Could Tel Aviv's Stock Exchange Become a For-profit Business?

Securities Authority committee urges restructuring of reform package designed to spur liquidity.

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The Tel Aviv Stock Exchange.
The Tel Aviv Stock Exchange. Credit: Ofer Vaknin

The Tel Aviv Stock Exchange should become a for-profit business as a means to revive trading volume that has slipped in recent years, a panel led by the Israel Securities Authority said on Monday.

Restructuring the bourse − which today is owned by its members, mainly local and foreign investment banks − was one of a host of reforms the ISA’s committee has proposed for encouraging liquidity and trading on the TASE.

“We need to make the stock exchange more focused, innovative and creative, with a business orientation that works to bring in more local and foreign companies, with advanced and accessible trading technology for investors in the country and around the world as well as financial instruments that enable it, among other things, to finance national projects like affordable housing,” said ISA Chairman Shmuel Hauser.

The committee also recommended that the TASE introduces new financial products, such as credit default swaps (CDSs), contracts for difference (CFDs) and strips (separate trading of registered interest and principal securities), which are bonds sold at a significant discount to face value and offer no interest payments because they mature at par.

In addition, the committee proposed that banks be allowed to become market makers in shares and eliminate or lower minimum trading fees and those for trading and clearing.

Although it has shown some recovery in recent months from its low at the end of last year, the TASE has suffered from tepid levels of trading in recent years − a problem that caused tensions between the bourse’s management and Hauser that led to both the TASE’s CEO and chairman stepping down in recent months. Trading volume has fallen from a record of $547 million a day in 2010 to $324 million last year on average. It recovered somewhat in the first quarter of 2014 to $373 million.

The committee said the TASE should take “urgent action” to change its ownership structure to the more accepted structure as a for-profit corporation. The aim, it said, is to ensure the TASE is controlled by shareholders interested in promoting the market while minimizing conflicts of interest between TASE management and market players.

“The relevancy of the Tel Aviv Stock Exchange depends on it adapting to the world,” said Prof. Moshe Ben-Horin, who chaired the committee. “The bourse’s success has direct impact of the economy as a whole. The authorities must mobilize for this purpose.”