Leader leapfrogs IBI to become Israel's top broker

Israel's top brokers Photo: Eyal Izhar
Israel's top brokers Photo: Eyal Izhar

The 2018 "Globes" Brokerage survey saw Leader Capital Markets move into first place.

The Globes Investment Magazine 2018 brokerages (dealing rooms) survey stirred up exceptional interest this year among Israel's capital market players. "The brokers flocked in large numbers to participate in the survey," one of the survey's participants told us. He was right: Almost 150 clients and employees from the investment community responded to the survey this time, and many of them even said that they were eagerly awaiting the results.

As with the previous surveys, we asked market players which dealing room they thought was the best among the dealing rooms of the eleven Israeli members of the Tel Aviv Stock Exchange (TASE) operating in the sector, what they thought were the important criteria for selecting a broker to work with, and what the level of competition in the Israeli brokerage market was. After weighting the responses of the survey’s numerous respondents, we obtained surprising results this time.

Firstly, there was an upset in the ranking of the outstanding brokers: after winning first place in the past three consecutive surveys, the dealing room of IBI Israel Brokerage and Investments - the brokerage arm of IBI Investment House - had to make do with second place this time, being the choice of 46% of all the survey's respondents. First place in the brokers' survey - chosen by 57% of respondents - went this year to the dealing room of Leader Capital Markets, which won second and third place, respectively, in Globes’ two previous surveys, in 2017 and 2013.

The reasons cited by the survey's respondents for choosing Leader Capital Markets - through which, among others, Altshuler Shaham Investment House makes its investments - as the best dealing room are that Leader offers its clients an "outstanding deal flow"; works with "an excellent team of traders”; offers "analysis that also focuses on smaller companies”; as well as “high quality service, fairness, customization, focus, and quality research." The respondents added that Leader Capital Markets is "a highly professional broker, has a good research department, brings large deals to the table and offers good ideas."

The reasons for ranking the dealing room of IBI - in which Migdal Capital Markets is a minority shareholder - second in the survey, were cited as: "one of the best deal flows in the market, introducing high quality offers and research," as well as "familiarity with investors and service awareness." Some of the survey's respondents also said that IBI has a "good bonds team and the beginning of a collaboration with international investment bank Morgan Stanley." They added that its dealing room demonstrates "strength in Israeli stocks."

"Discount has made the best improvement this year”

Another surprise in the "Globes" survey was in third place, which went this time to the dealing room of Israel Discount Bank, ranked last in the previous survey (tied with Union Bank). According to 40% of the market players, Discount Bank currently manages the best dealing room among the bank's dealing rooms. Excellence Nessuah Brokerage Services, which ranked third in last year's survey, fell to fourth place this year, albeit by a small margin from third place, after being selected by 39% of the participants.

The survey's respondents, who ranked Discount Bank's dealing room among the top three brokerages, said Discount Bank offered clients "good service, was always available for quotes and questions, demonstrated high professionalism, and maintained a high frequency of updates." Another argument for choosing Discount Bank's dealing room was its "excellent research department." Some of the survey's participants said that Discount Bank made, "without question, the best improvement this year."

Unlike Discount Bank, the other Israeli banks that manage dealing rooms were ranked among the last by the survey's participants: Bank Hapoalim was in seventh place as the choice of 20% of the respondents; Bank Leumi was ranked in eighth place with 17%; and Mizrahi Tefahot Bank, First International Bank, and Union Bank tied in ninth place as the choice of a mere 8% of the respondents.

Banks are the key players in Israel's brokerage market and manage most of the domestic trading in securities. According to TASE data, the banks managed approximately 76% of the trading in stocks and 87% of the trading in bonds in 2017. Despite these figures, according to the "Globes" survey, Discount Bank is the only bank in the top dealing room rankings.

The "Globes" survey covered only institutional or business entities in the brokerage market, and did not include the retail sector, in which the banks are the main players. Most small clients in the market carry out securities transactions through the bank that manages their account, and those who open a separate account with a private brokerage are usually large or more professional clients. Most of the financial institutions, which manage huge investments and whose every deal is high-volume, also work with the banks' dealing rooms, because of their intricate relationships that also include the financial institutions' operating and product distribution services. However, most of the survey's respondents said that the private brokerages were actually more professional.

The respondents who nonetheless chose Bank Hapoalim as one of the outstanding dealing rooms explained that, inter alia, Bank Hapoalim's dealing room offers "high and professional availability" with a "strong bonds and interest rates desk." As for Bank Leumi, the respondents that selected it said that its dealing room offered "a good deal flow in stocks," a "large trading team and improving research."

Consolidation has weakened market competition

The number of players in the brokerage market shrank somewhat over the past year, after the Bank of Jerusalem sold its brokerage arm to Meitav Dash Investments in October 2017 (by the way, Bank of Jerusalem acquired the brokerage activity of Clal Finance just five years ago). Bank of Jerusalem has remained a TASE member, but without brokerage activity. This acquisition is part of the consolidation process, which has been underway in the Israeli brokerage market in the past few years, as eroding profit margins and declining trading volumes and offerings on the TASE prompted several players in the market to cease operating or to merge with other players.

Judging by the results of the "Globes" survey, it seems that the consolidation trend has weakened competition in the domestic brokerage market. Almost half of the survey's participants (47%) that were asked to rate the level of competition in the market said it was low or moderate, compared with only 35% of the respondents in last year's survey. Although, this time, a majority of the participants (54%) responded that competition in the market was high or very high, in the previous survey, conducted in May 2017, the proportion of respondents saying this was clearly higher (65%).

The retail sector of the brokerage market, which, as mentioned, was not covered in this survey, the level of competition is considered far lower, because most of the clients are satisfied with the services provided by the bank that manages their accounts and do not carry out a market survey or consider switching to private brokerages.

The strategic plan that TASE CEO Ittai Ben Zeev has been leading over the past year, which included adding new TASE members, was meant to increase competition in the brokerage market and encourage brokers to offer their clients more advanced technological services, including by affiliating with foreign parties. However, no change has yet been felt - it may perhaps occur after the sale of the controlling shares in the TASE is closed and the Exchange will have a new external shareholder which is not a current TASE member. Time will tell whether the new owners will also bring new TASE members.

Professionalism is more important than fees

What are the criteria that are most important for dealing room clients when selecting somebody to manage their investments? The responses obtained in the "Globes" survey indicate that the most important factors are related to the human aspect of dealing rooms. The top-ranked criterion among the survey's respondents - the parameter that received an average rating of 8.7 on a scale of 1 to 10 - was professionalism. The second most important criterion, according to the survey, in the choice of a dealing room, is its availability to clients - the parameter scored an average rating of 8.3.

A prominent criterion in the choice of a dealing room, the importance of which in the eyes of the survey's participants rose compared with last year, is the dealing room's research. This time, this parameter scored an average rating of 8.1, compared with a rating of 7.4 in the survey conducted a year ago. Indeed, this time, many participants cited the quality of the research department as a reason for ranking the dealing rooms of Leader Capital Markets, IBI, and Discount Bank as the best.

The next two parameters in the choice of a dealing room, which were ranked fourth and fifth by the survey's respondents, is the deal flow (with an average rating of 7.8) and the quality of quotes (7.6). Other parameters rated as important are access to distributions (average rating of 6.9), specialization (6.8), introducing quotes (6.6), and turnover (6.4).

Fees and commissions, which one would have thought would be an important factor for clients when choosing a dealing room, was found to be less important, according to the survey's results. The fees parameter received an average rating of only 6.1 this time, placing tenth among the 12 we covered in the survey. Only two criteria were rated by the survey respondents as less important than and commissions: investments overseas (which received an average rating of 6), and advanced products (an average rating of only 3.8).

"A good broker is measures by creating value for clients"

The top three dealing rooms in the "Globes" survey were very pleased by the survey's results. Brokerage firm Leader Capital Markets, whose dealing room was chosen as the best by 57% of the survey's respondents, is run by chairman Amit Vardi and CEO Shay Ben-Yakar. Leader Capital Markets changed hands two years ago, in a transaction in which a group of employees led by Vardi, the company CEO at the time, acquired control from Leader Investments, headed by Yitzhak Apeloig. Winning first place in the "Globes" brokerages survey demonstrates that Leader Capital Markets has strengthened its standing in the market under its new owners-executives.

Leader Capital Markets said, "Winning the brokerage survey makes us very happy and constitutes a vote of confidence by the market in the hard work that our team of traders and analysts puts in every day. The Leader Capital Markets dealing room works with the most professional clients on the TASE: institutional clients, local and foreign banks, hedge funds, and firms, which is why we always demand the highest standards from ourselves. A good broker creates value for the clients, whether through deal flows, investment ideas, research, access to block trades, and, of course, ongoing service. That is why nothing is more pleasing than knowing our clients think we have met the standards.

“Over the past year, we have successfully increased our operations in all current operating segments, and at the same time, we have developed new operating segments. Market conditions and our relationship with institutional clients and corporations in Israel have brought the stock distribution domain to new heights, and foreign equity operations (where we are the introducing broker for Jefferies) was an important breakthrough in terms of the added value we bring to the table. We hope that, in the coming year, we will continue to improve, renew, and enhance our cooperation with clients."

IBI Israel Brokerage and Investments, whose dealing room reached second place in the "Globes" survey this time, had a new CEO take over this month, Livnat Mizrahi Rinksy, who succeeded Julian Asus, who had completed a seven-year term in the job (and moved to Migdal Capital Markets). It had strong results, which were marred by the derivatives trading scandal on the Wall Street “Fear and Greed Index." Although IBI was ranked first in the previous surveys, it was pleased with the survey's results, stating, "We are pleased to continue to lead the institutional brokerage sector in Israel. Brokerage is a core business at IBI. Our success is attributable to the best team of traders in the market, a quality research department, and the close and continuous relations with institutional investors, companies, and the controlling shareholders. We are proud of the vote of confidence by Israel's large financial institutions, which ranked us first for professionalism, service, and the quality of research we provide them at the IBI dealing room."

Rafael Weslezem manages Discount Brokerage at Discount Bank, whose dealing room rose to third place in the brokerage rankings. Discount Bank dealing room manager Yaakov Gedenko and securities trading manager Amit Roth are responsible for the trading room. Naturally, Discount Bank is also very pleased by the survey's results. In response, Roth told "Globes", "In the past few years, Discount Bank has invested many resources in developing the brokerage business. We vow to continue to develop, improve, and maintain the high level of service in order to continue to win the confidence of our clients in both the next transaction and in future surveys. We thank all our clients for their vote of confidence; it should not be taken for granted.”

How "Globes" brokerage survey was conducted

The "Globes" 2018 Dealing Room Survey is the fourth conducted by "Globes." This year’s survey, which attracted unusual interest among brokerage players, attracted about 150 market participants, including clients, employees and managers of the 11 dealing rooms operated by Israeli members of the TASE, which include five investment houses - Leader, IBI, Excellence, Meitav Dash and Psagot, and six banks - Hapoalim, Leumi, Mizrahi Tefahot, Discount, First International Bank and Union Bank.

In the survey, we asked participants to choose the three best trading rooms in Israel and explain their selection. Each respondent selected three out of 11 dealing rooms. In the second question on the survey, the respondents were asked to address 12 parameters in selecting a dealing room and indicate the significance of each. The score was on a scale of 1 to 10, with 10 being the highest. The 12 parameters examined in the survey were professionalism of the contact person, availability, research, transaction deal flow, quality of quotes, access to distributions, specialization, initiating offers, turnover, fees and commissions, overseas investments and advanced product offerings.

The last question on the survey sought to examine how the players in the local brokerage market viewed the level of competition in the market. The participants were asked to indicate the level of competition on a scale of 0 to 4, with 0 indicating no competition and 4 reflecting a very high level of competition. The final results, as presented in Globes' Investment Magazine, equally weigh the responses of all the participants in our survey.

Leader Capital Markets: "The results are pleasing, but not surprising"

After years of upheaval, it seems that the Israeli brokerage market is beginning to stabilize, according to Leader Capital Markets, whose trading room was ranked first on "Globes" Investment Magazine’s annual dealing room survey. According to Sagie Posnerson, who runs the brokerage business at Leader Capital Markets: "The results are very pleasing, but not surprising. We always aim highest."

How does the Israeli brokerage market looks like today from your perspective?

Posnerson: “In terms of turnover on the TASE, the Profesional traders, the institutional investors and the brokers as well, the market is currently stablizing, after several tough years. After a period of consolidation in the market, it is showing signs of recovery, and we are optimistic.”

What are the main changes that you feel in the market this year?

“Long-term, we see a change in the Investors mix - The Hedge Fund community is evolving and we see more Prop trading entities, for example. On the institutional side, we see a transition trend from index investing back to stock picking - which we believe is an important trend that is good for the market. There is also an increase in the number of distribution deals and an increase in IPOs.”

What do you think about the level of competition in the market?

“Competition never eases, despite the significant consolidation and several private brokerage firms closed their business. In recent years, the market has gone through a change and filled up with brokers that provide added value - with Leader among them. These brokers provide research, emphasize deal distributions and service, while others emphasize price alone. In the past, this made the competition more aggressive, but in the past year, clients have been able to differentiate between various types of brokerage firms. Competition is becoming stronger and that's good for the market. "

Where are Leader’s dealing room advantages versus the competition?

"I have been a part of Leader's trading room for 15 years, and during this period we grew, constantly adapting ourselves to market changes. It served us well.”

Posnerson added, “Beyond that, our main strength is our team. We have people working together 12-13 years. It’s like a home for us, and you see that in our results. We are the only entity that is both a broker and an investment bank, providing all the capital market services under a single roof, with very high value to our clients."

Published by Globes [online], Israel business news - www.globes-online.com - on June 28, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

Israel's top brokers Photo: Eyal Izhar
Israel's top brokers Photo: Eyal Izhar
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