New rules for index tracking certificates

Trading in index tracking certificates on share indexes continue to rise.

October 27, 2006 01:13
1 minute read.
New rules for index tracking certificates

stock market 88. (photo credit: )

The Israel Securities Authority together with the Tel Aviv Stock Exchange will be raising the standards and supervision of companies offering index tracking certificates as they become an increasingly popular trading instrument. "Trading in index tracking notes on the Israeli exchange developed rapidly over the past year. Thus, we saw the need to increase the demands on this product to ensure the stability of the companies offering certificates and to strengthen public trust for this product," said Ronit Harel Bar-Ze'ev, Vice President and Head of the Economics Department at the TASE, on Thursday. "Today, more than 100 index tracking products are traded on the exchange at a total value of NIS 12 billion." Harel Ben-Ze'ev noted that trading in index tracking certificates on share indexes continue to rise, and now represent 20 percent of trading volume in stocks, compared to just 10% last year. Index tracking notes are certificates offered by companies and institutions engaged solely in issuing and managing index products and often are likened to the exchange traded funds, or ETFs, popular around the world. Psagot Ofek Investment House was the first company to introduce Tali 25 in 2000, which today manages eight index-linked certificates. According to the new requirements, which were passed by the TASE board on Thursday, companies issuing index-linked funds must now have a minimum of NIS 36 million in their own capital compared with NIS 8m. previously. The minimum equity bar for institutions with insurance coverage will be substantially lower at NIS 16m. or NIS 8m. The minimum equity regulation will not apply to institutions or companies with a AAA credit rating. The new regulations still await the approval of the Israel Securities Authority, though ISA Chairman Moshe Terry said it intends to pass the new regulations "as soon as possible." Index-linked notes allow investors to indirectly hold all shares in the index, according to their exact weight in the index. For example, an index-linked note for the TA-25 tracks the index's performance precisely, by holding the shares that comprise the index, or by using TA-25 index options traded on the TASE. About half of today's traded certificates track the leading world indexes, NASDAQ-100 and S&P 500, while the other half track the TASE major indexes, including the TA-25, the TA-75 and the TA-100.

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