New ideas needed to boost ailing TASE

Efrat Peretz

Tel Aviv Stock Exchange CEO Esther Levanon must offer creative new ideas rather than recycling old unsuccessful ideas like extending the trading day.

The drying up of trading turnover on the Tel Aviv Stock Exchange (TASE) concerns most local players from the publicly traded companies themselves to regulators, brokers and underwriters. Each of them is voicing their opinions on the matter and proposing operative solutions on how to alleviate the situation.

Today TASE CEO Esther Levanon took advantage of a press conference to sum up 2012 to propose an old solution that did not succeed in the past - to extend the trading day by an hour to 5.30 pm. She believes this would increase trading volume by introducing an overlap for the many Israeli companies traded on Wall Street.

Trading turnover on the TASE has contracted enormously - by as much as 50% over the past three years, and the number of companies currently traded is smaller than at any time in the past seven years. More and more publicly traded companies prefer delisting and equity offerings have all but disappeared.

Thinner trading volumes are not unique to the TASE but are being experienced by most stock exchanges around the world. The plight of the TASE stems from a long list of factors from tougher regulations, to higher taxes on capital gains, to security fears, while foreign investors no longer see the TASE as an attractive target market since the MSCI redefined it as a developed rather than emerging market.

To date Levanon has failed to propose concrete solutions for dealing with the problem (such as for example the possibility of investing in short-sell deals, a practice which is popular on other stock exchanges in the developed world). Instead she has made do with marketing ideas, such as for example letting it be known that she is examining building new derivatives products although nothing has since been published on the matter.

TASE chairman Sam Bronfeld, for his part, has evaded all responsibility by saying something along the lines of "We're OK, it’s the foreigners who have brought about the situation."

Investment houses will pay the price

In light of all this, Levanon's latest decision to extend the trading day - which did not yield results in the past and is unlikely to do so now is most mystifying. The idea was first muted in 2005 when it was recommended to extend the trading day by 30 minutes to 5.30 pm to create an overlap with trading on Wall Street. Over time it became clear that there was no real advantage because it was not always clear on the opening in New York what will be the trading trend towards the close and investors in Tel Aviv preferred to make arbitrage gap adjustments at the opening of trade in Tel Aviv the following morning. Consequently trading times in Tel Aviv reverted back to earlier closing in December 2008.

Now Levanon once more wants to extend the trading day. Not only won't it achieve anything but investment houses - which are already struggling with excessive costs due to increased regulatory demands - would have to cope with extra salary and operational costs.

It's possible to argue about who is to blame for the catastrophic situation regarding low trading volumes but for the moment that is the less important issue. The burning question is what can be done. For somebody who earns NIS 2 million annually from the TASE members, we should expect more creative ideas for developing the domestic capital market and not simply the recycling of old ideas that did not succeed.

Published by Globes [online], Israel business news - www.globes-online.com - on December 23, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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