlled by any of those listed in paragraphs (1) through (4), however. a banking corporation which is controlled by a party that controls an institutional body or by a party which holds more than ten percent of any type of the means of control in an institutional body may engage in 14

15 investment advising, subject to the conditions established by the ISA Chairman for the prevention of a conflicts of interest when providing advice, provided that such banking corporation will be prohibited from engaging in investment advising relating to financial assets to which the said institutional body has a connection; (6) An office holder or a person who is employed by one of those listed in paragraphs (1) through (5); (c2) The ISA will not grant a marketing license to an applicant, even if the applicant complies with the conditions listed in subsections (a) through (c), if the applicant is one of the following: (1) A licensed adviser; (2) A banking corporation, other than a bank or a foreign bank as described in section 27i of the Banking (Registration) Law; (3) A pension counselor as defined in the Pension Counseling and Marketing Law; (4) A party that controls any of those listed in paragraphs (1) through (3); (5) A party that is controlled by any of those listed in paragraphs (1) through (4); (6) An office holder or a person who is employed by any of those listed in paragraphs (1) through (5); (d) The ISA may refuse to grant an applicant an adviser s license or a marketing license, whichever is relevant, if it believes that there are circumstances of any type whatsoever due to which it is not suitable for the applicant to serve as a licensed adviser or a licensed marketing agent considering the occupation s requirements, and if the applicant is a corporation it may refuse to grant such a license if such circumstances are found to exist with regard to any of the following: (1) A controlling shareholder of the applicant; (2) An office holder in the applicant or a controlling shareholder of the applicant. (d1) (Deleted.) (e) Regulations regarding sub-sections (a)(4) and (5), (b)(3) and (c)(3) and (4), whether general or with respect to certain types of applicants, will be enacted by the Minister of Finance in consultation with the ISA and with the approval of the Knesset Finance Committee. (f) The Minister of Finance, at the recommendation of the ISA or in consultation with it, and with the approval of the Knesset Finance Committee, may specify cases in which an applicant will be exempt from either the internship or examination requirement, or from both of them. 15

16 Exemption from the internship and examination requirements upon the conversion of an adviser s or marketing license [Amended 2005 (Amendment 4)] 7A. An individual licensed adviser who waives his adviser s license and wishes to obtain a marketing license, and an individual licensed marketing agent who waives his marketing license and wishes to obtain an adviser s license, will be exempt from the internship and examination requirements pursuant to sections 7(a)(4) and (5), for the purpose of obtaining the desired license. Conditions for granting a portfolio manager s license [Amended 1997 (Amendment 2), 2002, 2005 (Amendment 2), (Amendment 3), (Amendment 4), 2010, 2010 (Amendment 2), 2011 (Amendment 2)] 8. (a) The ISA will grant a portfolio manager s license to an individual applicant, if the applicant is found to meet the following conditions: (1) He is an adult; (2) He is an Israeli resident or has proved that although he is not an Israeli resident, he is able to comply with all the provisions established in this law and that they can be enforced with respect to him; (3) He has not been convicted of an offense; (4) He has passed the required examinations, the topics and procedures of which are specified in the regulations; (5) He has completed an internship for a period and in accordance with procedures as specified in the regulations; (6) (Deleted); (b) The ISA will grant a portfolio manager s license to an applicant that is a company, if it finds that the company meets the following conditions: (1) The company is not engaged in underwriting and is engaged only in investment portfolio management, investment advising, investment marketing, or in pension counseling or pension marketing as defined in the Pension Counseling and Marketing Law, or in the execution of transactions on the stock exchange, and in the execution of accompanying transactions required for such; for this purpose, the term accompanying transactions will include investment in all types of either Israeli or foreign currency deposits, and investment in savings schemes that have been approved by the Minister of Finance and the Knesset Finance Committee pursuant to the Encouragement of Savings (Income Tax Reductions, Guarantee of State Loans) Law, 1956; 16

17 (2) The company has undertaken that anyone who engages in portfolio management, investment advising or investment marketing in its name will be an employee of the company who holds an appropriate license, or that at least one employee be a licensed portfolio manager, and the other parties that are so engaged in its name will be foreign service providers who are authorized to engage in investment portfolio management, investment advising or investment marketing pursuant to the provisions of Section 10b; (3) The company has undertaken that no person will serve as an office holder whom the company knows to have been convicted of an offense or whom it knows to be prohibited from serving as an office holder because of enforcement measures described in section 52EEE of the Securities Law which were imposed on such person pursuant to chapter 8-D of the Securities Law, pursuant to Chapter 7-B of this Law, or pursuant to Chapter 10-A of the Joint Investments Law for the period of time during which such prohibition applies, ; (4) The company has capital in an amount not less than the amount prescribed in the regulations; (5) The company has insurance or bank guarantees, or a deposit or securities in the amounts, rates and conditions specified in the regulations; (c) The ISA may refuse to grant an applicant a portfolio manager s license if it believes that there are circumstances of any type whatsoever due to which it is not suitable for the applicant to serve as a licensed adviser or a licensed marketing agent considering the occupation s requirements, and if the applicant is a corporation it may refuse to grant such a license if such circumstances are found to exist with regard to any of the following: (1) A controlling shareholder of the applicant for a license; (2) An office holder in the applicant or a controlling shareholder of the applicant for a license. (c1) (d) (e) (Deleted); Regulations regarding sub-sections (a)(4) and (5), (b)(4) and (5), either general or with respect to certain types of applicants, will be enacted by the Minister of Finance in consultation with the ISA and with the approval of the Knesset Finance Committee. The Minister of Finance, at the recommendation of the ISA or in consultation with it, and with the approval of the Knesset Finance Committee, may specify cases in which an applicant will be exempt from either the internship or examination requirements, or from both of them. 17

18 Granting a license in special cases [Amended 2005 (No 2)] 8A. The ISA may grant a license pursuant to this law to an applicant who is an individual, even if the applicant does not meet one of the conditions listed in section 7(a)(4) or (5) or in 8(a)(4) or (5), whichever is relevant, if the ISA is convinced that due to special reasons the applicant can be seen as being qualified to receive a license, as stated, taking into consideration the applicant s education and professional experience. Activity of a banking corporation [Amended 2005 (No 2), (Amendment 4), 2010] 9. (a) A banking corporation may not engage in portfolio management. (b) A bank, and any other banking corporation which is authorized to do so pursuant to the Banking (Licensing) Law (), may engage in investment advising without obtaining a license pursuant to this law, provided that none of the conditions listed in section 7(c1) apply to them other than the condition in paragraph (4) of that section relating to the holding by such bank or banking corporation of more than ten percent of any type of the means of control in an institutional body which is an insurer, or relating to such bank or banking corporation controlling an insurance agent in accordance with the provisions of section 11(b)(2) of the Banking (Licensing) Law; however, those engaging in investment advising on behalf of the bank or banking corporation, whichever is relevant, must be one of the following: (1) Employees of the bank or banking corporation, who are licensed advisers; (2) Employees of the bank or banking corporation who are authorized to engage in investment advising without a license pursuant to the provisions of section 3(a)(4) or (11); (3) Foreign service providers who are authorized to engage in investment advising pursuant to the provisions of Section 10b. (b1) A bank or a foreign bank as described in section 27I of the Banking (Licensing) Law may engage in investment marketing, provided that they have obtained a license pursuant to section 7, and the provisions of the law applying to a licensed marketing agent will apply to them, and those engaged in investment marketing on their behalf must be one of the following: (1) Employees of the bank or foreign bank, who are licensed marketing agents; (2) Employees of the bank or foreign bank who are authorized to engage in investment marketing without a license pursuant to the provisions of section 3(a)(11); (3) Foreign service providers who are authorized to engage in investment marketing pursuant to the provisions of Section 10b. (b2) The ISA may instruct a bank or foreign bank as described in sub-section (b1) that all or some of the provisions that are applicable to a banking corporation pursuant 18

19 to this law will apply to it, instead of all or some of the provisions in that subsection. (c) (c1) (d) (e) (f) The provisions of Chapter C and of section 25(b) that apply to a licensed adviser will also apply to investment advising carried out by a bank or other banking corporation as described in sub-section (b). A banking corporation, as defined in section 7(c2)(2), may not engage in investment marketing; however, such a banking corporation and its employees who are licensed advisers or who are authorized to engage in investment advising without a license pursuant to the provisions of section 3(a)(11) may engage in investment marketing regarding structured products, options or futures contracts that are issued by the banking corporation, even if they are not licensed marketing agents, and the provisions of Chapter C and section 25(b1) that apply to licensed marketing agents will apply to such activity engaged in by them. The Minister of Finance, in consultation with the ISA and with the approval of the Knesset Finance Committee, may specify cases in which a banking corporation will be exempt from certain provisions of Chapter C or of section 25(b1). No person may serve as an office holder in a licensed corporation which is affiliated with a banking corporation, if he also serves as an office holder or employee in the banking corporation or in another corporation which is affiliated with the banking corporation; for this purpose, the term employee refers to an employee who is employed by the banking corporation or by a corporation which is affiliated with it, including an employee who is on leave without pay. The Supervisor of Banks may exempt a person from the application of all or some of the provisions of sub-section (d), if the capital of the banking corporation to which the licensed corporation is affiliated is less than an amount established by the Supervisor and published in the Official Gazette. Notwithstanding the provisions of section 2(c), a licensed portfolio management corporation which is an affiliated corporation of a banking corporation as defined in section 7(c2)(2), may not engage in investment marketing other than as stated in sub-section (c1). Revocation or suspension of a license [Amended 2002, 2005 (Amendment 2), (Amendment 3), (Amendment 4), 2010, 2010 (Amendment 2), 2011 (Amendment 2)] 10. (a) The ISA may revoke a license after the licensee has been given an opportunity to explain his actions, if any one of the following is true with respect to the licensee: (1) The license was granted on the basis of false information; (2) One of the conditions for granting the license is no longer being met with respect to the licensee; 19

20 (3) The licensee has violated any of the conditions of the license; (4) A court has determined that the licensee has violated a provision of this law or of any other law relating to securities; (5) The licensee has been declared bankrupt and has not yet been absolved as described in section 62 of the Bankruptcy Ordinance or has been declared to be legally incompetent. If the licensee is a corporation the license may be revoked if an order of temporary dissolution has been issued against it or if an asset receiver has been appointed for it or if the corporation has decided to dissolve voluntarily. (a1) (1) The ISA may revoke the license of a licensed corporation, after the licensee has been given an opportunity to explain its actions, if the ISA finds that circumstances listed in paragraph (4) which indicate that it is not appropriate for the licensee to serve as such (hereinafter defective trustworthiness) are present; the presence of such circumstances will be examined regarding the following: (a) The licensee; (b) A controlling shareholder of the licensee; (c) An office holder in either of those listed in sub-paragraphs (a) or (b). (2) A panel may cancel or stipulate conditions for the license of an individual licensee, if circumstances listed in paragraph (4) which indicate a defect in the licensee s trustworthiness are present and the provisions of sections 52SS through 52YY of the Securities Law will apply, mutatis mutandi, to the license cancellation or stipulation process; for this purpose, the term panel shall mean a committee, as defined in section 38F. (3) Notwithstanding the provisions of paragraph (1), the ISA may order that the panel will also render a decision in the context of a process such as is described in paragraph (2) concerning the cancellation or stipulation of the license of a licensed corporation in whose name the individual licensee acts, if it finds that that the circumstances listed in paragraph (4) which indicate a defect both in the said individual licensee s trustworthiness, and a defect in the trustworthiness of the corporation in whose name the individual acts. (4) The ISA will establish a list of circumstances that indicate a defect in the trustworthiness of a licensee or of an office holder in the licensee or of a licensee s controlling shareholder; the list will be published on the ISA s 20

21 website and will go into effect 30 days from the date of its publication, although an amendment of the list will not apply to a proceeding pursuant to this section which is pending; a notice of the list s publication or of any amendment thereof and of the date of its entry into effect will be published in Reshumot. (b) (c) (c1) (d) (e) (f) (g) An individual licensee who has ceased to engage in the occupation which is the subject of the license may ask the ISA, in writing, to have his license cancelled or suspended for a requested period of time; a licensed corporation which has ceased to engage in the occupation which is the subject of the license may ask the ISA, in writing, that its license be cancelled. (Repealed). The ISA will suspend the license of an individual licensee who is not insured as required pursuant to the provisions of section 20c, until the required insurance is arranged. (Repealed). A notice of the revocation or suspension of a license shall be published, either by the ISA or by the licensee, as instructed by the ISA. (Repealed). If a party s license has been revoked and the cause of the revocation has been corrected, the party may ask the ISA to renew the license; the provisions of sections 7 and 8 shall apply to such renewal of the license, mutatis mutandi. Chapter B-1: Investment Advising, Investment Marketing and Investment Portfolio Management by a Foreign Service Provider Definitions (Amended 2010) 10A. 3 In this Chapter Part A: Definitions Foreign permit - a permit to provide services, in a foreign country, according to the law of that country; 3 Chapter B-1 (sections 10a through 10i) will enter into effect on the day that Regulations enacted pursuant to section 10h of the law enter into effect. 21