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Tel Aviv stocks finished a turbulent session with a slight positive bias on Tuesday, after the leading indexes recovered from a steep intraday plunge as institutional investors dumped their holdings in exchange-traded notes.

That happened because the Knesset Finance Committee approved an amendment to the Supervision over Financial Services Law that banned institutional investors from rolling over costs of ETN holdings onto customers. The change will come into force in June, if the Knesset plenum approves it.

It applies to ETNs that track Israeli indexes, not foreign indexes or commodities.

Why would the institutionals start dumping their holdings in ETNs now, when the change won't apply for months, if at all? "Investors tend to act preemptively," said one market animal. They moved immediately, but they're moving piecemeal: "An investor may sell NIS 50 million in ETN holdings on Wednesday, and then more later."

As the institutional investors dump their ETN holdings, the ETN management companies have to dump the underlying assets, which is why share prices fell hard from early in the session, the source said.

Apparently, toward closing, share prices had fallen enough to make them attractive again, hence the late rally into positive territory by at least some of the indexes.

Thus the benchmark Tel Aviv-25 Index finished a hair over the flatline at 1,117 points and the broader Tel Aviv-100 Index gained 0.2% to 1,016 points. Tech stocks finished slightly in the red, as did real estate stocks. Total turnover remained thin at NIS 1 billion.

All that foofaraw over ETNs aside, on Tuesday was a dull, dull day on the floor. The heaviest turnover of the day was in Israel Chemicals stock: a mere NIS 64 million. The fertilizers and chemicals maker gained 0.1% after a very choppy day.

The second-liveliest stock on Tuesday was Bank Hapoalim, which fell 0.9%.

The biggest mover was Allot Communications, which rebounded 8.4% after announcing a 36% increase in quarterly revenues during the fourth quarter of 2011 to $22 million. That was about 6% more than the average revenue forecast by analysts.