Taking stock of the Israeli stock market

A capital market is built on trust. We're building that trust.

The Israel Securities Authority is an independent agency financed through the fees we collect from the organizations we regulate. Our mission is to protect the public investing in securities. Our regulations focus on transparency, improved disclosure of financial information, as well as corporate controls, governance and ethics. The ISA regulates the fair disclosure of about 650 listed companies and more than 800 mutual funds, the proper and fair conduct of the Tel Aviv Stock Exchange and portfolio managers and investment advisors. The ISA is authorized to enforce Israel’s securities laws, and since its establishment, the ISA has earned the reputation as a strict and efficient enforcer. My vision is for Israel to develop an efficient capital market in the broadest sense of the word, one that embraces development and globalization while focusing on uncompromising enforcement of securities laws. We are making this vision a reality by adopting a strategy comprised of two main tracks. The first track aims to develop the capital market. Our efforts in this regard include increasing the investor base, introducing a variety of new financial products and improving the market infrastructure. Globalization is an integral component in constructing a vibrant infrastructure for market development. THE SECOND track is enhancing investor confidence in the integrity of the markets, through improving the ISA’s enforcement capabilities. Since developing the capital market requires the introduction of new products and players, pension funds reform was recently implemented in Israel and we have witnessed the arrival of new pension funds to the capital market. At the same time we are doing our utmost to facilitate the entry of foreign investors to our markets and are constantly removing barriers and creating legal infrastructures that enable the introduction of new financial products which will appeal to international institutional investors. These new products include Real Estate Investment Trusts, Money Market Funds, Fund of Funds, Commercial Papers, Asset Backed Securities, Municipal Bonds, World Bank Bonds, Exchange Traded Funds and Hedge Funds. By taking this step we have aligned ourselves with the most advanced international capital markets. Furthermore, we are currently changing our laws to enable public offerings of foreign mutual funds in Israel. In order to increase the liquidity of the market, we introduced market makers to the Tel Aviv Stock Exchange and we also took an important initiative to encourage dual listings on the TASE. Under a relatively new amendment to the law, companies traded on the US and on the UK markets can now list their securities on the Tel Aviv Stock Exchange without any additional regulatory burden. In a recent ISA study we found that, on average, dually-listed companies increased their total volume by about 30 percent. The rise in liquidity was accompanied by an increase of about 7% in share prices. Along with liquidity, we are concerned with the stability of the market. To assure stability, the ISA has worked to guarantee the safety and soundness of the Tel-Aviv clearing and settlement systems. We also recently allowed underwriters to allocate securities to institutional investors in a public offering not only through a Dutch auction which uses a bidding process to find an optimal market price for a stock but also according to their own discretion. This new reform aligned the Israeli underwriting industry with international and US practices. IN RECENT years, the Israeli economy has been significantly integrating into the global economy. Major international accounting firms and rating agencies operate here. A greater number of leading investment banks have increased activity in the Israeli capital markets. Some of them have become members of the Tel Aviv Stock Exchange and others are soon to become members. We have adopted a number of measures to further globalize Israel’s capital markets:
  • In order to speak the international language of financial markets all international accounting standards will be fully adopted in Israel by 2008.
  • We are constantly working to align Israeli securities laws with those of internationally recognized standard setters, such as the International Organization of Securities Commissions and the Committee of European Securities Regulators. Shortly before I assumed the ISA chairmanship, there were several enormous accounting scandals in the US involving public corporations. Even though these events had practically no impact on the Israeli markets, we made a decision to take steps to prevent similar scandals from occurring in Israel. We have also strengthened corporate controls mainly by assuring independent auditinA cg, restoring the public’s confidence in the auditing profession and by tightening supervision on directors and executive officers. AT THE same time, we are setting standards for proper conduct and practices of companies. We have done so by adopting a corporate governance code and by encouraging public companies to implement their own code of ethics for managers and employees. We operate MAGNA a unique electronic reporting system that enables the public to access all data in real-time via the Internet. This system, based upon electronic signature, is one of the most advanced reporting systems in the world. In addition, we have improved our means of supervision and enforcement by operating market surveillance electronic systems that track irregularities and suspicious trading activities. These are challenging times for global capital markets, and the Israel Securities Authority is meeting this challenge head-on. Which is why I would like to invite you to come to Israel and see for yourselves the strong and stable system we have developed in the Israeli capital market. The writer is chairman of the Israel Securities Authority.