When Yossi Beinart started his new job as CEO of the Tel Aviv Stock Exchange this year, he came to work in a suit and tie – a rather challenging dress code for the city’s hot and humid summers. Beinart, though, was merely maintaining the dress code he adopted during his 27 years on Wall Street and the United States, most recently as CEO of the North American Derivatives Exchange (a Chicago-based electronic trading market).
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As the months passed and the city became hotter and damper, TASE employees wondered how long the 58-year-old would hold out with the suit and tie. Most bet that he wouldn’t make it through the August heat, but as of now Beinart has beaten all those who bet against him. To his regret, he tells TheMarker, he didn’t make any bets on his staying power.
You were at the heights of Wall Street, you fulfilled the dream of everyone who works in finance. Why did you decide to leave and come to Israel?
“Boaz Schwartz [the managing director of Deutsche Bank in Israel] told me they were looking for a CEO for the Tel Aviv Stock Exchange. It seemed to me there was no better job in the world than that, so I started the process. The first interviews were on Skype, it was a strange experience.”
Did you know how bad the situation of TASE was when you were interviewing?
“I didn’t know anything. Only when the position became relevant did I start reading articles. From the [Israel Securities] Authority’s road map, I understood that the situation of the TASE was not good, to say the least. I noticed the data that were collected showed a sharp drop in the number of companies traded and a steep decline in trading volume.”
We see a drop in trading all over the world...
“The figures showed that the drop in turnover in the local market was steeper than in other stock markets. Last year there was a correction in the trading volumes overseas, but the local market continues to suffer from the declining trend.”
Beinart’s start came on the heels of a clash between his TASE predecessor, Ester Levanon, and former chairman Sam Bronfeld, with Shmuel Hauser, the chairman of the ISA. Hauser was the one who prompted the resignations of Bronfeld and Levanon in July 2013.
Did you know anything about the intrigues between Hauser and the TASE’s top management?
“I read about it in the press, but I didn’t know if the reports were true. The disputes didn’t interest me.”
Did you know Hauser before you took the job?
“I’d never met Hauser until I began interviewing for the job, and even then I only sat with him for an hour.”
Did you know anyone from the markets here or the ISA?
“I knew a few people from the capital markets at the level of ‘Hello.’ I didn’t know anyone from the ISA. Later, I discovered that the husband of someone on the TASE board studied with me.”
What changes need to be made to revive the stock market in Israel?
“The law needs to be changed to end the distinction between secondary and primary trading. In the United States, initial public offerings and secondary trading are separate. To trade in a company’s shares, you do not need to ask its permission. The minute shares or bonds are issued on one stock exchange, and the company reports according to the rules of that stock market, we need to allow local traders to trade in [the share]. Just like Mrs. Cohen from Hadera can go to the bank today and buy Apple shares, there’s no reason she should not be able to trade them on the Israeli stock market.”
But a company that trades in the United States, for example, reports at different times, so the traders on the local markets will receive the information late.
“We will take care of that, so that the minute something is reported in the United States, it will also reach Israel.”
How much time will it take to institute such reforms?
“We have to distinguish between the time it will take for changing legislation and for building the systems themselves. It will take me two weeks to build the system, since the trading in dual-listed shares takes place in a similar fashion – there’s no difference as regards the mechanism needed. The ISA will need to lead the legislative change, since that is under its authority. In my opinion, initially the law will be amended to enabling trading in these stocks via [TASE’s] continuous trading system for institutional investors. That means only ‘qualified clients,’ such as institutional investors – with the professional and financial capability to analyze the necessary information on the company – can buy the stock.”
How will it affect trading volume?
“The process will open the Israeli economy to foreign investors, since we will be able to create new indices and exchange-traded funds on Israeli technology firms traded all over the world. The local stock market can interest foreigners to issue ETFs on local technology companies, while the new indexes will increase demand and liquidity. This will help listed companies, since liquidity will grow. If we look at the companies traded both in Israel and in the United States, we see that 30% of the liquidity comes from Israel.”
Much of the activity in the market is speculative. Do you think it interferes with proper trading?
“Speculators are very important for the capital market – they help with the liquidity. Years ago, 80% of U.S. investors bought shares for the long term; today, 80% is made by speculators. The minute a pension fund buys a share, it keeps it in its portfolio for the long term. Speculators play an important role in the market for liquidity.”
One of the accepted forms of trading around the world is through market makers. [A market maker is an investment firm that is committed to buying and selling every share or bond it is responsible for.] This guarantees investors that they will always have someone to buy their shares or bonds.
“Market making in Israel is in a very bad place. We must let the banks make markets in shares. The people who were connected to the [Israeli bank stock] crisis in 1983 are no longer alive; the structure of the capital market has changed and so has trading. Today, market making is not like establishing a financial holding. I’m also not certain that we need very large capital requirements, because the risks of market makers are very small. In the United States they created a Chinese wall between market making and brokerage, since they understood how important it is to the markets. The broker operates without a conflict of interest, while the market maker has a conflict. The banks in Israel know how to make markets with the appropriate systems, so it is natural to allow them to do it.”
Another part of Beinart’s plan is restructuring TASE itself, which today is controlled by its members – banks, insurance companies and large investment houses – and only members are allowed to trade on it. Beinart wants to turn the bourse into a publicly traded company, like Nasdaq.
“I hope very much that within a year and a half, the stock market will change from a nonprofit to a for-profit corporation, but we need to change the law to do so,” he says, adding that there are stock exchanges that completed the transition in as little as eight months and others that took 18 years. “No doubt we need to separate ownership from membership. Whoever wants to be a member of the stock market will sign a contract and have to pay for their membership. My goal is to raise the number of members, and my dream is that diversification of ownership will increase the certainty about the process of issuing shares in [the TASE].”
Would Nasdaq agree to take a stake in the Israeli stock market?
“In talks I had with the CEO of Nasdaq, he showed interest in becoming a shareholder in the Israeli stock exchange when it becomes a for-profit company. Cooperation with Nasdaq will allow us to focus on developing a track for issuing small companies and preparing them for trading overseas when they are ready.”
Is there a chance of cooperation with the Palestinian stock exchange?
“I would be happy to cooperate with the Palestinian stock market and encourage Palestinian companies to be traded here.”
Do you think we need another stock market in Israel?
It is too early to judge Beinart, who hasn’t even been in the job for a year. But as usual in Israel, there are already complaints from TASE members about “fancy talk with no action.” Beinart still has to prove his doubters wrong, just like another difficult task: To convince the public that the stock market is not a casino and not a place where insiders come to rob the naive public. It won’t be easy.