Israeli Cabinet to Vote on Turning Tel Aviv Stock Exchange Into For-profit Entity

Legislation aims to boost the bourse, which is suffering from fall in trading volumes and listings.

The Tel Aviv Stock Exchange (TASE) building in Tel Aviv.
Bloomberg

Finance Minister Moshe Kahlon will ask the cabinet on Sunday to approve legislation that would allow the Tel Aviv Stock Exchange to become a profit-making company as part of an effort to make the bourse more dynamic and competitive, and better able to attract more listed companies and boost trading.

“This is an undertaking that will bring economic growth, strengthen the bourse and restore it to its rightful place as a key engine of growth for the Israeli economy,” Kahlon said on Wednesday.

The measure, which amends an existing law that bars the TASE from distributing profits, will then go to the Knesset for approval.

The TASE has been struggling in recent years, with trading volumes averaging just 1.28 billion shekels ($332 million) a day this year, down from 1.45 billion in 2015 and 2 billion a day in 2010. The number of listed companies has dropped by 200 over the past decade.

The TASE’s current CEO, Yossi Beinart, took over in 2014 with a mandate to turn around the exchange, but progress has been slow and in recent months he has clashed with Chairman Amnon Neubach as labor relations have deteriorated. Now on sick leave, Beinart is expected to step down shortly.

TASE’s members approved a demutualization plan last year as part of a package of reform and Shmuel Hauser, chairman of the Israel Securities Authority, said on Monday that the plan would be completed this year.

Under the plan, which has been led by the ISA, shares in the TASE will be distributed to 26 banks, investment houses and foreign banks that are its members, including Citicorp, UBS and HSBC. The legislation would reduce the combined holdings of Israel’s bank from 71% to just 35%.

Membership in the bourse, under the proposed law, would be based on a contract, not on an ownership stake, which will enable more financial institutions to become members. To coax the shareholders to sell part of their stakes, the law would bar shareholders with stakes of more than 5% from enjoying any special rights and would impose a very high tax rate.

The plan also calls for moving the trading week from Sunday-Thursday to Monday-Friday, to better align the TASE with overseas bourses and allow traders to react more quickly to events, for instance the Brexit vote last Thursday.

The legislation would also require the TASE to make available to the investing public trading and clearance charges members collect from their clients in order to encourage more competition.

The ISA said on Wednesday that a privatized TASE would make the exchange more efficient and better able to compete with overseas stock markets, which have attracted many of Israel’s best companies.

Demutualizing the TASE would end the conflict of interest between the bourse and its members, Hauser said. “It will restructure of the stock exchange to make it modern like in Western countries, where there is a separation between ownership and the companies on the exchange.”

Hauser has said the TASE could see a sharp increase in trading volumes after demutualization and should be better enabled to form collaborative agreements with U.S. and European stock exchanges. Right now, the TASE is one of the few stock exchanges in the West that has not demutualized.

Hauser this week also recommended that the government offers tax breaks to stock exchange investors, to boost sluggish trading volumes.