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The Securities Authority has requested from Bank Leumi an explanation into how it managed to raise an exceptional NIS 1.7 billion for its new Psagot Indexed 120 mutual fund within only a few days. It is believed that the authority is looking to determine whether Bank Leumi, owners of Psagot, had pushed for sales in the fund to its banking clients, despite the fact that the law on financial advice obliges the bank to sell its clients the fund that is best for the client.

The new Psagot mutual fund was launched in June 2003, and invests entirely in Israeli government bonds of the index-linked Galil series. In addition, the fund takes a short position on Gilboa series dollar-linked Israeli government bonds, up to a maximum of 20 percent of its assets. In doing so, the fund leverages its profits (or losses), so that if the dollar falls and the price of shekel index-linked bonds rises, then the fund will outperform other mutuals that operate in the same field. It also means that the fund is exposed both to an appreciation in the dollar and a drop in linked government bond prices.

Some in the Leumi group have also expressed concern over the extraordinary sum raised so quickly, even raising claims that the sale to the new Psagot fund came at the expense of Leumi Pi. They suggest that Leumi's financial advisors encouraged investors to sell their units in Leumi Pi funds, and transfer the sums to Psagot.

The Securities Authority refused to comment yesterday on the reports.

Bank Leumi responded by saying that the fund had raised its funds in strict accordance to the law, and was unaware of any investigation. "We were asked by the authority for information and we provided it."