General Overview
In 2001, the International Monetary Fund (IMF) found most of the Principles of Securities Regulation, adopted by International Organization of Securities Commissions (IOSCO), fully implemented by Israel. The assessment found that the Israeli Securities Authority (ISA) is a strong regulator with comprehensive powers, excellent capacity, and the willingness to carry out their supervisory mandate. Supervisory objectives of the ISA are clear through the securities laws, being the protection of investors. ISA has the authority it needs to carry out this objective as well as sufficient independence. Enforcement is excellent since the ISA had the powers it needs to ensure compliance with the securities laws. These activities include market surveillance and investigations of violations of laws. Stock watch, the ISA's market surveillance system, appears to be technologically advanced and thorough in allowing the regulator to see market irregularities. (IMF 2003, p. 6; IMF 2001, p. 63-64)
However, in 2001, the assessors found inadequate implementation in the following areas: regulators should have authority to share information with domestic and foreign counterparts; regulators should establish information sharing mechanisms with domestic and foreign counterparts; there should be initial and ongoing prudential requirements for market intermediaries that reflect their risk; and market intermediaries should be required to comply with standards for internal organization and operation conduct that aim to protect the interest of clients. (IMF 2003, p. 6)
Among the other areas of improvements suggested in the IMF's 2001 report were the ability of the ISA to investigate licensed or authorized market participants without necessarily having suspicion of breach; the ability of the ISA to settle cases; eliminating the possibility for the ISA to finance, in whole or in part the costs to the plaintiff for class action law suits; and developing better investor and public relations through the launch of an ISA website as well as publishing laws in English. (IMF 2001, p. 64)
In a 2003 update to the 2001 assessment, the IMF concluded that with respect to information sharing there has been some degree of implementation; and on prudential requirements the Israeli Securities Authority (ISA) has taken an initiative that requires the Tel Aviv Stock Exchange (TASE) to take extra steps aimed at monitoring the market, especially the financial stability of its members. A new amendment to the Securities Law has been implemented that is aimed at facilitating an enhancement of the ISA's enforcement powers. However, no new prudential requirements have been introduced with respect to derivatives trading. (IMF 2003, p. 6)
However, in a January 2007 Selected Issues paper, focusing on financial supervision in Israel, the IMF criticized that the supervisory authorities do not all have sufficient independence. Regulation of pensions, provident funds and insurance is conducted from within the Ministry of Finance (MoF). This conflicts with a central principle of IOSCO that regulatory authorities should be operationally independent. The ISA does not have a general rule-making power that could be exercised without the consent of the MoF and the Knesset Finance Committee. The ISA and the Commissioner at the MoF do not have sufficient autonomy with respect to their budgets (even though the ISA is financed by the fees it levies on regulated entities), staff headcount, or salaries, while there are proposals to make the budget of the BoI subject to the annual approval of the Knesset. (IMF 2007a, p. 23)
The 2007 IMF report further noted that the supervisory authorities do not have sufficient resources. The resources of the ISA and, in particular, the Commissioner of Insurance are extremely limited. Neither the Commissioner nor the ISA have sufficient staff to make regular and detailed on-site visits to institutions. The ISA relies almost entirely on auditors to conduct on-site visits of mutual funds and this is a policy that carries risks. (IMF 2007a, p. 24)
Overall, the IMF paper concluded, the supervisory authorities face a serious challenge in the form of rapidly developing financial markets, inconsistent regulatory standards, and, in some respects, insufficient powers and resources to enforce compliance. There is a strong case for enhancing consistency through more formal cooperation, backed by memoranda of understanding or other agreements. (IMF 2007a, p. 24)
In the context of the 2006 Article IV consultations with the IMF, the Executive Director for Israel stated that the authorities are fully aware of the need to devise a better supervisory system of the financial sector. This consideration of supervisory architecture is still at an early stage. Therefore, staff's discussion of pros and cons of various supervisory structures, as well as the discussion of strengths and weaknesses of the existing Israeli supervisory system makes an important contribution to this process. While this process may take time, already three supervisors - the Bank of Israel, Ministry of Finance (MoF) and the ISA - coordinate the supervisory rules and procedures at the highest level as well as through ad-hoc forums at which staff of those agencies meet in order to achieve consistency in, for example, rules governing conflict of interest. The signing of a Memorandum of Understanding, the drafting of which is in its final stage, will further enhance this cooperation. (IMF 2007b, Supplementary Info, p. 4)
In 2006 there has been progress in the area of information sharing with foreign supervisors. During the 2006 IOSCO Annual Conference new signatories to the multilateral memorandum of understanding (MMoU) which were welcomed included the Financial Supervisory Authority of Denmark, the Dubai Financial Services Authority, the Israel Securities Authority and the Securities and Exchange Commission of Nigeria. It was noted that the Israel Securities Authority is the first member to successfully remove all legal obstacles and make the transition from Appendix B of the memorandum. The IOSCO MMoU is based on the thirty IOSCO Objectives and Principles of Securities Regulation (IOSCO Principles) adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. (IOSCO 2006a, p. 2; OSC website)
With respect to prudential regulations, in December 2006, the Emerging Markets Committee of the International Organization of Securities Commissions (IOSCO), released a report titled "Guidance to Emerging Market Regulators Regarding Capital Adequacy Requirements for Financial Intermediaries." According to the report, in Israel, as for non-banking corporations - according to the rules of the Stock Exchange, a non-banking member (NBCM) which is a member of the Stock Exchange Clearing House shall at all times have minimum equity of not less than the aggregate of the amounts prescribed below or the amount of New Israeli Shekels (NIS) 10 Millions, whichever is the higher. (IOSCO 2006b, p. 46)
The Israel Securities Authority (ISA) was established in 1968 through the implementation of the Securities Law. The ISA is a strong regulator with ample and comprehensive powers. While the preconditions for effective securities regulation appear to be met in Israel, the one caveat is that the dominance of the largest banks in capital market activities does not exclude other participants, but makes it more difficult for others to break into these businesses. (IMF 2001, p. 62)
The ISA was established to ensure the existence of an efficient capital market that is based upon adequate disclosure, fairness and giving each investor an equal chance. Amongst other things, the ISA fights such phenomena as securities fraud ("share manipulation"), use of inside information, secreting material information from investors, "convenient" explanations for accounting rules for purposes of presenting financial results that are more appropriate for corporate goals than for presenting a true picture of affairs ("profit management") and more. In practice, the Securities Law adopted the principles that were set out in the American securities laws. (ISA website)
In 2004, there was an expansion in the scope of the ISA's activity. This expansion was due to the new initiatives adopted by the ISA in the framework of implementing and executing the long term strategy defined at the end of 2002. The strategy defined two objectives. One objective was to increase and refine activity in the capital market, while the second objective was to strengthen the public's trust in the reports of corporations by strengthening the control mechanisms operating in the market, and by the ISA's enforcement activity. The strategic plan was designed, first and foremost, to integrate the Israeli capital market in the globalization process of capital markets worldwide, including by adapting its regulation standard to the standard accepted in capital markets worldwide. (ISA 2005, p. 2)
The Tel Aviv Stock Exchange (TASE) trades stocks, bonds and derivatives such as options and futures on the Tel Aviv 25 index, on the exchange rate and, since March 2000, on interest rates. (IMF 2001, p. 62)
In the 2007 IMF Selected Issues paper, the authors noted that the financial markets remain relatively modest in size, with 5 main banks and $190 billion in assets. Although there remains a legal ban on the mutual ownership of financial institutions in different sectors (indeed, Israel has passed legislation that moves in the opposite direction from world trends in this regard), some degree of indirect mutual ownership by institutions in different sectors may be possible and institutions in each sector can gain exposure to risks in other sectors. (IMF 2007a, p. 24)
The Principles
1. The responsibilities of the regulator should be clear and objectively stated. |
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In 2001, the International Monetary Fund (IMF) found most of the Principles of Securities Regulation, adopted by International Organization of Securities Commissions (IOSCO) in September 1998, fully implemented by Israel, including Principle 1, for which no recommendations were issued. (IMF 2003, p. 6)
According to the 2001 International Monetary Fund (IMF) assessment, the responsibilities of the Israel Securities Authority (ISA) are stated in the following laws: Securities Law; Joint Investment Trust Law; and the Portfolio Manager and Investment Advisor Law. Regulatory authority is established under the Securities Law, which states that the function of the ISA is to protect the interests of the public when investing in securities. (IMF 2001, p. 64)
The Israel Securities Authority (ISA) observed the Code with respect to clarity of roles, responsibilities and objectives, which are clearly set out in legislation and regulations. The one issue that concerned the IMF was in relationship with the two other financial regulators, the Banking Supervision Department of the Bank of Israel and the Capital Markets, Insurance and Savings Division of the Ministry of Finance. Although the ISA's broad objective is clear and statutory - to protect the interests of the public investing in securities - it was not clear to the IMF how, in practice, it could be sure of fulfilling that role efficiently in cases where passing information to one of the other regulators quickly was desirable, given the strength of the privacy and secrecy laws in Israel. (IMF 2001, p. 71)
The preconditions for effective securities supervision are numerous, and seem to be in place in Israel. Israel also seems to observe the necessary corporate governance and insolvency principles. The attributes listed by the International Organization of Securities Commission (IOSCO) for effective regulations, such as barriers to entry and exit from market and products etc., also appear to be met by Israel. (IMF 2001, p. 63)
2. The regulator should be operationally independent and accountable in the exercise of its functions and powers. |
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In 2001, the International Monetary Fund (IMF) found most of the Principles of Securities Regulation, adopted by International Organization of Securities Commissions (IOSCO) in September 1998, fully implemented by Israel, including Principle 2, for which no recommendations were issued. (IMF 2003, p. 6)
The Israel Securities Authority (ISA) is operationally independent in implementing its powers. The chairperson is appointed by the Finance Minister, as are the other 12 members. They can only be removed with good cause, and are therefore independent but yet accountable. Anyone concerned by a decision of the ISA may appeal this decision in District Court, which provides a significant measure of accountability. (IMF 2001, p. 65)
However, in a January 2007 Selected Issues paper, focusing on financial supervision in Israel, the IMF criticized that the supervisory authorities do not all have sufficient independence. Regulation of pensions, provident funds and insurance is conducted from within the Ministry of Finance (MoF). This conflicts with a central principle of IOSCO that regulatory authorities should be operationally independent. The ISA does not have a general rule-making power that could be exercised without the consent of the MoF and the Knesset Finance Committee. The ISA and the Commissioner at the MoF do not have sufficient autonomy with respect to their budgets (even though the ISA is financed by the fees it levies on regulated entities), staff headcount, or salaries, while there are proposals to make the budget of the BoI subject to the annual approval of the Knesset. (IMF 2007a, p. 23)
The 2007 IMF report further noted that the supervisory authorities do not have sufficient resources. The resources of the ISA and, in particular, the Commissioner of Insurance are extremely limited. Neither the Commissioner nor the ISA have sufficient staff to make regular and detailed on-site visits to institutions. The ISA relies almost entirely on auditors to conduct on-site visits of mutual funds and this is a policy that carries risks. (IMF 2007a, p. 24)
The supervisory authorities face a serious challenge in the form of rapidly developing financial markets, inconsistent regulatory standards, and, in some respects, insufficient powers and resources to enforce compliance. There is a strong case for enhancing consistency through more formal cooperation, backed by memoranda of understanding or other agreements. (IMF 2007a, p. 24)
3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers. |
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In 2001, the International Monetary Fund (IMF) found most of the Principles of Securities Regulation, adopted by International Organization of Securities Commissions (IOSCO) in September 1998, fully implemented by Israel, including Principle 3, for which no recommendations were issued. (IMF 2003, p. 6)
While the ISA has all the necessary powers, resources and capacity to carry out effective supervision of the Israeli market, the capital markets are changing rapidly through both globalization and new technology, and it will be important for the ISA to maintain both resources and capacity to ensure continued successful supervision. (IMF 2001, p. 65)
The Israel Securities Authority's (ISA) activities are self-financed. Currently, fees paid by public companies and mutual funds cover most of the expenses of the ISA that are incurred from its activities. Back in 2001, the ISA had proposed to collect fees from the Tel Aviv Stock Exchange (TASE) transactions, based on three-year historical volume so that the TASE can better predict the cost of such a levy. This new fee structure would better reflect the wide range of activities imposed by the securities laws on the ISA. (IMF 2001, p. 65)
In its 2005 Annual Report, the ISA explains that its budget is funded by annual fees payable by entities regulated under the Securities Law and the Joint Investment Trust Law, by application fees for permits to publish prospectuses and for private placements, by the licensing fees of investment advisers and investment portfolio managers, and by fees levied on the Tel-Aviv Stock Exchange. The budget is approved by the Minister of Finance and the parliamentary (Knesset) Finance Committee. (ISA 2006, p. 4)
However, in a January 2007 Selected Issues paper, focusing on financial supervision in Israel, the IMF criticized that the supervisory authorities do not all have sufficient independence. Regulation of pensions, provident funds and insurance is conducted from within the Ministry of Finance (MoF). This conflicts with a central principle of IOSCO that regulatory authorities should be operationally independent. The ISA does not have a general rule-making power that could be exercised without the consent of the MoF and the Knesset Finance Committee. The ISA and the Commissioner at the MoF do not have sufficient autonomy with respect to their budgets (even though the ISA is financed by the fees it levies on regulated entities), staff headcount, or salaries, while there are proposals to make the budget of the BoI subject to the annual approval of the Knesset. (IMF 2007a, p. 23)
The 2007 IMF report further noted that the supervisory authorities do not have sufficient resources. The resources of the ISA and, in particular, the Commissioner of Insurance are extremely limited. Neither the Commissioner nor the ISA have sufficient staff to make regular and detailed on-site visits to institutions. The ISA relies almost entirely on auditors to conduct on-site visits of mutual funds and this is a policy that carries risks. (IMF 2007a, p. 24)
The supervisory authorities face a serious challenge in the form of rapidly developing financial markets, inconsistent regulatory standards, and, in some respects, insufficient powers and resources to enforce compliance. There is a strong case for enhancing consistency through more formal cooperation, backed by memoranda of understanding or other agreements. (IMF 2007a, p. 24)
4. The regulator should adopt clear and consistent regulatory processes. |
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In 2001, the International Monetary Fund (IMF) found most of the Principles of Securities Regulation, adopted by International Organization of Securities Commissions (IOSCO) in September 1998, fully implemented by Israel, including Principle 4, for which no recommendations were issued. (IMF 2003, p. 6)
Anyone concerned by a decision of the Israel Securities Authority (ISA) may appeal this decision in District Court, which provides a significant measure of accountability. (IMF 2001, p. 65)
The Israel Securities Authority (ISA) observes International Monetary Fund (IMF) standard codes with respect to clarity of roles, responsibilities and objectives, which are clearly set out in legislation and regulations. The only aspect with which the IMF had some concerns was in the relationship with the two other financial regulators, the Banking Supervision Department of the Bank of Israel and the Capital Markets, Insurance and Savings Division of the Ministry of Finance. Although the ISA's broad objective is clear and statutory to protect the interests of the public investing in securities, it was not clear how, in practice, it could be sure of fulfilling that role efficiently in cases where passing information to one of the other regulators quickly was desirable, given the strength of privacy and secrecy laws. The team was unable to form a clear and consistent view of what happens in practice, except where there was clear evidence of criminal action or an order of the court. (IMF 2001, p. 71)
5. The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality. |
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In 2001, the International Monetary Fund (IMF) found most of the Principles of Securities Regulation, adopted by International Organization of Securities Commissions (IOSCO) in September 1998, fully implemented by Israel, including Principle 5, for which no recommendations were issued. (IMF 2003, p. 6)
The assessment reports that the Israel Securities Authority (ISA) has several safeguards to protect commercially sensitive information from inappropriate disclosure (IMF 2001, p. 65)
6. The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets. |
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In 2001, the International Monetary Fund (IMF) found most of the Principles of Securities Regulation, adopted by International Organization of Securities Commissions (IOSCO) in September 1998, fully implemented by Israel, including Principle 6, for which no recommendations were issued. (IMF 2003, p. 6)
The 2001 assessment reports that the Tel Aviv Stock Exchange (TASE) is a self-regulatory organization that is supervised by the Israel Securities Authority (ISA). TASE is granted with rulemaking powers. TASE is responsible for establishing and enforcing standards of conduct for its members. In particular, TASE is responsible for rulemaking in regards to trading practices, fair and orderly operation of trading facilities, clearing and settlement processes, and financial responsibility of its members. TASE is also responsible for enforcing the listing rules that are designed to guarantee fair and orderly trading and maintenance of these rules. (IMF 2001, p. 66)
The TASE does not perform substantial market monitoring, as this is relegated to the Israel Securities Authority (ISA). This is unusual compared to other countries. The TASE does have responsibility to monitor its nonbanking members regarding their market activities. (IMF 2001, p. 66)
7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities. |
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In 2001, the International Monetary Fund (IMF) found most of the Principles of Securities Regulation, adopted by International Organization of Securities Commissions (IOSCO) in September 1998, fully implemented by Israel, including Principle 7, for which no recommendations were issued. (IMF 2003, p. 6)
Under the Securities Law, the Israel Securities Authority (ISA) supervises the fair and orderly operation of the Tel Aviv Stock Exchange (TASE). The ISA must approve the directives of the ISA and recommend approval of the TASE bylaws to the Minister of Finance.. (IMF 2001, p. 69)
8. The regulator should have comprehensive inspection, investigation and surveillance powers. |
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In 2001, the International Monetary Fund (IMF) found most of the Principles of Securities Regulation, adopted by International Organization of Securities Commissions (IOSCO) in September 1998, fully implemented by Israel, including Principle 8, for which no recommendations were issued. (IMF 2003, p. 6)
The Israel Securities Authority's enforcement powers allow for a wide range of activities aimed at ensuring compliance with the securities laws. These activities include market surveillance and investigations of violations of law. Stock Watch, the Israel Securities Authority (ISA) market surveillance system, appears to be technologically advanced and thorough in allowing the regulator to see market irregularities. (IMF 2001, p. 66)
The 2001 assessment concluded that staffing which supports the ISA's enforcement area appears adequate, although with the increasing allure of the internet as an investment and information dissemination tool (including for fraudulent activities), the ISA may need to strengthen the areas of inspection, investigation and surveillance. (IMF 2001, p. 67)
The Mutual Funds Department has an automatic computer program that allows any irregularities (such as exceeding investment limitations) in the monthly required reporting by mutual funds to be detected automatically. (IMF 2001, p. 66)
9. The regulator should have comprehensive enforcement powers. |
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In 2001, the International Monetary Fund (IMF) found most of the Principles of Securities Regulation, adopted by International Organization of Securities Commissions (IOSCO) in September 1998, fully implemented by Israel, including Principle 9, for which no recommendations were issued. (IMF 2003, p. 6)
The 2001 IMF assessment asserts that the Israel Securities Authority (ISA) enforcement powers allow for a wide range of activities aimed at ensuring compliance with the securities law. These activities include market surveillance and investigations of violations of the law. The ISA only uses these powers where there is overwhelming substantiation of a given case, given the balance of protecting civil rights with rigorous enforcement of securities laws. An improvement would be the ability for the ISA to impose civil sanctions, rather than security violations remaining only criminal. The ISA can now impose such penalties on mutual funds, and minor securities infractions by listed companies, such as reporting late should become penalties rather than criminal violations. This may require major changes in not only the legal framework, but also supervisory philosophies. Stock Watch, the ISA market surveillance system, appears to be technologically advanced and thorough in allowing the regulator to see market irregularities. (IMF 2001, pp. 64, 66)
10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program. |
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In 2001, the International Monetary Fund (IMF) found most of the Principles of Securities Regulation, adopted by International Organization of Securities Commissions (IOSCO) in September 1998, fully implemented by Israel, including Principle 10, for which no recommendations were issued. (IMF 2003, p. 6)
In its 2005 Annual Report, the ISA reports that the Corporation Finance Department handles all the filings submitted by companies reporting under the Securities Law and by those taking advantage of the dual listing arrangement. The work of the department unifies the work previously conducted by three ISA departments - Accounting and Reporting Department, Legal Department and the Disclosure Center. The department's staff, which includes accountants and lawyers, monitors in real time, filings on an on-going basis, including immediate reports, interim reports, and annual reports. ISA monitoring includes an examination and analysis of corporate filings from the standpoint of disclosure, compliance with legal requirements, enforcement of accounting standards and assessment of relevant legal, accounting and economic perspectives. While carrying out its responsibilities, the department's staff addresses complex and often interrelated, legal and accounting issues, and identifies market failures warranting ISA intervention. A special effort is devoted to prevention made possible by information obtained by the ISA Intelligence Department. (ISA 2006b. p. 10)
11. The regulator should have authority to share both public and non-public information with domestic and foreign counterparts. |
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According to the International Monetary Fund's (IMF) 2001 report, the principles on cooperation were partially implemented in Israel. (IMF 2001, p. 67)
However, in 2006 there has been progress in the area of information sharing with foreign supervisors. During the 2006 IOSCO Annual Conference new signatories to the multilateral memorandum of understanding (MMoU) which were welcomed included the Financial Supervisory Authority of Denmark, the Dubai Financial Services Authority, the Israel Securities Authority and the Securities and Exchange Commission of Nigeria. It was noted that the Israel Securities Authority (ISA) is the first member to successfully remove all legal obstacles and make the transition from Appendix B of the memorandum. The IOSCO MMoU is based on the thirty IOSCO Objectives and Principles of Securities Regulation (IOSCO Principles) adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. (IOSCO 2006a, p. 2; OSC website)
In its 2005 Annual report the ISA explains that as a condition to joining the MMoU, Israel was compelled to amend the Securities Law to conform with international standards as defined by the organization. From the day the ISA received IOSCO's findings it started to work on amendments to the Securities Law that would remove the barriers that prevent its joining of the IOSCO MMoU. These have since been removed through Securities Law (Amendment no. 31) 2005, which was ratified by the Knesset on December 21, 2005. (ISA 2006b. p. 131)
According to the ISA, the amendment revises Chapter 9B of the Securities Law, the section of the Law that provides the framework for cooperation between the ISA and a foreign authority with which it has signed a Memorandum of Understanding. This amendment authorizes the ISA to assist a foreign authority requesting assistance, even when the subject of a request will not likely constitute violation of an Israeli law, provided that the subject of the cooperation request may be in violation of securities laws that a foreign authority is authorized to enforce. Regarding the authority to search and seize, the "double criminality" standard remains intact. (ISA 2006b, pp. 60, 61)
This amendment extends the list of issues and entities for which the ISA is authorized to assist foreign authorities to include any matter or entity that comes under the supervision of the foreign authority, even when these matters and entities do not fall within the jurisdiction of the ISA. This amendment also authorizes the ISA to refuse to convey the information submitted to it or compiled as a result of a formal request for assistance initiated by a foreign authority, to a third party. (ISA 2006b, pp. 60, 61)
However, in a January 2007 Selected Issues paper, focusing on financial supervision in Israel, the IMF criticized that the supervisory authorities do not have sufficient resources. The resources of the ISA and, in particular, the Commissioner of Insurance are extremely limited. Neither the Commissioner nor the ISA have sufficient staff to make regular and detailed on-site visits to institutions. The ISA relies almost entirely on auditors to conduct on-site visits of mutual funds and this is a policy that carries risks. (IMF 2007a, p. 24)
The IMF paper therefore concluded that the supervisory authorities face a serious challenge in the form of rapidly developing financial markets, inconsistent regulatory standards, and, in some respects, insufficient powers and resources to enforce compliance. There is a strong case for enhancing consistency through more formal cooperation, backed by memoranda of understanding or other agreements. (IMF 2007a, p. 24)
12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts. |
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According to the International Monetary Fund's (IMF) 2001 report, the principles on cooperation were partially implemented in Israel. (IMF 2001, p. 67)
In its 2003 update the IMF indicated that although coordination and information sharing among agencies have not been implemented formally, there seems to be an increasing collaboration among the Israeli Securities Authority (ISA), the Bank of Israel (BOI) and the Tel Aviv Stock Exchange (TASE) regarding the financial stability of, primarily but not exclusively, the TASE members. (IMF 2003, p. 6)
However, in 2006 there has been progress in the area of information sharing with foreign supervisors. During the 2006 IOSCO Annual Conference new signatories to the multilateral memorandum of understanding (MMoU) which were welcomed included the Financial Supervisory Authority of Denmark, the Dubai Financial Services Authority, the Israel Securities Authority and the Securities and Exchange Commission of Nigeria. It was noted that the Israel Securities Authority (ISA) is the first member to successfully remove all legal obstacles and make the transition from Appendix B of the memorandum. The IOSCO MMoU is based on the thirty IOSCO Objectives and Principles of Securities Regulation (IOSCO Principles) adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. (IOSCO 2006a, p. 2; OSC website)
In its 2005 Annual report the ISA explains that as a condition to joining the MMoU, Israel was compelled to amend the Securities Law to conform with international standards as defined by the organization. From the day the ISA received IOSCO's findings it started to work on amendments to the Securities Law that would remove the barriers that prevent its joining of the IOSCO MMoU. These have since been removed through Securities Law (Amendment no. 31) 2005, which was ratified by the Knesset on December 21, 2005. (ISA 2006b. p. 131)
According to the ISA, the amendment revises Chapter 9B of the Securities Law, the section of the Law that provides the framework for cooperation between the ISA and a foreign authority with which it has signed a Memorandum of Understanding. This amendment authorizes the ISA to assist a foreign authority requesting assistance, even when the subject of a request will not likely constitute violation of an Israeli law, provided that the subject of the cooperation request may be in violation of securities laws that a foreign authority is authorized to enforce. Regarding the authority to search and seize, the "double criminality" standard remains intact. (ISA 2006b, pp. 60, 61)
This amendment extends the list of issues and entities for which the ISA is authorized to assist foreign authorities to include any matter or entity that comes under the supervision of the foreign authority, even when these matters and entities do not fall within the jurisdiction of the ISA. This amendment also authorizes the ISA to refuse to convey the information submitted to it or compiled as a result of a formal request for assistance initiated by a foreign authority, to a third party. (ISA 2006b, pp. 60, 61)
13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers. |
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According to the International Monetary Fund's (IMF) 2001 report, the principles on cooperation were partially implemented in Israel. (IMF 2001, p. 67)
However, in 2006 there has been progress in the area of information sharing with foreign supervisors. During the 2006 IOSCO Annual Conference new signatories to the multilateral memorandum of understanding (MMoU) which were welcomed included the Financial Supervisory Authority of Denmark, the Dubai Financial Services Authority, the Israel Securities Authority and the Securities and Exchange Commission of Nigeria. It was noted that the Israel Securities Authority (ISA) is the first member to successfully remove all legal obstacles and make the transition from Appendix B of the memorandum. The IOSCO MMoU is based on the thirty IOSCO Objectives and Principles of Securities Regulation (IOSCO Principles) adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. (IOSCO 2006a, p. 2; OSC website)
In its 2005 Annual report the ISA explains that as a condition to joining the MMoU, Israel was compelled to amend the Securities Law to conform with international standards as defined by the organization. From the day the ISA received IOSCO's findings it started to work on amendments to the Securities Law that would remove the barriers that prevent its joining of the IOSCO MMoU. These have since been removed through Securities Law (Amendment no. 31) 2005, which was ratified by the Knesset on December 21, 2005. (ISA 2006b. p. 131)
According to the ISA, the amendment revises Chapter 9B of the Securities Law, the section of the Law that provides the framework for cooperation between the ISA and a foreign authority with which it has signed a Memorandum of Understanding. This amendment authorizes the ISA to assist a foreign authority requesting assistance, even when the subject of a request will not likely constitute violation of an Israeli law, provided that the subject of the cooperation request may be in violation of securities laws that a foreign authority is authorized to enforce. Regarding the authority to search and seize, the "double criminality" standard remains intact. (ISA 2006b, pp. 60, 61)
This amendment extends the list of issues and entities for which the ISA is authorized to assist foreign authorities to include any matter or entity that comes under the supervision of the foreign authority, even when these matters and entities do not fall within the jurisdiction of the ISA. This amendment also authorizes the ISA to refuse to convey the information submitted to it or compiled as a result of a formal request for assistance initiated by a foreign authority, to a third party. (ISA 2006b, pp. 60, 61)
14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors’ decisions. |
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In 2001, the International Monetary Fund (IMF) found most of the Principles of Securities Regulation, adopted by International Organization of Securities Commissions (IOSCO) in September 1998, fully implemented by Israel, including Principle 14, for which only one, technical recommendation was issued. (IMF 2003, p. 6)
The IMF recommended that the Securities Law be made consistent with the disclosure requirements now contained in the Company Law. Such changes do not introduce new concepts but rather present modifications that are necessary for consistency. (IMF 2001, p. 68)
Overall, Israeli securities laws have comprehensive disclosure requirements. Corporations seeking to offer their securities to the public must apply to the Israel Securities Authority (ISA) for a permit to publish a prospectus. In the prospectus, the company must provide all pertinent information on the nature of its business, the company's management and all major shareholders and the type of security being offered. The company also must provide annual audited financial statements by an independent certified public accountant. A necessary and critical part of this financial reporting and disclosure is the Management Discussion and Analysis. Prospectuses are publicly available as soon as they are approved. Such regulations are more stringent than the U.S. SEC. (IMF 2001, p. 67)
Corporations whose securities have been offered to the public by prospectus are required to submit annual financial reports within 90 days after the end of the fiscal year. An independent certified public accountant must audit these reports. Companies also must submit quarterly financial reports that have been reviewed by a chartered public accountant, within 60 days after the end of each of the first three fiscal quarters. Noncompliance is a criminal violation. (IMF 2001, p. 68)
15. Holders of securities in a company should be treated in a fair and equitable manner. |
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In November 2006, the Israel Securities Authority (ISA) published a report that summarizes the state of corporate governance as reflected in Israeli corporate and securities law as measured against the OECD Principles of Corporate Governance, 2004. It was prepared by the Israel Securities Authority in collaboration with the Economic Department of the Ministry of Justice. (ISA 2006a., p. 1)
According to the report, the Securities Law requires that all TASE-listed companies have one class of shares with equal voting rights. Veteran firms (prior to 1991) that have more than one class of shares are required to fully disclose all rights attached to all series and classes of shares. This information is publicly available through the ISA's online electronic filing database. These disclosure requirements pertain to all reporting companies and not just those listed on the TASE. (ISA 2006a, p. 12)
Israel's Companies Law provides safeguards and civil remedies for minority shareholders from abuse by controlling shareholders. The Companies Law protects minority shareholders from majority abuse in several manners. It stipulates that shareholders have a duty to act in good faith towards the company and other shareholders, specifically when voting for certain key issues. Controlling shareholders, any shareholder holding the critical vote or having a right to nominate or veto a nomination of an officer are required to act fairly. (ISA 2006a, p. 12)
The report goes on to state that the right of shareholders in public companies to be informed of all material developments as they occur is absolute, unqualified, and enforced. The Israel Securities Law, requires disclosure in current reports (called immediate reports) of all material developments rather than on a closed set of issues as is customary in some jurisdictions. At the same time, shareholders in public companies have the right to participate in most decisions concerning fundamental corporate changes, including the amendment of statutes, articles of incorporation or bylaws and authorization of additional shares. Decisions pertaining to all these issues require shareholder approval. With regard to extraordinary transactions, some qualifications exist. Extraordinary transactions, even if material and including the sale of a company's business activities, do not require shareholder approval, unless a prior contractual commitment to obtain such approval (e.g. in the company's by-laws or in a prospectus) is adopted by the company. In some cases, shareholder approval is required given the structure of the transaction. If the transaction involves an allocation of shares, or if a principal or related party is party to the transaction or has an interest in it, the Law requires shareholder approval of the transaction. If the company's activity is sold for cash, shareholder approval is generally not required. (ISA 2006a, p. 5)
The Companies Law confers shareholders the right and responsibility of appointing directors at the annual general shareholders meeting (unless otherwise indicated in the company's bylaws). It also stipulates that independent directors be appointed by shareholders, a responsibility which cannot be delegated to another party. A special majority which gives additional weight to votes of minority shareholders is required. In addition, within the framework of shareholder rights to propose resolutions at shareholders meetings, they can propose to either replace or nominate directors. Remuneration (including equity components) of board members must be approved by shareholders at the general meeting. Remuneration and the other employment conditions of senior executives must be approved by the board of directors, and if an executive also serves on the board of directors or is a controlling shareholder, by the shareholders as well. Such approval requires a special majority as applicable for all transactions to which a controlling shareholder is party. (ISA 2006a, p. 7)
The rules and procedures governing the acquisition of corporate control in capital markets are codified and transparent. Israel's Companies Law governs the practices and minority shareholder rights regarding the transfer of control. It sets three thresholds which necessitate the issuance of a tender offer. (ISA 2006a, pp. 8, 9)
Chapter 8A of Israel's Securities Law, which originally came into force in 1981, is dedicated to the prohibition of the "use of inside information". This prohibition is not restricted to insiders alone and relates to the use of inside information by any party. The rules and penalties regarding the use of inside information are stricter for insiders, primarily for senior executives, who under certain circumstances may be required to positively prove non-use to avoid conviction. In addition, criminal penalties are heavier for insiders than for others. The ISA has successfully enforced its insider trading provision. A significant body of case law has accrued covering a wide array of violations by both insiders and third-party offenders that have been tried, convicted and upheld on appeal. (ISA 2006a, p. 14)
16. Accounting and auditing standards should be of a high and internationally acceptable quality. |
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In June 2005, an agreement was reached among the Israel Accounting Standards Board (IsASB), the Institute of Certified Public Accountants in Israel (ICPA), and the Israel Securities Authority (ISA) to adopt International Financial Reporting Standards (IFRSs) in full, in place of national accounting standards, effective in 2008. Since 1999, Israeli national accounting standards have been developed on the basis of IFRSs, formerly International Accounting Standards (IASs); however they differ substantially from IFRSs. (Deloitte IAS Plus website; Grant Thornton n.d., p. 20)
According to the self-assessment prepared by the ICPA in 2006 as a part of the International Federation of Accountants' (IFAC) Member Body Compliance Program, commencing January 1, 2008 all domestic listed entities will be required to prepare financial statements in accordance with IFRSs. Effective July 1, 2006, all domestic listed companies in Israel are permitted to use IFRSs. Non- listed entities will be subject to the existing Israeli GAAP which is based on IFRSs but not identical to IFRSs. (ICPA 2006, p. 56; Deloitte IAS Plus website)
The change to full IFRS adoption is intended to enhance the worldwide acceptability and understandability of the financial reporting of Israeli companies. In the United States, Israel has more companies registered with the Securities and Exchange Commission (SEC) than any foreign country except Canada (over 100 companies). Israel has taken this step in anticipation that non-US companies registered with the SEC will be able to report solely in IFRSs without the US Generally Accepted Accounting Principles (GAAP) reconciliation. Many Israeli companies are also listed on European exchanges and, after 2007 those companies will no longer be allowed to use national GAAP for their European regulatory reporting. (Deloitte IAS Plus website)
The Companies Law states that all companies must have their financial statements audited except for private companies with turnover up to 500,000 NIS. (ICPA2004)
The Auditing and Assurance Standards Committee of the Institute of Certified Public Accountants in Israel (ICPA) sets Israeli Auditing Standards, which, according to the ICPA, are based on International Standards on Auditing (ISAs). (IFAC 2004)
17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme. |
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In 2001, the International Monetary Fund (IMF) found most of the Principles of Securities Regulation, adopted by International Organization of Securities Commissions (IOSCO) in September 1998, fully implemented by Israel, including Principle 17, for which only one best practice recommendation was issued. (IMF 2003, p. 6)
The IMF report recommended that given the strong regulation of Israel Securities Authority (ISA) over mutual funds, policy makers may wish to consider the possibility of transferring responsibility for other collective investment schemes (such as pension funds) to ISA. (IMF 2001, p. 68)
Collective investment schemes are regulated by various laws, depending upon the type of scheme. Provident funds and pension funds are regulated and supervised by the Ministry of Finance. Mutual funds are regulated by the ISA through the Joint Investment Trust Law (1994). (IMF 2001, p. 68)
In a January 2007 Selected Issues paper, focusing on financial sector supervision, the IMF recommended to bring the regulation, including governance, structure and disclosure requirements of provident funds and pension funds up to IOSCO standards, for example by upgrading the governance rules for provident funds and pension funds, by requiring a totally independent custodian of the assets, and insisting on simple "key features" documentation that spells out the risk / return characteristics of different products. (IMF 2007a, pp. 27, 28)
18. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets. |
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In 2001, the International Monetary Fund (IMF) found most of the Principles of Securities Regulation, adopted by International Organization of Securities Commissions (IOSCO) in September 1998, fully implemented by Israel, including Principle 18, for which only one best practice recommendation was issued. (IMF 2003, p. 6)
The IMF report recommended that given the strong regulation of Israel Securities Authority (ISA) over mutual funds, policy makers may wish to consider the possibility of transferring responsibility for other collective investment schemes (such as pension funds) to ISA. (IMF 2001, p. 68)
The Israel Securities Authority (ISA) grants permits to mutual funds to publish their prospectus and offer their units for sale to the public. Supervision of mutual funds is accomplished through continuous disclosure, monthly reports to the ISA and annual prospectuses. ISA routinely inspects these electronically filed monthly reports and enforces their compliance through civil fines as stated in the Joint Investment Trust Law. (IMF 2001, p. 68)
19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme. |
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In 2001, the International Monetary Fund (IMF) found most of the Principles of Securities Regulation, adopted by International Organization of Securities Commissions (IOSCO) in September 1998, fully implemented by Israel, including Principle 19, for which no recommendations were issued. (IMF 2003, p. 6)
According to the IMF report, the Israel Securities Authority (ISA) grants permits to mutual funds to publish their prospectus and offer their units for sale to the public. Supervision of mutual funds is accomplished through continuous disclosure, monthly reports to the ISA and annual prospectuses. ISA routinely inspects these electronically filed monthly reports and enforces their compliance through civil fines as stated in the Joint Investment Trust Law. The annual prospectuses describe the mutual funds' investment policy and disclose all material information on the mutual fund's manager and trustee. (IMF 2001, pp. 69)
However, in a January 2007 Selected Issues paper, focusing on financial sector supervision, the IMF recommended to bring the regulation, including governance, structure and disclosure requirements of provident funds and pension funds up to IOSCO standards, for example by upgrading the governance rules for provident funds and pension funds, by requiring a totally independent custodian of the assets, and insisting on simple "key features" documentation that spells out the risk / return characteristics of different products. (IMF 2007a, pp. 27, 28)
20. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme. |
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In 2001, the International Monetary Fund (IMF) found most of the Principles of Securities Regulation, adopted by International Organization of Securities Commissions (IOSCO) in September 1998, fully implemented by Israel, including Principle 20, for which no recommendations were issued. (IMF 2003, p. 6)
21. Regulation should provide for minimum entry standards for market intermediaries. |
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In 2001, the International Monetary Fund (IMF) found most of the Principles of Securities Regulation, adopted by International Organization of Securities Commissions (IOSCO) in September 1998, fully implemented by Israel, including Principle 21, for which no recommendations were issued. (IMF 2003, p. 6)
The securities laws provide minimum requirements intermediaries (whether banks or not) must meet. Many provisions in the laws are designed to minimize the potential conflict of interests between intermediaries and their clients. The Israel Securities Authority (ISA) supervises the banks as intermediaries in the securities markets and as firms whose securities are listed on the Tel Aviv Stock Exchange (TASE). (IMF 2001, p. 68)
The Ministry of Finance (MoF) regulates pension funds and provident funds. It licenses them and sets minimum entry requirements. The Israel Securities Authority (ISA) regulates mutual funds. The Joint Investment Trust Law sets minimum entry standards for mutual funds to operate in the market. (IMF 2001, p. 69)
Under the Investment Advisors and Portfolio Managers (IAPM) Law, the Israel Securities Authority (ISA) is responsible for licensing portfolio managers and investment advisors. (IMF 2001, p. 69)
22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake. |
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The 2001 International Monetary Fund (IMF) assessment found that given the large size of the Israeli derivatives market, it is unclear if market intermediaries properly reflect risky instruments in their activities. Whether or not prudential requirements and margins levels are set appropriately are only known ex post. In addition, the relationship between the banks and their financial intermediary subsidiaries, off balance sheet affiliates and related parties renders this principle difficult to assess. (IMF 2001, p. 69)
In 2001, the assessors found inadequate implementation regarding the principle that there should be initial and ongoing prudential requirements for market intermediaries that reflect their risk. In a 2003 update to the 2001 assessment, the IMF concluded that in 2003, the Israel Securities Authority (ISA) took an initiative that requires the Tel Aviv Stock Exchange (TASE) to take extra steps aimed at monitoring the market, especially the financial stability of its members. An amendment to the Securities Law has been implemented that is aimed at facilitating an enhancement of the ISA's enforcement powers. However, no new prudential requirements have been introduced with respect to derivatives trading. (IMF 2003, p. 7)
In December 2006, the Emerging Markets Committee of the International Organization of Securities Commissions (IOSCO), released a report titled "Guidance to Emerging Market Regulators Regarding Capital Adequacy Requirements for Financial Intermediaries." With respect to prudential requirements in Israel, the report notes that, as for non-banking corporations - according to the rules of the Stock Exchange, a non-banking member (hereinafter NBCM) which is a member of the Stock Exchange Clearing House shall at all times have minimum equity of not less than the aggregate of the amounts prescribed below or the amount of New Israeli Shekels (NIS) 10 Millions, whichever is the higher. An NBCM which is not a member of the Stock Exchange Clearing House shall at all times have minimum equity of not less than the amount equal to 50% of the aggregate amounts prescribed below or amount of 10 New Israeli Shekels (NIS) Millions, whichever is the higher - (1) 0.25% of the total value of the shares and convertible securities in the securities portfolios of the NBCM's customers whose securities portfolios are held by the NBCM, excluding the value of such securities of the NBCM itself ("nostro"), of its interested parties or of companies under their control; (2) 0.1% of the value of the portfolios, excluding shares and convertible securities, of the NBCM's customers whose securities portfolios are held by the NBCM, excluding the value of securities as aforesaid of the NBCM itself ("nostro"), of its interested parties or of companies under their control; (3) 0.1% of the value of the portfolios of the NBCM's customers whose securities portfolios are held by other members and of the value of the portfolios of the customers of the supervised companies through which the NBCM acts in accordance with paragraph 13.a. of the Rules, whose securities portfolios are not held by the NBCM and of the value of the portfolios managed by mutual fund management companies or provident fund management companies which are subsidiaries of the NBCM and whose securities portfolios as aforesaid are not held by the NBCM, excluding the value of securities as aforesaid of the NBCM itself ("nostro"), of its interested parties or of companies under their control; (4) 0.1% of the NBCM's trading turnover in the last half year in short term loans and bonds traded in Israel and overseas; (5) 0.25% of the NBCM's trading turnover in the last half year in shares and convertible securities traded in Israel and overseas; (6) an NBCM which is a member of the Maof (derivatives) Clearing House Ltd - 100% of the daily average of the collateral in the last half year which the NBCM is liable to obtain from its customers on account of their transactions in derivatives traded on the Stock Exchange, in accordance with the bylaws of the Maof Clearing House Ltd. An NBCM which is not a member of the Maof Clearing House Ltd - 50% of the daily average of the collateral in the last half year which the NBCM is liable to obtain from its customers on account of their transactions in derivatives traded on the Stock Exchange, in accordance with the by-laws of the Maof Clearing House Ltd; (7) 50% of the daily average collateral in the last half year which the NBCM is liable to obtain from its customers on account of their transactions in derivatives traded on an overseas stock exchange or that are not traded, in accordance with the Rules. (8) an NBCM which is a member of the Maof Clearing House Ltd - 100% of the daily average of the NBCM's exposure in the last half year, on account of its transactions in derivatives, including through subsidiaries; an NBCM which is not a member of the Maof Clearing House Ltd - 50% of the daily average of the NBCM's exposurein the last half year, on account of its transactions in derivatives, including through subsidiaries. (9) 50% of the NBCM's expenses in the last half year. (IOSCO 2006b, p. 46)
23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters. |
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The 2001 International Monetary Fund (IMF) assessment found that the assessors found inadequate implementation regarding the principle that market intermediaries should be required to comply with standards for internal organization and operation conduct that aim to protect the interest of clients. (IMF 2003, p. 6)
The IMF further noted that Under the Investment Advisors and Portfolio Managers (IAPM) Law, Israel Securities Authority (ISA) is responsible for licensing portfolio managers and investment advisors. If a licensed investment advisor is advising clients, he/she may not select stocks/assets of his own firm or subsidiary. This regulation is meant to prevent conflicts of interest. Investor clients can easily become captive to the Israeli financial conglomerate system in which all of the banks have fund manager subsidiaries and offer investment advisory services. The law is designed to ensure the client is offered the true range of competing investments. However, practice has been for investment advisors from banks to guide clients to their own mutual funds and provide only information/brochures on their related party instruments. The ISA has informed the banks (and other investment advisors) to comply with the law, but (at the time of the report) had not yet imposed any sanctions. (IMF 2001, p. 69)
Among its activities, the licensing and supervision of investment advisors and investment portfolio managers department investigates suspicions of violations of the law regulating advice. The investigations are made following complaints from the public, or as a result of suspicions that arise during the regular work of the department. When a suspicion of a criminal breach or a disciplinary breach arises, the matter is referred for investigation. (ISA 2005, p. 45)
24. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk. |
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In 2001, the International Monetary Fund (IMF) found most of the Principles of Securities Regulation, adopted by International Organization of Securities Commissions (IOSCO) in September 1998, fully implemented by Israel, including Principle 24, for which no recommendations were issued. (IMF 2003, p. 6)
The Failure of market intermediaries are unlikely to disrupt the overall market given the legal framework, which provides for segregation of assets and the fact that securities belong to clients and not to exchange members or fund managers. If a mutual fund goes bankrupt, the assets belong to the unit holders. In this situation, the fund can either be liquidated or the management transferred to another mutual fund. This is also true for portfolio managers. Another safeguard is that market intermediaries are required to have insurance. Therefore, investors appear protected to the extent possible and damage to investors would be minimized. (IMF 2001, p. 69)
25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight. |
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In 2001, the International Monetary Fund (IMF) found most of the Principles of Securities Regulation, adopted by International Organization of Securities Commissions (IOSCO) in September 1998, fully implemented by Israel, including Principle 25, for which no recommendations were issued. (IMF 2003, p. 6)
According to the Securities Law, the Israel Securities Authority (ISA) supervises the fair and orderly operation of the Tel Aviv Stock Exchange (TASE). The ISA must approve the directives of the TASE and recommend approval of the TASE bylaws to the Minister of Finance. (IMF 2001, p. 69)
In its 2005 Annual Report, the ISA states that under its mandate, it is charged with supervising fair and orderly management of secondary markets. In addition, the ISA operates, as stipulated in Title 8 of the Securities Law, which deals with the ISA's supervisory authority with regard to stock exchange bylaws and rulemaking, as well as its responsibility to ensure proper management of the TASE. A representative of the ISA follows discussions of the board of directors of the stock exchange and its committees, and serves as an observer in said negotiations. (ISA 2006b p. 39)
26. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants. |
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In 2001, the International Monetary Fund (IMF) found most of the Principles of Securities Regulation, adopted by International Organization of Securities Commissions (IOSCO) in September 1998, fully implemented by Israel, including Principle 26, for which no recommendations were issued. (IMF 2003, p. 6)
According to the Securities Law, the Israel Securities Authority (ISA) supervises the fair and orderly operation of the Tel Aviv Stock Exchange (TASE). The Israel Securities Authority (ISA) must approve the directives of the TASE and recommend approval of the TASE bylaws to the Minister of Finance. (IMF 2001, p. 69)
The Tel Aviv Stock Exchange (TASE) conducts regular audits of exchange members' operations. In addition, the capital and liquidity requirements of Exchange members are strict. (IMF 2001, p. 70)
27. Regulation should promote transparency of trading. |
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In 2001, the International Monetary Fund (IMF) found most of the Principles of Securities Regulation, adopted by International Organization of Securities Commissions (IOSCO) in September 1998, fully implemented by Israel, including Principle 27, for which no recommendations were issued. (IMF 2003, p. 6)
The Israel Securities Authority (ISA) was established to ensure the existence of an efficient capital market that is based upon adequate disclosure, fairness and giving each investor an equal chance. Amongst other things, the ISA fights such phenomena as "convenient" explanations for accounting rules for purposes of presenting financial results that are more appropriate for corporate goals than for presenting a true picture of affairs ("profit management") and more. In practice, the Securities Law adopted the principles that were set out in the American securities laws. (ISA website)
In 1997, the Tel Aviv Stock Exchange (TASE) launched Tel Aviv Continuous Trading (or TACT). Equity, fixed income, and derivatives are all traded under the state-of-the-art computerized, order-driven network. Trading volumes for derivatives more than doubled when this market was brought into the system in 1999. TACT has improved transparency of trading as well as liquidity and fairness as investors are guaranteed an equal opportunity with respect to entry of orders. (IMF 2001, p. 70)
The Israeli electronic reporting project (MAGNA) is an information system for collecting and disseminating through the Internet, the public filings of ISA-regulated entities, including: public companies, mutual funds, investment advice and portfolio management firms and underwriters. The project harnesses communications technology and the Internet to service the investing public and constituent reporting entities. The system handles all types of report, including: prospectuses, annual financial statements, interim financial statements, immediate reports, changes in holdings of principal shareholders, reports on private placements, tender offer filings,and reports of related-party transactions. Similarly,the system will handle the prospectuses, immediate reports, and monthly reports of mutual funds, as well as forms pertaining to portfolio management firms, etc. The project's primary objectives include: enhancing fair disclosure, i.e. the provision of immediate and equitable access to public information to the public at large; increasing the efficiency of supervision over the timeliness and reliability of information; and providing new tools to analyze and apply public information. From the first day of full operation in November,2003 and up to the end of 2005, thousands of authorized signatories registered for the system, and approximately 100,000 reports have been handled, including 50,000 reports in 2005 alone. (ISA 2006a, p. 135)
The Tel Aviv Stock Exchange (TASE) conducts regular audits of exchange members' operations. In addition, the capital and liquidity requirements of Exchange members are strict. (IMF 2001, p. 70)
28. Regulation should be designed to detect and deter manipulation and other unfair trading practices. |
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In 2001, the International Monetary Fund (IMF) found most of the Principles of Securities Regulation, adopted by International Organization of Securities Commissions (IOSCO) in September 1998, fully implemented by Israel, including Principle 28, for which no recommendations were issued. (IMF 2003, p. 6)
The Israel Securities Authority (ISA) was established to ensure the existence of an efficient capital market that is based upon adequate disclosure, fairness and giving each investor an equal chance. Amongst other things, the ISA fights such phenomena as securities fraud ("share manipulation") and use of inside information. (ISA website)
29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption. |
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In 2001, the International Monetary Fund (IMF) found most of the Principles of Securities Regulation, adopted by International Organization of Securities Commissions (IOSCO) in September 1998, fully implemented by Israel, including Principle 29, for which no recommendations were issued. (IMF 2003, p. 6)
The Israel Securities Authority (ISA) has built an early warning system which automatically receives financial data from the financial statements of corporations that is fed through the MAGNA (electronic reporting system), on the one hand, and various other data (such as data on trading) on the other hand. After a data check, and after plugging them into the relevant ratio formulas, the system decides if the data are in order or if a "red flag" is to be issued. (ISA 2005, p. 101)
30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk. |
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In 2001, the International Monetary Fund (IMF) found most of the Principles of Securities Regulation, adopted by International Organization of Securities Commissions (IOSCO) in September 1998, fully implemented by Israel, including Principle 30, for which no recommendations were issued. (IMF 2003, p. 6)
Tel Aviv Stock Exchange (TASE) Clearing House offers clearing, settlement and custody services and acts as a central securities depository. Its rules comply with the G-30 international standards. (IMF 2001, p. 70)
The Tel Aviv Stock Exchange Clearing House was established in 1966 by the members of the Tel Aviv Stock Exchange (TASE) and continues to be owned by them. The Clearing House's activities are regulated by its Articles of Association, in which the Clearing House's by-laws are delineated. According to the Articles of Association, there is no limitation to the number of members belonging to the Clearing House. (TASE website)
The Clearing House provides a wide range of services to its members, the listed companies and the capital market community. Its main service is the clearance of transactions in listed companies' securities and government bonds, which is done in the course of trading on the TASE. Each transaction results in a clearance transaction in the Clearing House. In addition, the Clearing House clears transactions which have been made off the TASE trading floor. (TASE website)
Settlement occurs when Clearing House members' accounts are credited (or debited) on the trade date and trades settle on the following day (T+1), according to the delivery verses payment principle. Most clearing house members are also members of the TASE and comply with strict capital and liquid assets requirements. A mutual guarantee mechanism enforces joint responsibility for all Clearing House members to ensure full settlement of all trades. (IMF 2001, p. 63)
The 2005 ISA Annual Report notes that an indirect amendment to the Securities Law [Amendment 29], was published on August 10, 2005 as part of the Bachar Act. Section 50A, of the Securities Law, was amended to allow the Tel Aviv Clearing House (TACH) to liquidate securities servings as collateral for obligations undertaken by a member of the Clearing House or by a third party towards the Clearing House, without having to obtain a court order or approval from the Execution Office(hahotzaal'poel),by means of selling them on stock exchange or by other reasonable commercial means. This provision is also applicable in cases in which the relevant party has given the Clearing House power of attorney to impart rights to the securities to a third party. This new ISA authority parallels that granted other entities engaged in capital market activities under the Law and comes in addition to the cases stipulated prior to this amendment which enabled the Clearing House to liquidate securities at its sole discretion. (ISA 2006b, pp,. 59, 60)
Israel