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TEL AVIV, Feb 23 (Reuters) - The Israeli government has drafted a law banning the sale of binary options overseas by online trading firms based in Israel, a business that has drawn broad international criticism over allegations of illicit practices.
The proposed amendment to the country's securities law was drawn up by the securities authority and other government offices, the Finance Ministry said on Thursday.
The draft law also goes a step farther, prohibiting any type of trading forum that sells to overseas clients - even if they do not offer binary options - without receiving a licence from the country where clients reside.
Breaking the law will be punishable by up to two years in prison and other sanctions.
Binary options involve placing a bet on whether the value of a financial asset - a currency, a commodity or a stock - will rise or fall in a fixed timeframe, sometimes as short as a minute. More than 100 operators are estimated to be based in Israel.
The fast-growing industry sells itself as a legitimate investment, but clients of some of the firms say they are little more than high-pressure scams. They accuse the companies of transferring money between accounts without approval and in some cases of preventing them from withdrawing their own funds.
The Israel Securities Authority in March became the world's first regulator to prohibit the risky transactions from being offered domestically. Late last year its chairman, Shmuel Hauser, asked the attorney general to consider amending the law to give him power to target groups marketing them abroad as well.
A Reuters special report published in September shed light on the extent of the industry and accusations by London-based lawyers who say hundreds of their clients were duped out of vast sums of money by some Israeli firms.
"Over the past year, law enforcement agents, including the Securities Authority, have received numerous and serious complaints regarding financial losses of clients in countries around the world as a result of trading on Israeli forums operating without supervision and licenses," the ministry said.
An amendment requires parliamentary approval.
A parliamentary committee that oversees government is due to meet next week to discuss the controversial online trading industry.
After numerous complaints, Hauser banned the online trading firms from selling binary options to Israelis, but said he did not have the authority to prevent them from marketing overseas.
In November Hauser told Reuters he was working with authorities in the United States, Britain, France and Belgium to investigate complaints against Israeli firms selling binary options internationally.
Despite the ban on selling to Israelis, several of the biggest binary options businesses are either run from Israel with Israeli technology, sales and support staff, or are registered to Israeli citizens. (Editing by Alison Williams)