Securities Regulations (Trading Platform to its Own Account), 2014

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. Securities Regulations (Trading Platform to its Own Account), 2014 Under my authority according to paragraphs 44xiii(b)(5), (6), 44xxvix and 55a of the Securities Law 1968 (hereafter: the "law"), in accordance with the proposal of the Authority and with the approval of the Knesset Finance Committee, I hereby enact the following regulations: Definitions Chapter 1: Interpretation 1. In these regulations "The company's Internet site" The Company's Internet site by means of which the company offers its services to the public; "Margin" The difference between the amounts mentioned in clauses (1) and (2) and the unrealized losses, and on the condition that the company is permitted to use the entire difference to cover liabilities of the customer towards the company according to the terms of the framework agreement with the customer: (1) Unrealized profits; (2) Funds of the customer; "Required margin" The proportion of margin required from the client for a trade as mentioned in Regulation 4; "Framework agreement" An agreement between the company and the client according to Regulation 27; "Unrealized losses" Money owed to the company by the client as a result of an investment activity that has yet to be completed; "Trading platform" a trading platform as defined in paragraph 44L of the Law; "Company" A company that manages a trading platform; "Rating agency" An Israeli or international rating agency; "Israeli rating agency", "international rating agency" as defined in Regulation 83; "Limited company" A company managing a trading platform as defined in clause (2) of the definition of a "trading platform" in Paragraph 44L of the Law, and on the condition that it is not a counterparty to the liabilities implicit in the financial instruments it offers for trading; "Client contract" A financial instrument that a client trades in, for which the company is the counterparty to the liabilities implicit within it; "Exposure to credit risk", "source of credit risk" as defined in Regulation 83;

2 "Business day" A day on which the company is open to carry out trades with its clients, according to its bylaws; "Generally accepted accounting principles" as defined in the Securities Regulations (Annual Financial Reports) ; "The client's funds" (1) Each of the following: (a) Funds that the client deposited with the company less the client's liabilities to the company due to investment activity that has been completed according to the conditions of the framework agreement with the company; and including funds transferred by the client to the company by means of a credit card, bank transfer, check or other means of payment and which have not yet been settled; (b) Funds that are owed to the client as a result of investment activity that has been completed; (c) Funds owed to the client according to the terms of a financial instrument; (d) Funds owed to the client according to the framework agreement. (2) If the company has marked to market the client's securities on a daily basis according to the framework agreement with the client, the investment activity, which the mark to market relates to, will be viewed as investment activity that has been completed at the time of the mark to market; for this purpose, "marking to market" is the calculation of rights due to changes in the contract value or due to a trade that has occurred after the previous mark to market; "Client", "financial instrument" as defined in paragraph 44Lof the Law; "Financial institution outside of Israel" A corporation that incorporated outside of Israel which is involved in the receipt of deposits and which is supervised by the entity that is authorized to do so in that country; "CDS price" the Credit Default Swap contract prices for one-year and five-year maturities as quoted in the international information services, including Bloomberg and Reuters; "Material source of credit risk" a source of credit risk where the total exposure of credit risk components with respect to it, within the total value of exposure of all credit risk components, exceeds 5%; "Senior officer" as defined in Paragraph 37(d) of the Law; "Underlying asset" Commodities, interest rates, currencies, exchange rates, indexes or other financial instrument where the value of a financial instrument that is a contract or arrangement is derived from them; "Client asset" A financial instrument in which the client trades, for which the company is not counterparty to the liabilities implicit within it. 1 Collection of Regulations 2010, p. 662.

3 "Liquidity supplier" - A financial body that on an ongoing basis offers the purchase and sale of financial instruments and on the condition that the goal of using its services is to reduce the exposure to market risk, as defined in Regulation 83, to which the company is subject; "Quote supplier" An information system which on an ongoing basis electronically provides buy and sell prices of financial instruments, including Bloomberg and Reuters; "Fee" including the fee for rolling over a contract, interest spreads and quote spreads; "Trade" a trade in a financial instrument; "A trade not initiated by the client" A trade carried out in the account of the client not at his initative; "Exposure value of a credit risk component" as defined in Regulation 86; "Related party" as defined according to generally accepted accounting principles; "Group" a group of corporations and individuals who maintain control relationships between them, including a subsidiary, an associated company and a company controlled by a company that controls each one of them; "Risk groups" The first risk group, the second risk group, the third risk group and the residual risk group; "First risk group", "second risk group" and "third risk group", as defined in the Third Schedule; "Residual risk group" Credit risk components to which Regulation 86 (a)(4) applies; "Auditor" As defined in the fifth chapter of the fourth section of the Law of Companies; "Unrealized profits" Funds owed by the company to the client as a result of investment activity that has not yet been completed; "License" A trading platform license as defined in paragraph 44L of the Law; "Credit risk component" as defined in Regulation 83; "Market risk component" "general market risk component", "currency market risk component", "share market risk component", "commodity-dependent market risk component", "interest-rate-dependent market risk component" as defined in Regulation 83; "Postal Authority service" "postal service" as defined in the Post Office Law ; 2 2 Book of Laws 5746, p. 79; 5764, p. 71.

4 "Bank" as defined in the Banking Law (Licensing), (hereafter: the Banking Law); "Bylaws" as defined in paragraph 44R of the Law; "Periodic and Immediate Reports Regulations" Securities Regulations (Periodic and Immediate Reports), ; 4 "Prospectus Details Regulations" Securities Regulations (details of the prospectus and the draft prospectus structure and form), Chapter 2: Request for a License 2. Details of the request for a license (a) A company that is applying for a license to manage a trading platform (in this chapter the "applicant") will submit a request in writing to the Authority along with the following information, reports and documents (hereafter: the application); (1) A periodic report according to Regulation 75(a) to (e), as of a date not earlier than the date of application by more than 14 months (hereafter: the periodic report date); if the date of the periodic report is earlier than the date of the application by more than five months, the latest quarterly report, as defined in Regulation 38 of the Periodic and Immediate Reports Regulations according to Regulation 74, will be attached, and on the condition that: (a) The instructions of Regulation 60 and 62 to the Prospectus Details Regulations will apply, with the required changes; (b) With respect to Regulation 9a of the Periodic and Immediate Reports Regulations, they will be viewed as saying "the date of the application" instead of "the date of the approval of the financial reports" and the changes in form and grammar will be made accordingly; (c) With respect to Regulation 38b of the Periodic and Immediate Reports Regulations, they will be viewed as saying "the date of the application" instead of "the date of the approval of the interim financial reports" and the changes in form and grammar will be made accordingly; (2) An allocation report due to risks and regulatory equity capital as stated in Regulation 75(f) and on the condition that if a quarterly report has been attached according to the instructions of clause (1), only an allocation report due to risk and regulatory equity capital as specified in Regulation 74(e) will be submitted; (3) A report of profitable clients and non-profitable clients according to Regulation 76(1), prepared not earlier than one month prior to the application; 3 Book of Laws 1981, p. 232; 5770, p Book of Laws, 5730, p. 2037; 5771, p Book of Laws, 1969, p. 1794; 5771, p. 604.

5 (4) A report on activity according to Regulation 76(2) prepared not earlier than one month prior to the application; (5) A credit risk report according to Regulation 76(3) prepared not earlier than one month prior to the application; (6) A credit risk management policy report according to Regulation 76(4) prepared not earlier than one months prior to the application; (7) A market risk report according to Regulation 72 prepared not earlier than one month prior to the application; (8) A report prepared on the day of the application that includes the following details (hereafter: the additional details report): (a) The name of the applicant and his identity number; (b) The commercial name under which the applicant will provide its services if that is different from the name specified in subclause (a); (c) For an applicant that is incorporated outside of Israel the place of the applicant's incorporation and its identifying number in that location of incorporation; (d) The registered address of the applicant, telephone numbers, fax number and address, and if the applicant's place of incorporation or where it does business is outside of Israel (hereafter in this chapter: a foreign applicant), also the number and address of a person residing in Israel who is authorized to receive judicial documents and notifications for the applicant which are to be passed on to the applicant; (e) If the place in which the applicant operates differs from the registered address of his office, the details of the business address and the relevant telephone and fax numbers will be submitted; (f) If the applicant has an attorney representing it with respect to the license application, his details will be included and a power of attorney will be attached that authorizes him to represent the applicant before the Authority; (g) Details of the auditor who audits the applicant; (h) The date of incorporation; copies certified by an attorney of the applicant's incorporation documents which are in effect on the date of the application will be attached; (i) Details of existing or planned locations of the applicant's activity outside of Israel and a description of that activity; (j) With regard to each of the applicant's directors and substitute directors, details will be provided of the appointments as specified in Regulation 26 of the Periodic and Immediate Reports Regulations and paragraph 44BB(a) of the Law; with regard to the applicant, the details of the appointment will be provided according to paragraph 44BB(a); if an individual ceased being a director or a substitute director during the 6 months prior to the submitting of the application, the aforementioned details will be submitted, as well as the following: (1) The date he ceased serving as a director;

6 (2) Whether, according to what is known to the applicant, the circumstances under which he ceased to serve as a director should be brought to the attention of the Authority; and if so, those circumstances will be described; (k) With respect to a senior officer of the applicant whose details were not submitted according to subparagraph (j), the details of the appointments according to Regulation 26a of the Periodic and Immediate Reports Regulations and events as described in paragraph 44BB(a) of the Law will be provided; if the individual ceased serving as a senior officeholder during the 6 months preceding the application, the aforementioned details will be submitted, as well as the following: (1) The date he ceased to serve as a senior officer; (2) Whether, according to what is known to the applicant, the circumstance under which he ceased to serve should be brought to the attention of the Authority; and if so, those circumstances will be described; (l) With regard to a stakeholder of the applicant, the details mentioned in Regulation 33(c) of the Immediate and Periodic Reports Regulations, as known to the applicant, will be submitted; (m) The following details will be submitted with respect to controlling shareholders of the applicant: (1) The identity of the controlling shareholders and a description of the structure of control of the applicant, along with a chart that describes the applicant's structure of control; the country of citizenship or incorporation of the controlling shareholders and the country in which their activity is concentrated; if one of them is subject to regulation, then the name of the regulatory body will be submitted and details of the license; if a controlling shareholder has filled a position with the applicant, then his position with the applicant will be specified; in addition events as specified in paragraph 44BB(a) of the Law with respect to the controlling shareholder and senior officers will be described; (2) The business activities of the controlling shareholders during the last five years in Israel or abroad will be described; in addition, the names of other corporations in which they were controlling shareholders or served as senior officers during the last five years will be submitted; (n) With respect to an applicant that is part of a group (hereafter: the applicant's group), all the other bodies in the applicant's group who are not controlling shareholders of the applicant will be specified, including their names and identification numbers, the existing ownership structure among the applicant's group, including the percentages of holdings, the country of citizenship or incorporation of each and the country in which they manage their business activity; (o) The following will be specified:

7 (1) Whether the applicant or one of the bodies in the applicant's group is under the supervision of regulatory bodies in Israel or abroad; (2) Whether during the last two years applications by the applicant's or a different body in the applicant group for a license in the capital market under the supervision of the regulatory body in Israel or abroad have been rejected; (p) The proposed bylaws will be submitted; (q) With respect to the organizational structure of the applicant, the following will be specified: (1) The operational departments and an organizational chart will be attached; (2) The following details regarding the managers who are responsible for each of the operational departments mentioned in subclause (1) (hereafter: the responsible managers): (a) Name and ID number; (b) A description of his function and his area of responsibility with the applicant; (c) His professional training with respect to this function, including the name of the degree he received, the completion date of his training and details of the institutions where the training took place; (d) Work experience related to his position, including the name of the place of work where the responsible manager was employed; (3) The address of each operational department will be provided, if the applicant manages his business from more than one location; (4) A list will be provided of any entities external to the applicant which carry out some of its activities; (r) A description of the authority of the Executive and the Board of Directors; (s) A description of the technological system by means of which the applicant will provide its services and including a description of the entities external to the applicant who will operate the technological system or part of it and the areas of their responsibility, the technological system s interfaces with entities external to the applicant, the setup for saving of data, backup, information security and monitoring mechanisms, along with an expert opinion which certifies that the system operates according to accepted standards; in this context, "accepted standards" including SAE3402 and COBIT; (t) A description of the type of clients which the applicant intends to provide service to; if the applicant knows of a single client who is expected to generate more than 10% of the applicant's income, the circumstances will be described in brief; (u) A description of the applicant's planned marketing channels;

8 (v) Details will be provided of the banks or financial institutions outside of Israel where the client's funds will be deposited, as required by Regulation 21; (w) Details will be provided of liquidity suppliers and quote suppliers; in this context, a concise description will be provided of the agreements with them, including the terms for terminating the relationship or suspending the service for a specific time period; (x) A description will be provided of the material contracts to which the company is a party; (y) A description will be provided of the manner in which the applicant's clients will confirm trades carried out in their name or by them; (z) The following procedures will be attached: (1) For ensuring the recording and management of client assets, client contracts and client funds according to Regulation 17; (2) Procedures whose purpose is to ensure that the applicant identifies, measures, manages and monitors market risk, liquidity risk, credit risk and operational risk which arise from its activity; (aa) A foreign applicant will attach an attorney's opinion that is addressed to the Authority with regard to the following: (1)The laws that regulate the activity of the applicant in the country of origin, including the existence of sources of funds that will allow the applicant to meet its obligations; (2) the applicant's rules of corporate governance, including instructions regarding senior officeholders and how possible conflicts of interest are dealt with by the applicant, (3) a list of events as specified in paragraph 44BB(a) of the Law; (bb) A description will be provided of the insurance purchased by the company according to Regulation 88 and including a description of the areas of coverage of the insurance and its scope; in addition, a confirmation of the insurance and the decision of the company according to Regulation 88 will be attached; (cc) Consent of the applicant and that of the controlling shareholders to obtain information from the Criminal Registry will also be attached. (b) The instructions in Article 1 of Chapter 10 will apply to the application and the documents attached to it, with the required changes, and on the condition that the instructions of Regulation 44(c) and 48 do not apply and with regard to Regulation 45, only subregulation (c) will apply. (c) If there occurs a significant change during the period from the submission of the application until the date of the final decision on the application in a detail that is included or should be included in the application, the applicant will revise the application accordingly, not later than one week after the company first becomes aware of the aforementioned change, and it has the right to include in the notification of the revision information in the form of a referral; in this context became known to the company is according to its meaning in Regulation 50(b).

9 (d) The details in the application will be submitted if they are relevant to the business of the company and are material to their accurate presentation; without detracting from the aforementioned, all additional information needed for the accurate presentation of the applicant's business will also be submitted. (e) The Authority has the right to request additional details, documents or reports from the applicant if it decides that this is necessary in order to make a decision with regard to the application. 3. Inclusion by means of a referral An applicant has the right to include details that are required for the periodic or quarterly report, as mentioned in Regulation 2(a)(1) or in the report of additional details by means of a referral to a different report from the aforementioned reports in this Regulation which was submitted by the applicant and on the condition that the report which is being referred to is a previously written report, and the following instructions will apply: (1) Information will not be included in the form of a referral to another report in which that information is in the form of a referral; (2) Information will not be included in the form of a referral if this is liable to mislead or result in a lack of clarity; (3) The referral will be made explicitly and will mention the type of the other report to which the referral is being made, the chapters or paragraphs to which the referral is being made, the matter to which the referral is being made and the date on which the other report to which the referral is being made was submitted, while explicitly stating the fact that the information is being submitted by means of a referral; (4) Any development or update of the information submitted in the form of a referral will be submitted, if requested; (5) If the information submitted in the form of a referral is of a type that requires prior consent in order for it to be included in a report, then renewed consent as mentioned will be submitted for its inclusion in the present report in the form of a referral. Chapter 3: The Level of Leverage 4. Limiting the level of leverage (a) The collateral required from a client in a trade will not be less than the following rates: (1) 5% of the nominal value of the trade in the case of trades in financial instruments with a high level of risk; (2) 2.5% of the nominal value of the trade in the case of trades in financial instruments with an intermediate level of risk; (3) 1% of the nominal value of the trade in the case of trades in financial instruments with a low level of risk. (b) In this Regulation A financial instrument with a low level of risk a financial instrument whose value is derived from the value of currencies or gold or futures contracts on currencies or gold; A financial instrument with an intermediate level of risk a financial instrument whose value is derived from the value of one of the following

10 (1) Recognized indexes of foreign stock exchanges which are listed in the Sixth Schedule or futures contracts on these indexes; (2) Bonds whose time to maturity or to exercise for each one of them does not exceed ten years and which are issued by one of the following: a. The State of Israel; b. The US government; c. The government of countries whose credit rating according to S&P or Fitch is AA or higher and according to Moody s is Aa3 or higher; (3) Futures contracts on the bonds mentioned in clause (2); A financial instrument with a high level of risk a financial instrument whose level of risk is not intermediate or low. (c) The company will not allow a client to open a new trade if the margin that he provided is smaller than the total margin needed for all of the client s open trades together with the new one. (d) The company will not allow a client to withdraw funds from his account in the trading platform if as a result the total margin he has provided drops below the margin required for the client s total trades. (e) The instructions of this regulation will not apply to the clients listed below, on the condition that before they carried out trades they gave their prior written consent that they be considered as clients to which this regulation does not apply and that they are aware of the implication of their consent and if they are clients that are included in clause (6) or (9) of the First Schedule of the Law or clause (2) of this regulation, they provide their consent on an annual basis; an examination regarding the following clauses will be carried out annually: (1) Clients regarding whom clauses (1) to (11) of the First Schedule of the Law are apply; (2) An individual for whom one of the following applies: (a) The total value of cash, deposits, financial assets and securities, as defined in paragraph 52 of the Securities Law, in his possession exceeds 12 million new shekels; (b) The average monthly trade turnover in financial instruments of the type traded in the trading platform during the last six months is not lower than ten million new shekels; In this subregulation Trade turnover total of the trades closed by the client in the trading platform, according to their value in terms of the underlying asset. 5. Limiting the client s losses Total losses of the client from trades will not exceed the value of the collateral he has provided. 6. Dealing with a conflict of interest Chapter 4: Conflicts of Interest

11 (a) In its bylaws, the company will include a document that describes the policy for dealing with conflicts of interest (hereafter: the conflict of interest policy document); the policy for dealing with a conflict of interest will be determined according to the size of the company, the business activity it manages and its scope. (b) The conflict of interest policy document in a company which is part of a group will take into account the circumstances that are liable to lead to a conflict of interest between the company and the group or someone employed by the group or between a service provider on their behalf and the client, while taking into consideration the structure and business activity of the corporation and individuals in the group. 7. Chapters of the conflict of interest policy document (a) The conflict of interest policy document will include the following chapters: (1) Chapter 1: In the context of each of the company's or group's activities, a description will be provided of each of the circumstances which could lead to a conflict of interest between the company, the group or one of their employees or one of their service providers and the client; with respect to each circumstance, the nature of the conflict of interest (hereafter: "circumstance in which there is a conflict of interest") will be described; (2) Chapter 2: A description of the procedures, according to which the company will act and the means that it will use in order to prevent the conflict of interest described in Chapter 1 of the document or to reduce its scope if it is not possible to prevent it completely; (3) Chapter 3: A description of the circumstances from which the conflict of interest mentioned in clause (1) arises and which remain after the procedures and measures mentioned in Chapter 2 of the document have been implemented. (b) In this Regulation, "the company's activities" activities in the framework of which the company uses its judgment and which may affect the interests of the client, including conversion, setting of prices, a request from the client to add collateral, ascertaining whether activity in the trading platform is suited to the client and the cancelation or change in trades. 8. An activity that involves a conflict of interest (a) A company will not carry out an action in circumstances in which there exists a conflict of interest, unless the circumstances are described in Chapter 3 of the conflict of interest policy document. (b) When a client signs up with the company, the company will inform the client regarding the circumstances that involve a conflict of interest as listed in Chapter 3 and will receive the client's consent in writing; in this Regulation, "in writing" includes written consent sent by the client by means of the Postal Authority's services or by facsimile or by electronic mail; the Chairman of the Authority or an employee of the Authority he has authorized for this purpose has the right to allow the company to receive the consent of the client by other electronic means if he has determined that the presentation of the document and its contents and the manner in which the electronic consent was given facilitates a thorough examination of the document prior to its approval by the client.

12 (c) If there has been a change in Chapter 3 of the conflict of interest document, the company will notify the client of the change immediately. (d) The company will obtain the consent of the client in writing regarding the circumstances in which there is a conflict of interest according to Chapter 3 of the conflict of interest policy document at the end of each year; if the client refrains from renewing such consent within 30 business days from the end of the year, the company will notify the client in writing that he has not renewed his consent; in this context, "in writing" includes the aforementioned agreement in writing which the client has sent by means of the Postal Authority services, by facsimile or by electronic mail. (e) A notification according to subregulation (b), (c) and (d) will be sent to the client separately from any other document, in a manner that will draw the client's attention to what its written in it. 9. Preference for a client A company or someone acting on its belief will not show preference for one client over another; in this context, actions that are permitted by the company's bylaws will not be viewed as preference for one client over another. 10. Prohibition of providing advice and portfolio management services (a) A company or someone on its behalf will not provide advice on investing, holding, buying or selling a financial instrument that it trades in or an underlying asset of a financial instrument that it trades in; in this context, "advice" includes both direct and indirect advice, including by means of marketing material, newsletters and opinions, by mail, facsimile or other method. (b) Notwithstanding what is stated in subregulation (a): (1) A company has the right to refer its clients to factual information with respect to the underlying asset of a financial instrument which has been prepared and published by another party or someone on their behalf, on the condition that the referral is general and ongoing, that the choice of information is not according to the company's judgment and the information was not prepared or published at the request of the company; (2) A company or someone on its behalf has the right to publish an analysis, on the condition that the following conditions are fulfilled: (a) The analysis will be a general one and not aimed at a particular client; (b) The analysis will be available to all of the company's clients on the company's website and will not be sent to a particular client; (c) The analysis will relate to the conflict of interest between the publishing of the analysis and the services offered by the company; In this context, an "analysis" is a document that includes an analysis of an underlying asset of a financial instrument that provides reasoned information or a target price which can serve as the basis for a decision regarding the profitability of investing, holding, buying or selling of a financial instrument and on the condition that the document does not include an analysis of a financial instrument traded in the trading platform.

13 (3) A company or someone on its behalf will not carry out trades according to its judgment for its clients in a financial instrument that it trades in. 11. Documentation In the course of its activity, the company will document all of its actions and services that have created or are liable to create a conflict of interest and also all the notifications it has sent to a client in this regard and the consent it has received from the client. Chapter 5: The Client's Funds and Assets Article 1: General 12. The obligations of the company to the customer The company will operate with prudence, trust and diligence with respect to the client's assets, client's contracts and client's funds. 13. The protection of the client's rights A company will work to ensure the rights of the client with respect to the client s assets, the client s contracts and the client s funds. 14. The holding of client's assets and funds A company will hold client's assets and funds, whether directly or indirectly, only after it has signed a framework agreement with the client, as mentioned in Regulation The separation of the clients' assets and funds A company will hold the assets and funds of each client separately from its assets and funds and also separately from the assets and funds of parties related to it or its stakeholders; in this context, "the client's funds" does not include funds transferred by the client to the company by means of a credit card, bank transfer, check or other means of payment but which have not yet been cleared. 16. Management of records A company will manage records and accounts that clearly separate between the assets, contracts and funds of the client, according to the holdings of each client. 17. Prevention of damage A company will establish and implement procedures to ensure the recording and management of the client's assets, the client s contracts and the client s funds, in order to prevent, to whatever extent possible, the possibility of damage to the client as a result of fraud, failure or negligence. 18. Prohibition of use A company will not make use of the client s assets and client s funds for the benefit of other clients or its own benefit. 19. Client confirmation

14 A company will not make use of a client's assets and funds for the benefit of another client unless it has the prior approval of the client; the aforementioned in this regulation does not come to detract from the prohibition stated in Regulation Carrying out reconciliations and audits (a) A company will implement a reconciliation of the client's assets, contracts and funds on a daily basis, which will include the following: (1) It will calculate the balances of the assets, funds and contracts of each client while differentiating between the funds transferred by the client to the company by means of credit card, bank transfer, check or other means of payment but which have not yet been cleared (hereafter: uncleared balances) and the rest of the client's funds (hereafter: cleared balances). (2) It will verify the reconciliation of the total balances mentioned in clause (1) of all the clients with the total balances of the clients in their records, while differentiating between the cleared and uncleared balances; (3) It will verify the reconciliation between the cleared balances according to its records and the records of the bank or financial institution that holds the client's funds and the reconciliation between the total balances not yet cleared according to its records and the reference documents. (b) Once a month, and not later than ten business days after the end of the month, the company will receive from the auditor a special report, as defined by accepted auditing standards, regarding the reconciliation carried out by the company as mentioned in subparagraph (a)(3); this special report will be prepared as of one of the business days during that same month, as selected by the auditor according to his discretion and without prior notification of the company. In this chapter, a "business day" is a day on which most of the banks in Israel are open for carrying out trades with the public and, for companies that according to their bylaws do not operate on Sundays, not including Sundays. (c) If an inconsistency is found, the company will ascertain the reason for it and will immediately act to rectify. It. 21. Trust account for clients' funds Article 2: The Funds of the Client (a) The funds of a client will be deposited in a trust account in the name of the client; the account will be managed by the bank; in the context of this regulation, the "client's funds" are defined as in Regulation 15. (b) Notwithstanding what is stated in subregulation (a), a company is permitted to deposit client's funds in an account that is managed by a financial institution outside of Israel, on the condition that the following conditions are fulfilled: (1) The account is a trust account favor of the clients, and, in a country where this is not possible, the account will be segregated from the accounts in which the funds and assets of the company are held; (2) The company will verify that the CDS prices of the financial institution or the corporation controlling it, if there is one, do not deviate from the accepted level and will also check additional generally accepted indexes, if they exist, for estimating credit risk.

15 (3) One of the following is fulfilled: (a) The credit rating given by a rating agency to the financial institution was one of that agency's two highest ratings; (b) At least one Israeli rating agency has given a rating to the financial institution as specified in item (2) in the table in the Third Schedule or higher or at least two international rating agencies have given a rating to the financial institution as specified in item (2) of the table in the Third Schedule or higher; however, even if the financial institution has been rated according to what is stated in this subclause, the company will not deposit more than 25% of its clients' assets with the financial institution; (c) The Chairman of the Authority or an employee of the authority he has authorized for this purpose in writing who has been authorized in writing can permit the company to transfer its clients' funds to a third party which has promised to carry out all the obligations of the company according to this Chapter, and on the condition that it is persuaded that appropriate protection has been provided for the clients' funds; 22. Estimating the risk related to the bank or the financial institution outside of Israel A company will carry out an assessment of the risk related to the bank or financial institution outside of Israel with which it wishes to deposit its clients' funds before depositing those funds, as stated in Regulation 21 and on a continuous basis; as part of the assessment of risk, the company will examine, among other things, indexes of financial stability, its credit rating, its reputation and its experience; the company will document the assessments it has carried out and the considerations on which it has chosen the bank or financial institution outside of Israel for the purpose of depositing and holding its clients funds; in the context of this Regulation, the "client's funds" are defined as in Regulation Immediate deposit A company will deposit client's funds as mentioned in Regulation 21 with the bank or financial institution outside of Israel immediately on their receipt; if such a deposit is not possible for reasons not related to the company, the funds will be deposited in the aforementioned trust account on the following business day; in this context, the "client's funds" are defined as in Regulation Depositing in the same currency The deposit of the client's funds will be carried out in a deposit account of the same currency; if the company does not maintain such deposit accounts or the deposit accounts of the company are not in the same currency as that of the client's account, the company will inform the client of this and of the cost, fees and risks involved. 25. Immediate transfer of payment

16 (a) Without detracting from what is stated in Regulation 4(d), if the client has requested that his funds be withdrawn, the company will carry this out no later than the subsequent business day; however, the client's funds will be transferred to an account according to the client's instruction and according to the dates for clearing that are accepted in the banking system of the country in which the funds are deposited or within three days on which trade takes place in that country, according to the earlier of the two. (b) Notwithstanding what is stated in subregulation (a), if the client is required to take some action as a condition for withdrawing the funds according to the Money Laundering Law (in this paragraph, the action), the company will carry out the transfer no later than the next business day after the client has taken the action and on the condition that the company has informed the client of the need to carry out the action as near as possible to the date on which the client has asked to withdraw his funds. 26. Transfer of the client's funds to a bank or financial institution outside of Israel other than the one agreed upon If the company has decided to transfer the client's funds to a bank or financial corporation outside of Israel which is different from the one that it informed the client of when he signed up with the company, the company will inform the client of this as near as possible to the date of the decision. In this regulation, the "client's funds" are defined as in Regulation The framework agreement Chapter 6: Provision of Information to the Client Article 1: The Framework Agreement (a) Before the company receives funds from the client or carries out a trade for the client, the company will sign a framework agreement with the client that will include the details mentioned in the First Schedule and in addition to them the company can include other items which are required for the relationship; the framework agreement will be in writing and will be signed by the client; the company will provide the client with a signed copy of the framework agreement; in this context, "signing" includes signing the framework agreement sent by the client by means of the Postal Authority services, facsimile or electronic mail. (b) The Chairman of the Authority or an employee of the Authority that he has authorized for this purpose in writing, can permit the company to receive the client's confirmation of the framework agreement by other electronic means, if he finds that the manner in which the document is presented and its content and the manner in which electronic approval is given facilitates a thorough examination of the document prior to its approval by the client. (c) The company will keep an updated version of Chapters 1 to 5 of the framework agreement in its office and will publish this version in a prominent location on the company's website; the Chairman of the Authority or an employee of the Authority he has authorized for this purpose in writing has the right to issue instructions for the publication of the aforementioned version or parts of it in additional ways. (d) A company which has the right according to the framework agreement to change the conditions of the agreement simply by notifying the client will notify the client of such a 6 Book of Laws, p. 293; 2002, p. 214.

17 change at least two weeks before the change is carried out and the notification will include the date of the change. 28. Biweekly report Article 2: Reporting to the client The company will every two weeks provide the client with a report of his balances as of the end of that period; such a report can be sent to the client's electronic mail address; the report will include the following: (1) A list of the client's assets and funds in his account and the instructions given and trades carried out in that account; (2) Regarding clients who have client contracts, the report will also include: (a) A list of the client contracts and prices at which they were purchased or the collateral that was deposited for them according to the circumstances; (b) The value of the client contracts or the unrealized profits or unrealized losses, according to the circumstances. 29. Monthly report (a) The company will provide, not later than the first day of each month, a monthly report concerning the previous month; the report will include the following items: (1) The balance of the account at the beginning of the reporting period; (2) The trades carried out in the account, including the expiration of a financial instrument and the exercise of a financial instrument and for each trade: the date, underlying asset, sale or purchase, quantity and price; (3) The open trades in the account and the date of opening, the underlying asset, quantity, the price at which the trade was opened and the unrealized profits or unrealized losses; (4) Deposits and withdrawals; (5) Debits and credits in the account; (6) A list by type of the payments and debits collected by the company, including fees and excluding quote spreads; (7) The total profits and losses from the trades; (8) The balance of the client's account at the end of the reporting period. (b) The report will be sent to the client by mail and if the client has given his consent in writing or by electronic means, the report will be sent to the client's electronic mail address. 30. Confirmation of an instruction or trade The company will provide confirmation to the client which will include information on the execution of a trade or the provision of an instruction according to Chapter 11 immediately after the instruction is given or the trade is executed, according to the circumstance and will provide the cumulative balance in that financial instrument after the execution of the trade; such a confirmation can be sent to the client by electronic means. 31. Possibility of storing by electronic means

18 The company will provide the client with the possibility of storing the information described in Regulations 28 to 30 by means of its website. 32. Language of the information Information that the company is required to provide to the client according to this chapter will be written in Hebrew and will be written as clearly and as simply as possible, unless the client has requested that he receive the information in a different language and the company has agreed to this; the use of the English language will be permitted in cases where accepted professional terms are being used and only on the condition that these professional terms are accompanied by a simple and clear explanation in Hebrew. 33. Chapter 7: Instructions for the Storage of Documents (a) The company will save documents related to its business, which will include the following: (1) A document related to a trade carried out by the company in a financial instrument; (2) Information that the company is required to record according to Chapter 11; (3) A document containing an instruction, authorization or confirmation that the company has received from a client; (4) A document that constitutes documentation according to the regulations; (5) Procedures; (6) The framework agreement; (7) Publications and documents created as part of the communication with the client, as defined in Chapter 9. (b) The documents will be saved for a period of at least seven years from the time the document was created or when it was received by the company, on the condition that the agreements between the company and the client will be saved for the duration of the company-client relationship and for at least seven years after the end of that relationship. 34. Procedures The company will adopt procedures that specify how documents will be saved in order to guarantee their preservation, their protection against damage, the access to them, client confidentiality, the possibility of backing up and retrieving of the information and the ability to locate documents if the need arises. 35. Client access The client will have the right to examine any document that is related to activity in his accounts with the company and to obtain a copy of them, within a reasonable amount of time from the request and not more than one month after the request is made by the client. 36. Storage of documents within the area of jurisdiction The documents will be stored within the area of jurisdiction of the State of Israel; the Authority has the right to exempt a company from this instruction if it judges this to be the correct action in the circumstances.

19 Chapter 8: Suitability of the Client to Activity in the Trading Platform 37. Suitability and inquiry (a) Before providing service to the client, the company will inquire with the client whether activity in the trading platform is suitable to the client and also whether the client is a minor (in this chapter: "inquiry"). (b) The scope and character of the inquiry will be determined by the nature and complexity of the financial instruments which the client will be trading in and the risks implicit in them; in order to carry out this clarification, the company will make use of questionnaires and tests that will provide the company with an indication of the client's understanding of the aforementioned risks; in this context, the company has the right to take the following into account: (1) The client's education or professional training and also his present or past occupation; (2) The client's experience, including the types of his past activity in the capital market and the scope and frequency of trades in which he was involved. (c) With respect to the results of the clarification mentioned in subregulation (b), the company will determine whether the client is suited to trade in the trading platform. (d) If the client is found not to be suited to trade in the trading platform, the company will warn the client of his unsuitability in writing; in this context, "in writing" will include by means of electronic mail. (e) If the client requests to trade in the trading platform despite the warning mentioned in subregulation (d), the company will consider whether to allow the client to trade in the trading platform, while taking the circumstances into account. 38. Documentation The company will document the process of determining the suitability of each client and its results. 39. Definitions for Chapter 9 In this chapter Chapter 9: Publicizing and Marketing the Trading Platform "Publicity" publicizing by word of mouth, in writing, in print or by electronic means which is aimed at or accessible to the public, including indirect publicity; and including visual means of marketing the company or the trading platform; "Indirect publicity" Publicity not of the company or the trading platform that it operates, whose goal is, among others, to market the company or the areas that it operates in; "Communication with clients" including information provided to the client by the company. 40. Publicity and communication with clients (a) The communication between the company and the client will not be in any way misleading or intended to impose unfair pressure. (b) When the company does communicate with its clients: (1) The name of the company will be presented in a clear manner;

20 (2) It will not be mentioned or implied that the activity in the trading platform is suitable for everyone; (3) Warnings and information on the service will be presented clearly and with emphasis. (c) The following instructions will apply to the publicity: (1) Every publication will include the following warning: "1. The activity in the trading platform requires skill, knowledge and understanding of the risk and is not suitable for everyone; 2. Leveraged activity involves a real risk of losing all of one's investment within a short period of time; 3. The company operating this trading platform operates as counterparty to the trading with you and therefore it is the seller when you buy and the buyer when you sell." (2) The instructions of clause (1) will not apply to the name of the company and its trademarks, the company's stationery, stickers and also marketing or other advertising products. (d) If the Chairman or an employee he has authorized for this purpose in writing is convinced that there will be no harm to clients, he has the right to allow the company not to include the warnings listed in subregulation (c)(1), whether all of them or only some of them, according to the circumstances. (e) If the information in the publication is based on an opinion rather than on facts, this will be stated explicitly. (f) A publication will not mention a client's profit from activity in the trading platform. (g) In communication with the clients that presents discounts and benefits in the rates offered to the client: (1) The date on which the aforementioned discount or benefit expires will be stated; (2) The existence of additional fees that apply to the customer and which are set out in the original agreement will be mentioned. 41. Confirmation of the publicity material The CEO of the company or the aforementioned officer, even if his title is different, or a different senior officer whom the CEO has authorized for this purpose, will approve the advertising material before it is released. 42. Mention of the Authority in the publication Publicity material that mentions the Israel Securities Authority will include the following warning: "The approval given by the Israel Securities Authority for management of the trading platform does not constitute confirmation of the quality of trade in the trading platform or in financial instruments traded in the trading platform or confirmation that it is a safe or recommended investment channel." 43. Limiting the benefits to the clients The company will not offer the client payment, a gift or a benefit related to its activity in the trading platform; a discount or exemption in fees and rates or a similar debit that applies to the client will not be viewed as a payment, gift or benefit, as mentioned.