Brokers Seek Regulatory Changes to Compete With Banks

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The new Tel Aviv Stock Exchange building.Credit: Yael Engelhart

Stock brokers, struggling to compete with the country’s powerful banks when it comes to trading in securities on the Tel Aviv market, are seeking regulatory changes that they hope will boost their falling share of trade.

Non-bank members of the Tel Aviv Stock Exchange saw their share of equity trading fall to 17.9% in December 2014, from 21.7% a year ago and a peak of 44% in 2007. In bond trading their share is even less – 12.1% in December 2014 compared with 18.2% in December 2013. As Israeli brokerage firms compete for a dwindling share of the market, their numbers have fallen to seven from 11 since 2008.

Julien Assous, chairman of the TASE Brokers Association, blames a government reform in late 2005 that forced commercial banks to sell off their asset management businesses to stir up competition. To make up for that, the banks sought to gain a bigger foothold in the brokerage market by offering institutional clients very low fees. Brokerages, who offer institutional clients additional services, cannot match the fees, Assous said.

At the same time, brokers face difficulties attracting retail investors because people looking to trade on the stock market are not allowed to open online brokerage accounts because of rules designed to prevent money laundering. “The public in Israel is used to going to banks for everything,” Assous, who is chief executive of IBI, Israel’s largest brokerage house, told Reuters. “We don’t have retail branches and it’s not easy for people to come from all over the country to open an account.”

Only about 10% of retail investors trade through brokerage accounts rather than commercial banks. A spokesman for the Association of Banks in Israel declined to comment on the dispute with the brokerage industry.

Brokers are seeking to implement a system that would enable retail clients to open accounts online that would be linked to only one bank account for transferring money, limiting the possibility for money laundering, Assous said. The Justice Ministry’s anti-money laundering authority has approved the request and the Securities Authority expects changes that will soon allow clients to open accounts online. The brokers have also asked the Securities Authority to impose limits on the banks’ brokerage activity.

“We are waiting for regulators to decide, but it looks positive,” Assous said.

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