TASE moves to limit foreign stocks

Last Thursday, the Tel Aviv Stock Exchange (TASE) published a draft for public comment entitled "Limiting the Weight of Overseas Stocks on Indices." For the first time, the TASE is seeking to set a quantitative limit on the proportion of stocks of companies incorporated outside Israel traded on the TASE.

After the TASE previously ruled that its main indices would include only shares of companies with a connection to Israel, it is now being proposed to set a numerical limit on shares of companies from a single foreign country. Since the proposed restriction applies separately to each foreign country, this directive will have no effect on the current indices even if it become binding.

The TASE explains, "Despite their connection to Israel, the excessively high weight of overseas stocks on the TASE's principal indices dilutes the Israeli identity that the indices are designed to offer," especially to foreign investors. It is therefore being proposed to restrict the aggregate weight of shares of companies from a single foreign country to 8% on the Tel Aviv 35 Index, the Tel Aviv 90 Index, and consequently on the Tel Aviv 125 Index. In addition, the Tel Aviv 35 and the Tel Aviv 90 will each have a maximum of two shares of companies from a single foreign country, and the Tel Aviv 125 will have a maximum of four such shares. The TASE is also reserving the right to change the maximum number of companies per single country on each index at the discretion of the TASE indices committee.

There are currently three relevant shares in the Tel Aviv 35 Index - Perrigo, Ormat Technologies Inc. (NYSE: ORA; TASE: ORA), and OPKO Health - and six in the Tel Aviv 90 Index: LivePerson, Kenon Holdings, Brack NV, Sapiens International NV (Nasdaq: SPNS; TASE: SPNS), Norstar Holdings, and BioTime. Furthermore, if and when IFF completes its acquisition of Frutarom, which is listed on the Tel Aviv 35, the two-share per country limit for the Tel Aviv 35 will be exceeded (although it will not exceed the 8% weight restriction, because Perrigo is an Irish company, not a US company). At a current weight on the index of 6.01%, Frutarom is the sixth largest share on the TASE right behind Perrigo.

As of now, even before the new directive becomes binding, shares on the indices must have a connection with Israel, but it makes no difference whether the company is incorporated in Israel or the US. Such a distinction will be made in the future, with an upper bound being set for the number of shares of companies on each index from a single foreign country. A source familiar with the TASE said, "This measure is being taken because they don't want things to happen and then have to respond to them after the fact as was the case with MannKind; instead, they are preparing a mechanism in advance for dealing with the situation."

As far as is known, the 8% limit is inflexible as of now. The TASE wants the effective weight for companies from a single foreign country to be below 10%. At the same time, the limit on the number of companies per country can be changed by decision of the indices committee, while retaining the 8% aggregate weight limit.

Published by Globes [online], Israel business news - www.globes-online.com - on June 4, 2018

TASE moves to limit foreign stocks

The Tel Aviv Stock Exchange proposes limits on companies incorporated outside Israel on its main indices.