Israel Securities Authority unveils recommendations to increase liquidity in stock market

The report had 12 primary recommendations, the first of which was to examine reducing capital-gains tax.

September 11, 2013 23:29
2 minute read.
Tel Aviv Stock Exchange

Tel Aviv Stock Exchange TASE 311 (R). (photo credit: Gil Cohen Magen / Reuters)

The Israel Securities Authority on Wednesday unveiled a report recommending ways to improve liquidity in the Tel Aviv Stock Exchange, including lowering capital gains taxes to 15 percent, reducing trading fees and establishing new technological infrastructure to facilitate trading.

“We want to lead a change at the exchange that will stabilize it in its proper position as a growth engine of the economy and as one of the main pillars of Israeli industry, which will increase growth, reduce unemployment and create jobs,” ISA chairman Shmuel Hauser said.

According to the report, commissioned in April and written by a committee headed by Moshe Ben Horin, daily turnover at the exchange dropped from NIS 1.25 billion-NIS 1.5b. a day from 2008-2010 to NIS 600b.-NIS 800b. a day in 2012. Of the average daily trading volume, 85% was confined to 35 companies.

“The exchange had significant successes over the years, such as computerized trading two decades ago,” Ben Horin said. “However, the developments in recent years have not benefited the exchange. Today, the exchange suffers from a lack of liquidity in share and in derivative instruments, a sharp decline in the number of listed companies listed and a weak primary market.”

Over the summer, the exchange’s CEO Esther Levanon and chairman Sam Bronfeld, who have been at loggerheads with Hauser, announced they would step down. A search for new leadership is currently under way.

The report had 12 primary recommendations, the first of which was to examine reducing capital-gains tax.

“We need to convince the government that the tax reduction... will lead to an increase in revenues,” Hauser said. Revenue from increased trading would ultimately outweigh taxes lost by a lower rate, he said. Similarly, the report recommended reducing the fees for trading, which are nominally small but add up to vast amounts for regular traders.

The report also recommended reexamining the membership structure at the exchange, opening it to new types of companies and creating a centralized computer database for clearing transactions.

Opening up the exchange to financial products such as credit default swaps (CDS), contract for difference (CFD) and separate trading of registered interest and principal of securities (STRIPS) would also be useful, the report said.

Asked whether the idea of merging the TASE with another exchange abroad was on the table, Ben Horin did not dismiss the idea but said such a step could only occur further down the line.

“Before a merger there needs to be a structural change,” he said. “It’s somewhat premature to talk about mergers.

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