Times might be changing in Israel’s stock market. As part of a planned overhaul to keep the bourse alive and relevant to its robust high tech-based economy, the Tel Aviv Stock Exchange plans to join most of the world on a Monday-to-Friday schedule to lure foreign traders, after 63 years of being open Sunday-to-Thursday. Politicians and money managers who oppose the move are likely to get a few more months to deliberate on the change before it will be discussed in the country’s parliament.
1. How did we get here?
Tel Aviv Stock Exchange was created in 1953 as a private company by local banks, brokerages and international investment houses. It eased regulations for foreign investors and had its status upgraded to developed market from emerging market by the FTSE in 2007, boosting its average daily turnover volume to a record. Since then, dwindling trading has driven companies to London or New York, even though Israel has more active startups per capita than any other country. International investors began shunning Israeli stocks after May 2010, when MSCI Inc. pulled the country out of its emerging-market gauge and placed it in its developed-markets index, where it was assigned a 0.2 percent weighting.
2. How has the Sunday-to-Thursday schedule worked?
Israel’s work week begins on Sunday and ends on Thursday so that Israelis can observe the Jewish Sabbath, which starts at sundown on Friday. For many brokers and investment houses, trading on Sundays has become a waste of time because the rest of Israel’s largest western trading partners are quiet. Many Israeli companies do trade on Fridays -- just not in Israel. The country trails only the U.S., Canada and China in the number of companies listed on the Nasdaq exchange in New York.
3. What changes are in store?
Finance Minister Moshe Kahlon and the Israel Securities Authority are working on legislation to turn the stock market into a for-profit public entity, which they say will make it more competitive and attractive for investors wanting to raise capital. The number of exchange members would rise, ending the historic control by banks and requiring that members, including Barclays Plc, Citigroup Inc. and HSBC Holdings Plc, sell part of their stake.
4. Who might benefit and who might not?
By aligning its work days with the world’s, the Tel Aviv exchange could prompt MSCI to consider including Israel in its European gauge. That could bring more foreign capital to the exchange and boost liquidity. On the other hand, the Israel Association of Mutual Funds argues that Friday workdays will force money managers to violate the law that protects Israelis from working once the Sabbath begins, because clearing requirements will keep employees at their desks well after sunset.
5. What do experts say?
Sunday trading in Israel makes it difficult for foreign brokerages to offer their services in the local market, according to a report by the committee which was set up to find ways to boost liquidity of the Tel Aviv bourse. It recommends allowing after-market trading mainly in dual-listed stocks to boost volumes.
The Reference Shelf
- A story on the importance of pharmaceutical companies in Israel’s main stock index.
- A story on the exodus of Israeli companies to list in New York.
- FTSE’s guide to how it classifies markets.