Clearing, Registration, Custody
The Tel Aviv Stock Exchange Clearing House was established in 1962. It had been owned by members of the Exchange and was legally separate from it. However, since it was operated by exchange employees and its activities were part of the Exchange’s operations, the TASE formally assumed ownership of the Clearing House in 1996.
There are 23 members of the Clearing House, 12 of which are banks including Israel’s central bank, the Bank of Israel.
The Clearing House provides clearing services for stock and Government bond transactions made on the TASE and for those executed off the floor of the Exchange as well.
Clearing is a highly efficient operation. It consists of a computerized bookkeeping entry which permits clearing to take place on the same day on which a transaction is executed. There are no stock certificates which are physically transferred between buyers and sellers.
The real owner of a security is not registered on a company’s books. Rather, securities are registered by one of four nominee companies owned by either Bank Hapoalim B.M., Bank Leumi Le-Israel Ltd., Israel Discount Bank Ltd. or United Mizrahi Bank Ltd.
These nominee companies deposit share certificates with their parent banks and indicate on their books that the TASE Clearing House is the registered owner.
On the books of the Clearing House, the members holding the shares are registered as owners. It is only on the books of the Clearing House members that actual shareholder names appear. All transactions must be cleared by a Clearing House member into a custody account for its customers, and the actual securities are held in the TASE Clearing House. TASE members who are not members of the Exchange (there are three) must use a Clearing House member for clearing transactions.
There is no direct contact between company and shareholder. Therefore, it is incumbent upon investors who desire company information and proxy materials to require their broker to supply all such information on a timely basis.
Other functions of the Clearing House include crediting members on behalf of their customers with dividends, interest, bond redemption, share distributions, etc. The Clearing House will collect the amount due from the companies and transfer it to the member.
All Clearing House members must mutually guarantee Clearing House debts. Members are supervised by the TASE. Member banks are also regulated by the controller of banks.
Regulation
The Securities Authority is the main body charged with oversight of the securities industry. Its responsibilities, similar to the US Securities and Exchange Commission, are to protect shareholders’ rights and uncover stock manipulation, fraudulent acts and other violations of the securities laws. It also oversees regulations, governing investment advisers and portfolio managers.
Backed by tougher legislation, the Securities Authority has become more vigorous in recent years. The Office of the State Attorney at the Ministry of Justice is responsible for prosecuting violations of the law.
Disclosure
Material events must be reported to the Securities Authority and the TASE no later than one day after their occurrence. The TASE will immediately disseminate reports to member firms and to subscribers to the TASE’s distribution service.
Publicly traded companies on the TASE are required to publish annual reports and file them with the TASE and Securities Authority. These reports must contain audited financial statements. A report from the directors is due within four months of the close of the company’s fiscal year. As Israeli companies are required to be on a calendar year basis, audited reports must be filed by April 30.
Quarterly reports must be filed within two months of the close of each quarter and must contain financial statements that have been reviewed, although they are not required to be audited by an independent accountant.
Regulations also call for companies to disclose transactions with interested parties. This is aimed at mitigating conflicts of interest that could develop because many firms are closely held.
Investors who acquire 5% or more of a firm’s stock must disclose such to the company. The Securities Authority and the TASE must be informed of any subsequent transactions by an investor who holds 5% or more of a company’s shares. Investors intending to purchase 10% or more of a bank must receive authorization in advance from the Bank of Israel.
Accounting practices
Israeli accounting principles are similar in most respects to Generally Accepted Accounting Principles in the United States. The principal exception is accounting for inflation.
Income and balance sheet accounts are adjusted for changes in purchasing power as expressed in the Israeli Consumer Price Index (with the exception of cash, accounts payable and accounts receivable). In order to maintain comparability, prior-year statements are also adjusted. Some companies translate shekel accounts into dollars. Firms that trade in the US adjust their financial statements based on the exchange rate of the US dollar.
American Depositary Receipts
Several Israeli companies that trade on the Tel Aviv Stock Exchange are available to investors via American Depositary Receipts (ADRs).
ADRs available for TASE-traded Israeli companies
| Security | Symbol | Shares Per ADR |
|---|
| American Israeli Paper | AIP | 1 |
| Aryt Industries | ARYTF | 1 |
| Blue Square | BSI | 1 |
| Elbit Ltd. | ELBTF | 0.3 |
| Electrochemical Industries (Frutarom) | EIF | 1 |
| Elite 1 | ELEIY | 3 |
| Elite 5 | ELEDY | 5 |
| Elron Electronics | ELRNF | 0.3 |
| Eshed Robotec | ROBOF | 0.5 |
| Israel Land Development | ILDCY | 3 |
| Koor Industries | KOR | 0.2 |
| Matav - Cable | MATVY | 2 |
| Nice | NICEY | 1 |
| Tadiran | TAD | 6.2 |
| Teva Pharmaceutical | TEVIY | 0.1 |
Keeping Updated in English
Electronic
Both Bloomberg and Reuters carry extensive and frequently updated information on the Israeli economy and on individual stocks traded in Tel Aviv and the US Both services have daily market reports, news on company developments, and analyst and brokerage recommendations. Company profiles and financial data on most US-traded Israeli stocks are available on S&P MarketScope.
Globes, Israel’s leading Hebrew language financial newspaper, maintains an English language Internet website called the Israel Business Arena. Globes covers daily market action as well as business and company developments.
Print
Many US and European investment banking firms active in Israel report on the Israeli economy and produce research reports on companies followed by their analysts. Until recently, these reports focused almost exclusively on US-traded stocks. However, TASE-traded firms are beginning to be followed with greater frequency.
The Giza Investment Letter is published by Giza Group, an independent Tel Aviv-based investment banking firm. This highly regarded advisory newsletter covers both TASE and US-traded stocks with an emphasis on high-growth technology issues.
Pacific-Mediterranean Investments, based in Herzliya, publishes English-language information covering economic and company developments of US and TASE-traded securities.
English-language economic analysis is also available from Bank Hapoalim, Bank Leumi and other large banks. Several of the large banks publish company reports on an irregular basis.
Buying and selling shares on the TASE
Foreign investors may purchase securities on the Tel Aviv Stock Exchange without restriction.
The simplest way for overseas investors to make transactions on the TASE is through their local broker. Most US brokerage firms have relationships with Israeli banks or TASE-member brokerage firms which will effect requested transactions. This eliminates the need for an individual to open new bank and brokerage accounts directly.
Investors may nevertheless prefer to have their own accounts with Israeli banks or brokerage firms. This course could have advantages in securing research information and asset management services.
Foreign investors who deal directly with a bank or brokerage firm must open a separate account with an Israeli bank. When securities purchases are made through a TASE member firm, the foreign currency is converted into shekels and the bank account is debited. When sales are made, the bank account is credited in shekels. Investors may continue to hold the proceeds in shekels or convert them back into foreign currency. Foreign investors may repatriate proceeds from an investment, including profits, provided that the investment was originally made in foreign currency from abroad.
It should be noted that small commission charges will be incurred for changing foreign currency into shekels and converting shekels into foreign currency.
Commissions on stock transactions
Commission rates to buy and sell securities will vary according to the size of the transaction. Commissions on most transactions are generally in the area of 0.6% to 0.8%. However, brokerage customers can negotiate lower commissions on large orders, reducing rates significantly.
Dividends
Non-resident shareholders are liable for taxes on dividends of up to 25%, which will be deducted at the source. The actual rate is dependent on double taxation treaties and the source of the dividend. If it is attributable to a government-designated Approved Enterprise, the maximum tax withheld is 15%.
Capital gains taxes
Profits made from securities traded on the Tel Aviv Stock Exchange are generally not subject to capital gains tax in Israel. Certain tax liabilities may exist on profits made by dealers in securities or if an investor held 10% or more of the voting power of a company in the year prior to the shares’ disposition. Investors should consult a competent tax adviser regarding the tax consequences of specific investments.
Standard & Poor's Review of Israeli Public Companies and Financial Institutions