Zahava Gal-On
Zahava Gal-On Photo by Emil Salman
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MK Zahava Gal-On (Meretz ) cast her attention yesterday to principles of conduct in the capital markets. Gal-On, a member of the Knesset Finance Committee, sent Finance Minister Yuval Steinitz a letter in which she asked him to instruct the Israel Securities Authority to extend the rules governing investment by a finance company in securities of its parent company.

Specifically, she wants the ISA to expand the guidelines on firms that manage mutual funds. These companies should be barred from buying bonds issued by the holding company that owns them as well.

Most immediately, Gal-On believes that mutual funds run by the Excellence Nessuah brokerage should be prohibited from buying the bonds issued yesterday by the company that owns Excellence Nessuah, Delek Group.

The urgency of Gal-On's action was motivated in part by the debt repayment difficulties now facing Delek Real Estate, another Delek Group company. Delek Real Estate borrowed very heavily before the property bust of 2008, and it owes money to mutual funds that are ultimately owned by the Delek Group itself, among other creditors.

Gal-On sent a copy of her letter to ISA chairman Shmuel Hauser.

"According to reports in recent days, it seems many institutional investors decided not to take part in the Delek bond offering planned for today," she wrote yesterday. "That decision attests to the risk that the managers of the public's money see in continuing to extend credit to companies belonging to tycoons, who may not be able to repay their debts."

While the Excellence brokerage itself is barred from buying bonds issued by its parent company under the rules, that isn't so of mutual funds it manages, she explained. That way Excellence can circumvent the rules and finance a company controlled by its owner.

This conflict of interest has come to the fore in light of the way other institutional investors are shying away from Delek Group bonds, Gal-On wrote.