ISA, brokers challenge bank commissions [pg. 16]

Private brokerage houses and the Israel Securities Authority have joined forces to set up an alternative electronic trading platform for mutual and provident funds in an attempt to counter the high commission fees charged by commercial banks. The ISA said plans for an alternative platform could now take effect following passage of Amendment 11 to the Fund Management Law by the Knesset this week. The amendment, which was initiated by the ISA, opens channels for competition and reduction in the fees for the selling of mutual and provident funds. The alternative platform will enable clients to acquire mutual and provident funds at a lower fee than charged by the commercial banks. The Web site is expected to charge clients a 0.1 percent transaction fee, while Bank Leumi and other lenders will be allowed to charge commissions of between 0.25% and 0.8% according to the Bachar reform. The aim of the new platform, according to the ISA, is to reduce the concentration of financial instruments which today is controlled by the large banks. "Today you have no choice but physically go to the bank. The online trading alternative is more flexible and more accessible providing a supermarket of funds," Ori Katzir, ISA spokesperson told The Jerusalem Post. Using the website, private brokers will not have to pay the banks high fees and as a result they will be able to lower other fees involved in transactions. In addition, the controversial fees being considered for buying and selling would not apply. "This initiative from the brokers' side looks like a reaction to the potential buying and selling fees," said Avi Weinreb, a trader at Clal Finance Batucha Investment Management. The ISA expects the new platform initially will win 5% to 10% market share. "The relatively low market share target is an indication of the skepticism for the success of the alternative," Weinreb noted. "Walking into a bank and paying a bit more may be more reassuring for some than putting your money online." Weinreb believes the initiative will be "slightly negative" for the banks. "However, even if the banks will be forced to lower their fees, they will find other ways of making up for lost revenue by, for example, interest rate spreads," he said. The banks, Weinreb added, are expected to gain about NIS 500 million in revenues from fees.