Tel Aviv Stock Exchange's Main Indices to Grow as Part of Shakeup

Reforms to TA-25 and TA-100 aim to reduce volatility and diversify exchange to reduce influence of biggest stocks on Israel's TASE.

Bloomberg

The TA-25 and TA-100, long the Tel Aviv Stock Exchange’s two most widely followed indices, are going to be enlarged and diversified as the exchange tries to offer investors less volatility and pare back the influence over its biggest stocks over trading.

In a package of draft measures the TASE announced Thursday, the TA-25 will become the TA-35 and the TA-100 will add 25 stocks. Not only will the enlarged indices dilute the weighting of the biggest companies, particularly Bank Hapoalim and Bank Leumi, but the maximum weighting of any one component stock will be reduced, probably to 7%.

Other rules will ban companies with no connection to Israel, for instance the U.S. biotech company Mannkind, whose entry into the TA-100 last year, aroused controversy. The bourse also plans to launch a handful of new indices, include a TA-BlueChip 15Price index, which is being developed specially for foreign investors.

The TASE’s share indices have become a key factor in the stock market in recent years with the rise of exchange-traded notes and mutual funds that track them and are responsible for a large part of the market’s capitalization.

But that has also distorted the market, with four companies – Teva Pharmaceuticals and the U.S. companies Mylan, Perrigo and Opko Health – accounting for a combined 30% of the TA-25.

“The new methodology should improve the indices’ stability and significantly reduce the risk of index-trackers and investors, who manage directly 35 billion shekels in TASE indices,” the it said. “The move, when approved, will be implemented gradually in 12 steps, every month, over the course of a year.”

The bourse has been implementing a series of changes, including plans to become a for-profit company, in a bid to increase trading volumes and attract more investors. It set a February 10 deadline for public comment on the current proposal before asking its board to approve them.