Israel's Stock Exchange: A Place Where Only the Rich Get Richer?

Ten questions we should be asking as the TASE picks a new leadership team and tries to rise from the doldrums.

The resignations last month of the chairman and the CEO of the Tel Aviv Stock Exchange, Saul (Sam) Bronfeld and Ester Levanon, respectively, under pressure from Israel Securities Authority chairman Shmuel Hauser, illustrate a common principle in Israeli's public sphere: It’s easy to eliminate people; the hard part is eliminating problems.

Behind the resignations is the stock exchange's lackluster performance in recent years, reflected in low trading volumes, meager interest on the part of investors and the delisting of dozens of companies including Mellanox Technologies along with a fresh threat by Israel Chemicals to follow suit - largely, they say, a result of excessive regulation. Even noted publicist Rani Rahav, with ties to some of Israel's largest publicly traded corporations, last week demanded a public inquiry into the reasons for the TASE’s decline.

We can't solve the problems of Bronfeld, Levanon or Israel Chemicals here. But before naming a new leadership team is appointed to the TASE, several questions should be raised about the exchange itself and the overall performance of the capital market.

1. Is the stock exchange a trading forum for securities that allows companies to raise the capital required for growth while at the same time enabling investors to receive a competitive rate of return on their investments and savings? Or does the exchange serve as a conduit for the transfer of wealth from the many to the few, where millions deposit their retirement savings and create a small group of millionaires providing themselves brokerage commissions, hefty management fees and bloated salaries?

2. Does the stock exchange permit small- and medium-sized, growth-oriented companies to take that leap forward and buy machinery, invest in new technology, build plants, hire more workers and thrive? Or is it a place where wheeler-dealers and speculators build huge enterprises with very little equity of their own while glorifying themselves, providing cushy jobs for their friends and children, raising money from the public simply because they can and not because it's needed, and when asked what they'll do with the money say: "It will serve the company from time to time as the company deems fit?"

3. Is the exchange a place where institutional investors manage the public’s pension funds and do everything they can to provide customers with a competitive return that will give them a decent income to retire on? Or does it provide, first and foremost, for the pension needs and golden parachutes of a choice circle of people who have grabbed control and cracked the code for extracting as much money as possible from the public and inserting it into the fewest possible private pockets?

4. Is the stock market a place where the spotlight is focused on corporate profitability because only profitable companies generate returns for investors and distribute dividends? Or is the market a place where you don't ask questions about the company's profitability as long as it's in the black – even if it robbed and swindled its customers and workforce along the way because this has no importance – since here we're investors and not customers?

5. Is the exchange a place where the small investor can feel like a partner in the dream of building companies and investing around the globe in everything from oil and gas to real estate in Eastern Europe? Or is the stock exchange a place where wheeler-dealers and speculators produce, package and market get-rich-quick fantasies but puncture your dreams when it turns out you're the proud owner of two trees in an abandoned forest in Romania?

6. Is the stock market the place where even Nochi Dankner at his peak was forced to ask approval from the IDB group's shareholder meeting on the trivial matter of hiring his daughter at a moderate salary, even being forced to cut her pay? And, is it a place where shareholders aren't asked to approve a somewhat weightier decision like wagering billions of shekels on shares of a Swiss bank at the height of the worst global banking crisis in the past 80 years?

7. Is the stock market a place where a business can diversify its sources of capital and reduce its reliance on the banking system? Or is it a place to exchange bank credit backed by collateral and oversight in favor of ready credit from institutional investors without any collateral or supervision?

8. Is the stock market a place where regulators and capital market watchdogs engage in the sacred work of issuing directives and imposing new restrictions to protect the money of investors? Or is it a place where restrictions aren't imposed until after the horses have fled the barn and billions of shekels have been distributed among the members of the leveraged club and vanished?

9. In the stock market does debt mean an obligation that needs to be fully repaid to lenders, or does it denote nothing more than an option that can be rolled forward, recycled, written off, rescheduled and shirked?

10. Does genuine partnership exist in the stock market between the small investor, large investor and controlling shareholders? Or is it where losses, debt restructuring, insider transactions, managerial salaries and buyout offers when market prices are in a slump all get rolled onto the small investor?

Ofer Vaknin