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The Apex brokerage is one of the oldest and most successful firms in Israeli financial markets. It is part of the largest brokerage in Israel, D.S.-Apex Holdings, and is quite proud of its record for providing excellent returns for its investors over the years.

Apex has also had a lot of success in one of the most profitable niches in Israeli capital markets: underwriting.

Apex stands out in the underwriting market, in other words it has succeeded in bringing many companies to a successful public stock issue.

For example, its underwriting subsidiary was involved in managing a third of all the public offerings in May 2006. As part of all those issues, various bodies connected to Apex bought between 3 and 22 percent of the shares offered to financial institutions. (The definition of institutional investors is those bodies managing the money of Apex's investors: its own provident funds, or mutual and provident funds it manages for the Leumit Labor Federation.)

These institutions, which manage the public's money belonging to Apex's clients or Leumit's members - bought almost no other public offerings that month, only those in which Apex was involved.

Of 17 such public offerings, Apex bought only two of those not affiliated with it.

The underwriting business makes a pretty penny for Apex itself. It is one of the most profitable branches in the capital markets, and the underwriter can make many millions from each deal. That is a lot more than financial institutions make from the management fees on their funds.

It is so important to the brokers that they might even be tempted to use their clients' money to make profits from underwriting.

For example, a broker can guarantee the success of a public offering he manages by signing up in advance a large group of captive investors - his own.

In the markets they call it "bringing the soldiers." There were years when underwriters who could drum up the most soldiers - the banks for example, through their gigantic provident funds - also underwrote the most issues.

"It is just a coincidence," explains Ido Noiberberg, one of Apex's joint managers, speaking about the purchases by the funds he manages for his May offerings.

"I can show you issues that we underwrote - such as IES or Gindi - where our institutionals didn't invest a penny; and other offerings where we bought a huge amount - such as Tapuz, BeConnected, Olympia, Klir, or Rosebud - even though we were not the underwriters for them. In this case it worked out that way in May.

"Also, we have a research department that studies every issue, and if it approves our participation as underwriters, there is a very high probability that the institutional investors will also want to participate.

It is not a perfect correlation, because institutionals have all sorts of considerations of their own, but in any case it is correlated with the examinations of our research department."

The decision whether to accept Noiberberg's explanation as reasonable is in the hands' of Apex's customers, whose money is being used to invest in the issues Apex is underwriting.

But the Israel Securities Authority (ISA) is much less comfortable with this situation. This week it published its new regulations for underwriting. Among other things, the ISA allowed a new type of offering, an unequal tender where the underwriter can allocate certain amounts of the offering to institutional investors instead of the present open auction method.

But in the new format, the underwriter will be limited to selling a maximum of only 5 percent to any body affiliated with it.

The ISA did leave the present possibility of selling a large portion of the issue to related parties - but only for issues auctioned off equally to all parties without pre-issue allocations.

This is what happened with Apex's offerings in May this year; but forecasts are that many offerings will switch to the new format, with its limited possibility of sales to related parties.

One can only hope that by doing so, the fears of conflicts of interest among institutional investors when they choose to put their money into the offerings of underwriters will become irrelevant.