By Tova Cohen
TEL AVIV (Reuters) - Israel's cabinet on Sunday approved a new 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 Israel Securities Authority (ISA) and other government offices and submitted to the cabinet by Finance Minister Moshe Kahlon.
It now heads to parliament, where it is expected to be fast-tracked, giving it priority over other bills, an ISA spokeswoman said.
The draft law also prohibits any type of trading forum that sells to overseas clients - even if they do not offer binary options - without receiving a license from the country where clients reside.
Breaking the law will be punishable by up to two years in prison and if money laundering is involved, punishment could reach 10 years in prison.
"Beyond the severe economic harm to citizens around the world, marketers of binary options are increasingly causing reputational damage and inflaming anti-Semitism towards Jews and Israelis," ISA Chairman Shmuel Hauser said in a statement.
Israeli regulators have received many complaints regarding losses suffered by binary option traders in various countries, the statement said.
Binary options involve placing a bet on whether the value of a financial asset - a currency, commodity or stock - will rise or fall in a fixed timeframe, sometimes as short as a minute.
Israel already banned the domestic sale of binary options last year, the first country to do so.
The owner of an Israeli binary options firm was arrested on suspicion of fraud and extortion last month after an investor abroad reported losses of more than $500,000 to the online company, the first arrest since authorities announced a crackdown.
A Reuters special report published in September shed light on the rapid rise of the industry in Israel. London-based lawyers said hundreds of their clients were duped out of vast sums of money by some Israeli firms. More than 100 operators are estimated to be based in Israel, a technology hub.
Investors have accused some of these Israeli companies of transferring money between accounts without approval and in some cases of preventing them from withdrawing their own funds.
(Reporting by Tova Cohen, editing by Louise Heavens)