Globes again ranks Leader as Israel's top broker

Leader Capital Markets  / Photo: Eyal Izhar, Globes

Leader Capital Markets was followed by IBI and Bank Hapoalim ranked in second and third places by Globes Investment Magazine.

Leader Capital Markets, IBI and Bank Hapoalim took the first three places in the annual brokers’ survey of Globes Investment Magazine.

The results of the survey, which asked investment managers to rate the trading rooms that trade the lion's share of the securities on the Tel Aviv Stock Exchange (TASE), found that Leader takes top spot as the best broker for the second year running, followed by IBI Investment House (in second place for the second year), having previously led the Globes’ rankings for many years. Bank Hapoalim came third, leapfrogging four rivals from its position last year, including one bank, on its way to third place.

This year’s ranking was not only about the choice of Israeli institutional investors, but also the growing number of portfolio managers from hedge funds, prop traders, CFO’s of leading publicly traded companies and private investors. All of these players shared their preferences with us in three categories. In all, we built the ranking based on responses from 388 people, who were asked to rate the multiple market players according to our guidelines.

We made some changes to this year’s criteria. Rather than a “generalized” question of who’s the leading broker in the opinion of the respondent, we asked the participants to focus on the leading equity desk and the leading fixed Income desk. An analysis of the results pointed to differences between the desks, but the top line is that the three leading brokers in this year’s survey are the same three of the general survey. Only one difference was found between the second and third places in the bonds desk rating.

Two of the top three brokers are permanent residents at the top of Globes’ previous surveys: Leader Capital Markets, the leader of the past two years, and IBI, which came in second last year but previously had been ranked first. Leader wins the survey with the same team, whereas IBI made some reshuffling in its trading room leadership. The two are followed by a new entrant to third place, Hapoalim, which has made a big jump over all other banks and one non-bank broker.

In the 2018 survey, Leader was ranked first with 57% of the respondents designating it as one of the leading brokers out of nearly 150 respondents. IBI was ranked second with 46% of the votes. IBI was the leader of the 2017 survey when 50% of the respondents to Globes’ survey chose it as the leader. Leader came in second in 2017, with 48% of the votes. The third place in 2018 taken by Discount Bank with 40% of votes, while third place in 2017 was taken by Excellence, with 44% of votes.

Vote distribution in this year’s broker survey was broader. Leader Capital Markets led with slightly more than 48% selecting it as one of the top three in the general rating. IBI won second place with more than 35% and Hapoalim took third place with just under 35%.

Leader Capital Markets had changes in ownership several years ago, when a group of its employees, headed by then CEO Amit Vardi, acquired the brokerage and the investment banking operations from a public company controlled by Tzachi Apeloig. The change came in the wake of tense relations between Apeloig and the management of Leader Capital Markets. Leader Capital Markets has resumed normal operations with Shay Ben Yakar as CEO.

Ben Yakar and Sagie Poznerson, Leader’s VP and Head of Trading told Globes that in their view, becoming a leading broker depends “primarily on understanding the needs of customers. These needs evolve constantly and our job is to know where they need to be and get there ahead of them so as to provide them with the best services,” as Poznerson says. Ben Yakar adds, “This cannot be done without credibility. Credibility and transparency are two things that our customers value the most. They need to know where our interests lie. We are invariably transparent and open with our customers.”

This statement, and hence Leader’s ranking as well, are probably the result of Leader being the only broker that does not compete against its own customers: Leader is a pure Sell Side Investment House. We don’t have asset management activities, or prop accounts. “Not competing against our customers is one of our key principles,” say Ben Yakar and Poznerson. They add, this is our unwavering ideology.”

You are working in a price-oriented market. Are you guided by any other values?

Poznerson: “It’s anything but price. We work at market prices; of course there is a clear differentiation from discount brokers. We provide our customers a full range of services around the clock, and more importantly, added value.

What do you think about retail brokerage? Is it a market failure?

Poznerson: “We are not a player in this market. Having said that, take into consideration that if private brokers are an important market player in the institutional segment of the market they are almost absent in the retail side, the retail market has not reached an equilibrium yet.”

What do you think about the stock exchange reform and the future of the TASE members and trading?

Ben Yakar: “The stock exchange has become a private business but it is still a national resource that serves the entire Israeli economy.

Poznerson: “I welcome the developments at the stock exchange. The management is trying to change things rather than sit idle. It realizes that the world is moving forward and acts accordingly.”

Ben Yakar: “TASE is now offering new services and products, which are interesting. It is also working on opening Israel to the rest of the world, for the benefit of companies and members alike. They are working hard to make progress and it shows.”

Are you concerned about a growing negative trend in trading volumes?

Poznerson: “No. The market has a positive trend. Some of the developments that took place in the very large companies have influenced liquidity, but this is not about market conduct. Overall market sentiment and players’ appetite continue to improve.”

Ben Yakar: “Unfortunately, the number of IPOs on the TASE is limited, even insufficient. On the other hand, we are seeing stakeholders cutting back on their holdings and distributing shares. This helps liquidity and the market. It was done by Aloni Hetz recently and previously by Paz and Shari Arison in Hapoalim. I think this trend will continue.”

IBI: a regular place at the top

IBI Trading Services too has experienced its share of changes recently. In 2018, the firm found itself with an unusually high loss of NIS 26 million after several customers of the stock exchange’s members incurred losses on their investments in Wall Street’s Volatile Index (VIX). The loss influenced the results of IBI’s stock exchange member, whose results would have been strong had this not happened. IBI reshuffled at the top, naming Livnat Mizrahi-Rinsky as CEO of the stock exchange member controlled by IBI Stock Exchange Services instead of Julian Assous.

Livnat Mizrahi-Rinsky, what does it take to become a brokerage leader and what do the customer and the market need from a broker?

“The most important thing is to have a leading team of traders, highly professional and experienced. Ours is one of the best and most seasoned teams on the market, with very strong analysts. This is the reason we generate added value for our customers. Brokers’ success is also measured by investment ideas and innovation, maintaining a strong deal flow and being able to sustain it for the long run. A strong backing is important too, which we have from the investment house.”

Is the market about price only or are there other values that guide the institutional customers and you?

“We are measured by much more than price. The important thing is to be knowledgeable about the markets and close deals.”

What do you think about the reform in the stock exchange and its future?

“The structural changes and the upcoming issuance, as well as the moves that were taken by the CEO in the past few months will start to produce results in the coming year. The stock exchange is opening up to new members, perhaps even Nostro companies. This would lead to two processes: possible increase of the trading turnover but also possible erosion of the share of existing exchange members."

“In addition, instead of encouraging and facilitating the work of the local exchange members, the Israeli regulator is lowering the entry barriers to foreign companies, thus increasing the competition, which is already complex. The stock exchange is introducing new instruments, which is good, and even more instruments are required, such as derivatives.”

What do you think about retail brokerage and the price differences between the players? Is this a market failure?

“The stock exchange published the calculator a year ago, exposing large differences in the commissions of banks versus non-banking entities. However, these findings did not lead to any customers defecting from the banks to the non-banking. The reason for this is intricate: for one thing, the regulation allows the differences. On the other hand, I do see new attitudes in the Israel Securities Authority. But these processes will take time. As long as transition barriers remain intact, the number of customers who switch brokers will continue to be insignificant.”  

Hapoalim ranked as the leading bank in Globes’ survey

Which brings us to the bank that came in third in Globes’ broker rating, and that is also the leader of the brokers owned by banks: Hapoalim. Dr. Naomi Shpirer-Belfer, head of trading room and brokerage at Hapoalim, takes pride in having 40% women, a relatively high proportion in this field.

What does it take to become a brokerage leader? What do the customers and the market need from a broker?

Shpirer-Belfer: “It is all about the human capital and the professional level of the traders. As a large bank, we have a broad range of customers. This gives us a good understanding of the market and the changes in needs. Hapoalim is very different from what it used to be several years ago. We have not been sitting idle. We improve the technology and the connection with international markets, among others in foreign securities. We also have a broad deployment of foreign brokers and market makers as well as market making in Israeli bonds inside the Bank. Our control and operating systems are professional and the customer can sleep well at night.”

Is it a price-focused market? Or are you and the institutional customers guided by other principles?

“It is not only about price but about the added value of professionalism, service and auxiliary product. We see the customers’ needs and they extend far beyond price, from the deal to all other services we provide as a bank.”

What do you think about the reform in TASE and its future?

“I share the hope that the trading volumes will grow considerably and that more companies will trade on the TASE. After all, we all have the same goal of more activity in Israel's capital market.”

Are you concerned about the negative trend in TASE’s turnovers?

I see no reason for the trading turnover to be impacted. I am not pessimistic about the future.”

Time to disclose the trade generated by each member

The top three are followed by six brokers, with small differences between them. Taken together, they represent around one-quarter of the votes. These are the three other investment houses that also have holdings in a member of the stock exchange: Meitav Dash, Excellence and Psagot, and the three of the five remaining banks - Discount, Mizrahi Tefahot, and Leumi.

Far below, the list is completed by First International Bank and Union Bank. To the extent that one can still judge by the distribution of shares on the TASE, last carried out in 2015, the First International Bank has had the largest activity on the exchange throughout the years, followed by Hapoalim, Leumi and Mizrahi Tefahot. The others have received smaller share, which are pretty similar. The real numbers are not public and changes may have taken place in the meantime, but the banks’ share of the “real” trading is still very dominant today, probably because the circumstances have not changed much.

Meanwhile, brokerage is undergoing consolidation with the number of players declining over the years. Most of the market is still handled by banks with just a few trading rooms that are not owned by banks. In fact, IBI, one of the three leading brokers in Globes’ survey, is the result of a merger between two non-banking brokers: IBI and Migdal Capital Markets.

A decisive majority of the brokers covered by the survey are members of the TASE, except for Leader. Recently, as a result of changes in ownership and as part of preparing the TASE IPO, a remote member has joined the stock exchange - Jefferies Investment Bank, which is also underwriting TASE’s IPO.

At any rate, we believe it is high time to change the reporting on the true trading figures at TASE, which today are disclosed to members of the exchange only. This is because TASE is no longer owned by the banks but by five foreign investment funds, headed by American-Australian Manikay Fund, which is planning to issue stock. In other words, the Stock Exchange will soon be required to provide the same level of transparency it demands from companies traded on the TASE.

Hence, it is time for the TASE to publicize the figures it quietly shares with each TASE members. Everyone needs to know the trading volume of each member and its share of the general turnover. We believe such information would lead also to price competition. Globes’ survey is not a substitute to truthful and complete reporting.

What are the investment managers after?

The key arguments for the choices by the respondents, which were repeated in different wording in respect to many of the candidates, included “professionalism and service orientation”, “availability and information”, “slow and strong research of events”, “good connection with the market alongside strong management” and “credibility, transparency and protecting customers’ interests” as well as “volume of transactions and speedy execution”.

The respondents also highlighted positive parameters such as “the ability to resolve unexpected problems”, “proposing opportunities for transactions” and “low price”. These are the points which are important for the investment managers who work with the brokers. These descriptors were associated with nearly all brokers, more frequently the higher the rating was.

Rather rare arguments such as “a range of financial instruments” or simply “pleasant to work with and excellent interpersonal relations” were cited too in respect to Leader, as well as “fast response to calls and strong availability of the traders”.

Easier for the institutional investors: the commissions in the retail markets are much more expensive in the banks

Last August, as the TASE became a regular for-profit company, owned by foreign entities and its employees, and one which is even planning an IPO (rather than being owned by the Exchange’s members and the banks), TASE disclosed information that many had not been aware of: there are huge price differences for brokerage services between the banks (more expensive) and non-banking institutions (much cheaper).

The TASE also published a comparative calculator for working out the management fee collected by the Exchange’s members on investment management from the public at large, rather than from institutional investors. These commissions include the custodian fee and the buy and sell commissions. The rates are based on the scope of funds managed by the public with one common denominator shared by all groups: the huge differences in the commissions collected by the banks, which leverage their status with retailer clients. These commissions are significantly higher than the ones collected by the investment houses.

We also pointed out that the investment houses compete among themselves with commissions that differ very little, whereas variability is much stronger among the banks. The picture has not changed since.

In fact, the calculator publicized something that had been known for years and could be discovered by one phone call. Still, the majority of the public chooses to trade via the banks, while the lower prices offered by non-banking TASE members attract only “semi-professional” private investors, not the public at large.

This reality has been noticed by the Israel Securities Authority, headed by Anat Guetta, and by the Israel Competition Authority (formerly the Antitrust Authority) headed by Adv. Michal Halperin. Each one has launched a review of the trading services offered to the public. The findings were published in a joint document last November with a joint team for increased competition in brokerage services submitting recommendations. The report pointed out that 97% of the private trading services customers are with the banks, even though the latter collect much higher commissions.

Moreover, the regulators discovered that the share of non-banking players, net of their share in the retail customers and institutional investors, has been decreasing steadily since 2009 and that there are large differences between TASE commissions and the commissions paid by the end investor.

In view of these findings, the Israel Securities Authority and the Israel Competition Authority have drafted a series of recommendations to address the barriers. Meanwhile, anyone who seeks to pay less would be wise to call several brokers and negotiate. This is as true in finance as in any other area of life.

This is how we ranked the brokers:

This is the fifth trading rooms survey held by Globes Investment Magazine. The 2019 survey included 388 investment managers from hedging funds, Nostro account traders, finance managers from some of Israel's real corporations as well as several private traders. The respondents were asked to choose three out of 11 candidates in three categories, the general category, the stock desk category, and the bonds desk category. The final results represent an equal weighting of the responses of all survey participants.

Published by Globes, Israel business news - en.globes.co.il - on July 9, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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Leader Capital Markets  / Photo: Eyal Izhar, Globes
Leader Capital Markets / Photo: Eyal Izhar, Globes
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