Finance Minister Avraham Hirchson approved long-awaited changes to the underwriting method in Israel, which will ease local activities in the primary market and encourage the entry of foreign participants.
"The reform of the underwriting method brings us nearer to what is common practice in international markets and lays the foundation for a much more efficient and competitive underwriting market," said Moshe Terry, Chairman of the Israel Securities Authority. "The changes will enhance the issuance market, ease the activity of foreign underwriters in Israel and will make it easier for local underwriters to sell to foreign investors."
The reform will be put in place once the new regulations are approved by the Knesset Finance Committee.
The enhanced method, proposed by the ISA, will allow underwriters to allocate securities to institutional investors in a public offering and not only through a Dutch auction - a process that uses a bidding process to find an optimal market price for a stock - but also according to their own discretion. The new practice will be limited to offerings to institutional investors.
Currently, it is permitted to market securities that are offered to the public pursuant to a prospectus with the offering price that has received the Authority's permission. Under the new regulations, the prospectus price offering condition will not be required. Instead, the price and the volume will be published separately adjacent to the sale.
As a result of these changes, the primary market in large offerings will function almost identically to that in the US and similarly to other Western markets. This will ease foreign underwriters' activities in Israel and the ability of local underwriters to compete better for the primary market among the world's capital markets.
In addition, an underwriter would not be permitted to sell 5 percent or more of the value of securities offered in an issue to itself or to all the institutional entities in its group, together.
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