The Banking Supervision Department and the Israel Securities Authority have completed arrangements for the mechanism that will enable an expansion of activity in Exchange Traded Notes that track the Tel Aviv Banks Index

Prof. Shmuel Hauser, Chairman of the Israel Securities Authority: “I am pleased that the Bank of Israel and the Authority have, through cooperation and creative thought, managed to provide a response to the limitation on development of passive investments in bank shares.”

 

David Zaken, Supervisor of Banks: “We are now completing a joint regulatory process that will make it possible to continue developing the financial markets in Israel and making them more sophisticated, while ensuring the proper supervision of the controlling shareholders of banking corporations and their proper conduct.”

 

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The Bank of Israel’s Banking Supervision Department and the Israel Securities Authority have approved the voting mechanism for “transparent” exchange traded notes (ETNs) proposed by the ETN Association, thereby opening the path for issuing transparent ETVs that track the Tel Aviv Banks Index, and to solving the problem of having investment houses that manage ETNs hold bank shares.

 

On August 4, 2014, the Bank of Israel’s Banking Supervision Department and the Israel Securities Authority published a joint position paper detailing a work outline relating to the issuance of “transparent” ETNs which track the TA Banks Index.  These ETNs attribute the holdings of bank shares to the final ETN holder, and not to the issuer of the ETN.  This makes it possible to issue ETNs on the Tel Aviv Banks Index without having the holdings of bank shares attributed to the investment house that issued the ETN for the purpose of assessing whether it meets the limitation set out in the Banking Law, according to which one cannot hold more than 5 percent of the means of control of a bank without obtaining a holding permit from the Governor of the Bank of Israel.  The joint position paper set out that before issuing such an ETN, a mechanism must be formulated for the use of voting rights in banking corporations by virtue of the final ETN holders’ holdings of the transparent ETNs.

 

The approval of the voting mechanism on bank shares held by transparent ETNs, which was formulated by the ETN association, has now been completed.  According to the mechanism, within 2 business days of the notice regarding the convening of the Bank’s general meeting, the ETN issuer, in conjunction with the trustee, will publish a notice to the public regarding the holding of the meeting.  A holder of a transparent ETN who wishes to vote at the meeting will send his vote to the trustee no less than 72 hours prior to the date of the meeting.  The trustee will coordinate a list of the votes from the ETN holders, and will vote according to this list at the meeting.  The mechanism further sets out that an ETN holder may recant or change his vote until 24 hours before the meeting.  If the ETN holder chooses not to vote, the trustee and issuer of the transparent ETN are not permitted to use the voting right or to obtain a power of attorney for the use of that right.

 

Approval of the voting mechanism means the removal of the final hurdle toward the issuance of transparent ETNs that track the Tel Aviv Banks Index, which will constitute a regulatory easing that will make it possible for investment houses issuing ETNs to continue offering ETNs that track this index without being restricted by the need to obtain a permit from the Bank of Israel.