Tel Aviv Stock Exchange (TASE) CEO Esther Levanon has submitted to the TASE board of directors a work plan to improve trading volumes. The plan was also sent to the liquidity committee, which Israel Securities Authority chairman Shmuel Hauser recently established.
The TASE board discussed various proposals at today's meeting, including Levanon's proposal to ease capital requirements for TASE members. "In the past six months, the TASE has met with non-bank TASE members. It emerged at these meetings that easing capital requirements would increase the members' ability to expand their trading activity, which would improve liquidity on the TASE," states the document.
A TASE member must set aside equity for every transaction with its customers or by its nostro portfolio, as a safety cushion in the event of an operational breakdown or financial failure. In the report, the TASE details the relaxations for the different capital requirements. For example, it proposes lowering the capital requirement against the operational risk derivatives trading from the current NIS 7.44 per transaction to NIS 6.30. The objective is that when capital becomes available for TASE members, they will increase activity and trade in products which are not currently worthwhile because of the capital requirement.
The TASE also proposes establishing a database of securities lending. "The solution includes the establishing a central database of securities lending at the TASE clearing house, which will serve the entire capital market," states the document. The TASE is due to submit the implementation plan to the board by the end of September. The TASE has been working on this plan for almost a year.
Banks, which have representatives on the TASE board, reportedly may oppose the database, but it might adversely affect them. The banks are major players in securities lending, on which they charge fat fees, and would probably lose revenue when a central database is established.
As part of the plan, the TASE reports that it is talks on collaboration with BlackRock Inc. (NYSE: BLK), which has more than $4 trillion in assets under management, and the owner of the world's biggest exchange-traded funds (ETFs) company, iShares. The talks are for the launch of foreign currency denominated ETFs on the Tel Aviv 25 or Tel Aviv 100 index and traded on foreign stock markets. Earlier talks between the parties were called off six months ago, but the TASE says that contacts were renewed a few weeks ago, and that "BlackRock is determined to move forward." Nonetheless, sources believe that it will take time for the process to be completed.
As for the Securities Authority's TASE liquidity committee, although Hauser and Levanon have the same objective, to boost trading volume, there are tensions between the parties on the division of labor and the credit for the results.
Yesterday, Hauser sent a letter to TASE directors ahead of today's board meeting. The letter covers most of the points he made in a speech earlier this week on the TASE management's handling of the liquidity problem, and concludes with two veiled barbs at the TASE. He wrote, "I am pleased to see that some of the issues of the committee are on the board's agenda," and that he wants to see results soon.
The TASE proposals state, however, "A solution to the problem of liquidity requires cooperation between various parties in the market, and we should accept that there is no silver bullet that will boost activity with one shot."
Published by Globes [online], Israel business news - www.globes-online.com - on July 4, 2013
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