Tel Aviv Stock Exchange - background

Indexes

Comparative Performance

(Dollar yields)

The performance of TASE-traded stocks is measured by a variety of indexes:

The TA-25 Index: This index is comprised of the 25 companies with the highest capitalization among the most actively traded 75 stocks, and which have a public float of at least 22.5%. It is a weighted index with a maximum weighting of 9.5% given to any stock. The TA-25 companies and their weighting are shown on the following page.

The TA-100 Index: This is a price-weighted index of the 100 stocks with the largest market capitalization among the most actively traded 200 stocks, which have a public float of at least 15%. Maximum weight to any stock is 9.5%. It is frequently cited by the press as an indication of how the market has performed.

The Tel-Tech 15 Index: This index reflects the performance of the 15 largest shares on the Tel-Tech Index. The index is weighted by the market capitalization of its components, but is capped at 9.5%.

The Tel-Tech Index: This index reflects the performance of listed companies from the electronics, computer and life science sectors and publicly traded venture capital funds. The index is weighted by the market capitalization of its components, but is capped at 7.5%.

The General Share Index: This is a price-weighted index of all shares traded on the TASE. It gives the best indication of the overall performance of the market.

Tel-Div 20 Index: In July 2006, the TASE launched the Tel-Div 20 dividend index, comprised of 20 shares listed on the TA-100 that offer the highest annual dividend yield. The Tel-Div 20 will be updated twice a year, along with other leading indexes on the TASE, based on the dividend yield of companies over the previous 12 months.

Yeter Index: This index is comprised of all stocks with the exception of the TA-100. It is the principal measure of the performance of small-cap companies.

Industry Indexes: The TASE computes several indexes according to industry: Real Estate-15 Index, Finance-15 Index and the Banks Index.

TA- 25 Companies
(June29, 2006)

Source of data: TASE

¹Adjusted weight according to 9.5% limit

Short selling

Short selling of shares, bonds and T-bills is permissible under the rules of the exchange. Short selling and margin accounts for provident funds are permissible without adverse tax consequences. The TASE publishes its weekly short-selling data on its Web site. In May 2006, the opening short positions were: NIS 2.8 billion in shares, and NIS 2.6 billion in bonds.

For more information: http://www.tase.co.il/TASEEng/TradingandClearing/Trading/ShortSelling/

Off market block trading

Block trades in off-the-market direct-negotiated transactions are permissible. Prearranged ("Jumbo") trades are trades in which buyer and seller agree on the details before submitting orders to the trading system. The clearing process is conducted through the TASE Clearing House.

Derivative markets

The Tel Aviv Stock Exchange trades put and call options and futures contracts on the TA-25 Index, the TA-Banking Index and the local currency (shekel) exchange rate versus the US dollar and the euro.

Short-term interest rate futures are available as well. In 2006, the TASE introduced bond futures, and currently offers two types of contracts: medium-range bonds (three to six years) and long-term bonds (six to eleven years).

Trading in TA-25 Index options continued to increase in the first half of 2006. An average of 313,000 contracts was traded daily, compared with 258,000 contracts in 2005. An all-time record of 818,000 contracts per day was set in July, 2006.

For more information: http://www.tase.co.il/TASEEng/MarketData/DerivativesMarket/

TA-25 Options
(1995-June 2006)

Clearing, registration, custody

The Tel Aviv Stock Exchange Clearing House was established in 1962 and is owned by members of the Exchange. The Clearing House is registered as a limited company, separate from the TASE, although it operates as an integral part of the Exchange. There are 24 members of the Clearing House, 12 of which are banks, including Israel’s central bank, the Bank of Israel.

The Clearing House provides clearing, settlement and custody 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 Mizrahi Tefahot 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, with the actual securities held in the TASE Clearing House. TASE members who are not members of the Clearing House 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 redemptions, share distributions, etc. The Clearing House collects the amount due from the companies and transfers 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 at the Bank of Israel.

In September 2001, the TASE Clearing House was admitted as a participant of the US Depository Trust Corporation. The DTC account, which was activated at the beginning of 2002, improves cross-border processing of trades in dual-listed shares and repositions securities that are dual-listed on a free-of-payment basis for settlement of TASE trades in the TASE Clearing House system. The fully automated book-entry method replaced the previous method of physical delivery of shares from the US to Israel, thus reducing transaction costs and substantially shortening the settlement cycle.

For more information:

http://www.tase.co.il/TASEEng/TradingandClearing/ClearingandSettlement/Overview/

Regulation

The Israel Securities Authority (ISA) 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 publish the reports on the TASE Web site: www.maya.tase.co.il.

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 three 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 March 31.

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. Firms are also required to publish dividend payment data and any changes in key executive positions.

Investors who acquire 5 percent or more of a firm’s stock must disclose this to the company. The Securities Authority and the TASE must be informed of any subsequent transactions by an investor who holds 5 percent or more of a company’s shares. Investors intending to purchase 10 percent 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 had been in the method for accounting for inflation. Through 2003, income and balance sheet accounts were 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 were also adjusted.

With the adoption of Israeli GAAP Accounting Standard No. 12: "Discontinuance of Adjusting Financial Statements for Inflation" of the Israel Accounting Standard Boards on January 1, 2004, all companies are required to revert to nominal reporting.

Dual listings/Arbitrage

Several Israeli companies that trade on the Tel Aviv Stock Exchange also trade on overseas exchanges either directly or through American Depository Receipts (ADRs), American Depository Shares (ADSs), Global Depository Receipts (GDRs) or Global Depository Shares (GDSs).

In October 2000, after a decade-long effort spearheaded by the Tel Aviv Stock Exchange, the dual-listing law took effect. This legislation enables Israeli companies listed on US markets to dual-list on the TASE with no additional regulatory requirements and at no cost. The process significantly shortened the ADR conversion period, and reduced the cost of executing each arbitrage transaction. Arbitrage possibilities exist on dual listings.

This regulatory regime has made it simple for companies to dual-list. As a result, the number of dual listings has increased, and international investors are able to trade US-listed Israeli shares in

Tel Aviv at the TASE's low costs and trading hours. Dual-listed companies get an additional trading arena for their shares and a new investor base.

Dual-Listed Companies

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 execute requested transactions, thereby eliminating 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 security 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 converting foreign currency into shekels and converting shekels into foreign currency.

Commissions on stock transactions

Commission rates to buy and sell securities vary according to the size of the transaction. Commissions have declined in recent years due to increased competition in the capital market. Brokerage customers can negotiate lower commissions on large orders, reducing rates significantly.

Dividends and capital gains taxes

In July 2005, the Knesset approved a multi-year tax plan aimed at reducing the tax burden, establishing uniform tax rates in the capital market, encouraging investment in Israel and expanding the tax base. For individuals, the plan imposes a 20 percent tax rate on dividends, interest and capital gains. In addition, foreign residents enjoy a tax exemption on capital gains if the individual is a resident of a country with which Israel has a tax treaty. The exemption is valid from July, 2005 through 2008.

Contacting the TASE

Address: 54 Ahad Ha’am St., POB 29060, Tel Aviv 61290 Israel

Tel: 972-3-567-7405

Fax: 972-3-510-5379

Internet: www.tase.co.il

Email: info@tase.co.il