The Israel Securities Authority Annual Report 2020 the Israel Securities Authority

The Israel Securities Authority Annual Report 2020 The Israel Securities Authority

Annual Report 2020

The following translation is intended solely for the convenience of the reader. The ISA does not assume any responsibility whatsoever as to the accuracy of the translation and is not bound by its contents. For the complete original text in Hebrew click here.

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Definition of terms...... 5 From the Chairwoman’s desk...... 6

Chapter A - About the ISA ISA’s vision...... 9 The ISA’s Strategic Goals for 2019-2022...... 9 The ISA’s Areas of Responsibility...... 10 The Scope of ISA Supervision ...... 11 ISA Senior Staff, Organizational Structure, and Departments...... 12 How to contact the ISA...... 18

Chapter B - Market Data from the Past Year The Covid-19 Crisis in Review...... 19 A multi-annual overview of the market...... 26 Traded Corporations...... 32 Mutual Funds...... 37 Investment Advisers, Investment Marketers, and Investment Portfolio Managers ...... 42

Chapter C Highlights of the ISA’s Activities in 2020 First Goal - Maintaining a Fair Capital Market...... 45 Enforcement ...... 46 International Activities...... 49 Regulation and Supervision...... 51 ISA Invests in Investors...... 61 Second Goal - Enhancing the Public Capital Market...... 66 Third Goal - Advancing Technological Innovation in the Capital Market...... 76 Fourth Goal - Promoting Competition in the Capital Market...... 80 Main Activities Planned in the Current Year...... 86

Chapter D – Budget and additional report sections ISA Budget 2020...... 91 ISA Budget 2021...... 93 Report of the Freedom of Information Officer...... 95 Public Enquiries...... 95 ISA Funds and Grants...... 96 ISA Support to Public Institutions...... 96 ISA Brochures and Guides for the Public Published in 2020...... 97 ISA Databases Registered According to the Freedom of Information Law...... 97

Chapter E - Corporate Social Responsibility...... 98 ISRAEL SECURITIES AUTHORITY Annual Report 2020 Enhancing The Market to Drive the Economy 5

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Terms Used in This Report

TASE - Tel Aviv Stock Exchange Ltd.

ISA - Israel Securities Authority

Trading platforms - Trading platforms for their own account

AML Law - Prohibition against Money Laundering Law 5760-2000

Administrative Enforcement Law - Increased Efficiency of the Israel Securities Authority Enforcement Proceedings Law (Legislative Amendments) 5771-2011

Companies Law - Companies Law 5759-1999

Investment Advice Law - Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law 5755-1995

Penal Law - Penal Law 5737-1977

Joint Investments Law - Joint Investment Trust Law 5754-1994

Freedom of Information Law - Freedom of Information Law 5759-1998

Securities Law - Securities Law 5728-1968

Periodic and Immediate Reports Regulations - Securities Regulations (Periodic and Immediate Reports) 5730-1970

IOSCO - International Organization of Securities Commissions

Maintaining a fair capital market | Strengthening and expanding the public capital market | Promoting technological innovation in the capital market | Promoting competition in the capital market ISRAEL SECURITIES AUTHORITY Annual Report 2020 Enhancing The Market to Drive the Economy 6

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From the Chairwoman’s Desk

Att: MK Israel Katz MK Moshe Gafni Minister of Finance Chair of the Knesset Finance Committee Ministry of Finance Israel Knesset

May 2, 2021 / 20 Iyar, 5780

Greetings,

Re: Report on the Activities of the Israel Securities Authority in the Year 2020 I hereby respectfully submit to you a report of the activities of the Israel Securities Authority (ISA) in the year 2020. The outbreak of the global Covid-19 pandemic in 2020 and the efforts to deal with its effects were accompanied by widespread economic repercussions in Israel, as in many other countries in the developed and developing world. Local effects included the closure of tens of thousands of businesses in many sectors of the economy, unemployment rates that soared to double-digit figures, and negative national growth. Across the world, these effects prompted significant support and interventions by governments and central banks, initially to provide immediate aid to their economies and subsequently, to ease the return to normal levels of economic activity. These steps, which also included significant fiscal spending on the one hand, and monetary measures on the other hand, affected capital markets across the world, including Israel, and contributed to surging markets. The past year effectively highlighted the major role that public capital markets play as the primary source of business financing during economic crisis. The year 2020 represents a turning point for Israel’s capital market, with IPOs by 26 newly listed companies. IPOs raised a total of NIS 4.5 billion this year. Of the 26 new companies, 19 are technology firms that issued securities to the public for the first time, and they accounted for more than one half of the total capital raised by IPOs. These figures represent the fruits of the ISA’s efforts to establish and expand the public capital market through actions such as creating connections between the high-tech sector and the capital market, and indicate that such efforts contributed to the turning point experienced by the capital market last year. During the crisis, the ISA introduced measures to reinforce the public capital market’s role as the main primary market, using the crisis as an opportunity. The measures led by the ISA in previous years created a solid foundation for the changes in the market in the past 18 months, which were effectively reflected in Israel’s thriving main capital market via through the Tel Aviv Stock Exchange. In the past several years, we have directed our efforts to realize the ISA’s vision, reflected in theISA’s strategic plan, which was published in 2019. The goal of this program is to promote the interests of all investors and realize the market’s full potential to benefit Israel’s economy and its citizens by ensuring that the market is fair, efficient, diverse, innovative, and competitive. Alongside measures to develop the capital market and increase the efficiency of its operations, the ISA continues to pursue its supervision and enforcement actions. The ISA continuously monitors market developments, taking into account the new challenges created by the expanding market and the rise in the number of companies, sectors, and new products, and the growing diversity of capital market participants. Throughout the year, we invested efforts to maintain the balance between creating opportunities for companies to raise capital form the public and protecting investors’ interests at every point in this process, and to this end, we continue to reinforce investor protection mechanisms as necessary.

Below is a brief summary of the ISA’s actions in the past year with respect to the four cornerstones of its strategic plan: maintaining a fair capital market, strengthening and expanding the public capital market, promoting competition in the capital market, and advancing technological innovation in the capital market.

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Maintaining a Fair Capital Market In addition to its ongoing monitoring and oversight of the supervised entities, the ISA employed all the enforcement measures at its disposal to maintain a fair market and fair trading. The new, advanced technology- based tools that the ISA uses in its criminal investigations and administrative inquiries help the ISA to respond effectively criminal offenses, including offenses in cyberspace and the significant volume of various fraudulent and deceptive practices that are committed in the capital market. Last year, the ISA’s enforcement actions ended in several significant convictions for investment fraud totaling tens and hundreds of millions of shekels. These included the rulings on the Bramly case (Kela Fund) and the Tapiro and Berman cases (Or Fund). The ISA also believes that an important component of its efforts to protect the public is its efforts to promote the public’s financial literacy, which include the publication of relevant information and warning signs designed to equip the pubic with the proper tools to practice responsible financial decision making and avoid the risks related to investing in unsupervised financial schemes. The ISA broadcasts a series of live Q&A programs on a quarterly basis, where ISA staff members provide professional, reliable answers to questions posed by members of the public regarding general or personal issues.

Strengthening and Expanding the Public Capital Market A stronger bond between Israel’s capital market and its high-tech sector will allow the Israeli public to benefit from the success of the economy’s major economic growth engine. The pandemic and economic crisis illustrated the critical need to diversify the high-tech sector’s sources of financing, which had been mainly foreign sources until now. Through ISA efforts to enhance ties between Israel’s “start-up” firms and its capital market, this year for the first time, local technology firms considered the Israeli market as a base for capital raising. By joining the domestic capital market, the high-tech sector is contributing to the diversification of the sectors represented on the stock exchange and to the expansion of the public capital market, which is a major strategic goal for the ISA. Figures from Q1/2021 confirm that this trend continues to grow, and the number of IPOs is expected to exceed 2020 figures. We expect that this trend will also bring large high-tech companies into the market as well. At the same time, the ISA invested efforts to implant advanced trading standards and remove barriers to enable the Israeli market to take up its rightful position among the world’s most advanced capital markets. These efforts to render the market attractive for international participants were supported by global marketing and public service campaigns to increase awareness of Israel’s capital market. One of the achievements of these efforts is the international IPO model, which allows Israeli companies to raise capital on the domestic market from international investors as well. Through initiatives such as these, the ISA is creating new, high-grade financing alternatives to keep Israeli at home, in Israel.

Promoting Competition in the Capital Market In Israel’s capital market, financial services and management of the public’s financial assets are highly concentrated, which is evident in findings of research published in the past year by the ISA. The ISA has been working hand in hand with the Competition Authority to introduce competition in the brokerage market and establish digital retail broker services in Israel. The ISA has also taken steps to remove barriers and enhance the public’s access to affordable, technologically advanced, and unmediated trading services. In addition, the ISA has invested efforts to encourage competition in the operations of foreign underwriters, index sponsors, and other financial service providers.

Advancing Technological Innovation in the Capital Market Together with its market development efforts, the ISA also promotes greater competition in the financial markets by encouraging technological innovation. The ISA recognizes the fintech sector’s potential contribution to the investing public, to the expansion of the capital market, and to country’s economic growth, and therefore, last year, the ISA took steps to establish a supportive regulatory environment for innovation in general, and specifically for fintech innovations. Following a resolution of the Ministry of Finance, the ISA is preparing to lead the most significant consumer reform in Israel’s financial system in the coming decade, which is part of the Shtrom reform. This reform, which is expected to fundamentally change the consumption patterns of financial

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services through open banking, will return power to consumers, who will benefit from a range of easily accessible customized financial services. Preparations include work on the regulation of APIs, a new area of licensing and supervision of financial information providers. The new licensees will be able to offer novel digital solutions that consumers will use compare financial service fees, which will ultimately increase the competition in the traditional banking market and reduce consumers’ costs of financial services. To complete this reform, the ISA is promoting licensing and supervision regulation for new entities in the payment service (PSD) sector. After the necessary legislation to support cost comparisons and payments is in place, Israeli citizens will benefit from efficient, advanced financial services rendered in a market with a sustainable competitive structure. I would like to use this opportunity to express my thanks to the individuals and offices that played a role in the efforts to promote and develop the capital market, and especially the Minister of Finance, the Chair of the Knesset Finance Committee, and all the dedicated ISA staff members who view their public service as a calling. I am confident that the steps we have taken and those actions to be executed in the future will make a significant contribution to the financial well-being of the public and to the Israeli economy.

Anat Guetta Chairwoman, ISA

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The Israel Securities Authority operates under the Securities Law, which defines Chapter A the ISA’s role “to protect the interests of the public investing in securities.” Over the years, the capital market has become one About the ISA of the main pillars of Israel’s economy. The capital market allows firms and businesses to raise money to expand their business operations, and in this way contributes to economic growth, employment, and innovation. At the same time, the capital market makes it possible for the general public to invest in the economy’s leading firms, benefit from their success, and earn a profit on their investments.

The ISA is committed to protecting investors’ interests by contributing to the development of a diverse and competitive market, defining stringent norms and high standards of market conduct, and by enforcing these standards on all capital market participants.

ISA’s Vision The ISA works to establish and expand a thriving public capital market that is fair, attractive, competitive, and innovative, with the aim of contributing to Israel’s economic growth while safeguarding investors’ interests.

The ISA’s Strategic Goals for 2019-2022

Strengthening Maintaining and expanding a fair capital the public capital market market

Promoting Promoting competition in the technological capital market innovation in the capital market ISRAEL SECURITIES AUTHORITY Annual Report 2020 Enhancing The Market to Drive the Economy 10

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The ISA’s Main Areas of Responsibility

A. Supervision of corporations that offer their securities to the public, including issuance of permits to publish prospectuses that are the basis for public securities offerings, and inspection of the corporations’ reports;

B. Supervision of mutual fund managers, including issuance of permits to publish prospectuses that are the basis for mutual funds’ offerings of their units to the public, and regulation of their operations;

C. Licensing of portfolio managers, investment advisers, and investment marketers, and regulation and oversight of their operations;

D. Oversight of compliance of portfolio managers and non-bank exchange members with their obligations under the Prohibition against Money Laundering Law;

E. Supervision of the proper and fair management of the stock exchange;

F. Licensing of trading platforms to their own account, and regulation and oversight of their operations;

G. Licensing of offering coordinators and oversight of their operations;

H. Oversight of underwriters’ operations;

I. Licensing of rating companies, and regulation and oversight of their operations;

J. Inspections of the supervised entities’ compliance with the Securities Law, the Joint Investments Law, the Investment Advice Law, and other laws under the ISA’s responsibility;

K. Investigations of violations of the Securities Law, the Joint Investments Law, the Investment Advice Law, and other laws related to such violations;

L. Administrative enforcement proceedings, ranging from inquiries concerning administrative offenses under the Securities Law, the Joint Investments Law, and the Investment Advice Law, to the commencement of administrative proceedings before the Administrative Enforcement Committee, at the order of the ISA Chair;

M. The ISA, jointly with the Institute of Certified Public Accountants in Israel, participates in funding and operating the Israel Accounting Standards Board.

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The Scope of ISA Supervision* 842 355 631 87 Shares and convertible Corporate bond Government bond Treasure Bills (MAKAM) securities 91 240 299 ETFs Mutual funds Portfolio management 2,545 יומי בבורסהTotal

* Asset value NIS billions 6.5 Average daily trading volume on the stock exchange

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ISA Senior staff

Members of the Ms. Anat Guetta ISA Plenum ISA Chairwoman

Mr. Amir Wasserman, Adv. Mr. Oded Spirer, Adv. Mr. Hanoch Hagar, Adv.1 Legal Counsel Director General Senior Advisor to the ISA Chairwoman

Mr. Offir Eyal, Adv. Ms. Sarah Kandler, Adv.2 Mr. Dudu Lavi Mr. Noam Katz Mr. Amir Helmer, Adv. Mr. Natan Hershkovitz Department of Corporate Finance Investments Department Administration, Finance, Inspections and Information Systems International Affairs and Department and Human Resources Examinations Department Business Development Department Department

Ms. Hadar Horn Mr. Itzik Shurki, CPA Ms. Zippi Gez, Adv. Ms. Judith Tirosh- Mr. Ilan Gildin Dr. Ilana Lipsker- Spokeswoman and Head Stock Exchange and Investigations, Gross, Adv. Research, Development, Modai, Adv. of Public Education Trading Platforms Intelligence, and Market Securities Department and Strategic Economic Administrative Supervision Department Surveillance Department in the Tel Aviv Consulting Department Enforcement District Attorney’s Department Office (Taxation and Economics)

1. Appointment commenced July 1, 2020. 2. Appointment commenced July 1, 2020.

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The ISA Plenum

The ISA Plenum generally convenes approximately eight times a year. In 2020, due to the Covid-19 pandemic and social distancing restrictions, the Plenum and its committees convened by telephone or digital means and did not convene in person. The Plenum operates through its committees, which focus on the following topics: applications for permits to publish a prospectus; exemptions and extensions; matters related to the supervision of the stock exchange; matters related to the supervision of trading platforms, including issue and revocation of trading platform licenses; the ISA’s budget and funds; licenses and permits issued under the Funds Law, the Rating Law, and the Investment Advice Law; monetary fines imposed on supervised entities; financing class and derivative actions; and other ad-hoc topics.

According to the Securities Law, the ISA Chair and members of the Plenum are appointed by the Minister of Finance. Several Plenum members are members of the public, several are government employees, and one is an employee of the Bank of Israel.

Plenum Members in 20203 Ms. Anat Guetta, Chairwoman Mr. Hanni Haj Ihiya, CPA, Adv. Ms. Pnina Guy, Adv. Mr. Micky Kahn Ms. Shlomit Barnea-Farago, Attorney Mr. Baruch Lubart, Adv. Ms. Michal Akabiya, Adv.

Meetings of the Plenum and its committees in 2020 ISA Plenum – 8 meetings Disclosure and Reporting Committee – 54 meetings Secondary Market Committee – 12 meetings Fines and Sanctions Committee – 3 meetings Supervision and Regulation Committee – 3 meetings Finance Committee – 6 meetings Audit Committee – 3 meetings

3. In January 2021, the following plenum members were appointed: CPA Hossam Bashara, and Dr. Lior David-Pur.

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ISA Personnel At end December 2020, the approved number of positions was 267 (including internships and student jobs), of which 263.42 positions were filled on December 31, as follows:

No. of positions filled

Office of the Chairwoman 5.75

Legal Counsel 11

International Affairs and Business Development Department 7

Corporate Finance Department 50

Investments Department 36

Securities Department in the Tel Aviv District Attorney’s Office 15

Administrative Enforcement Department 6

Investigations, Intelligence, and Market Surveillance Department 42

Research, Development, and Strategic Economic Consulting Department 6

IT Department 8

Stock Exchange and Trading Platforms Supervision Department 10

Administration, Finance, and Human Resources Department 22.67

Inspections and Examinations Department 13

Interns 15

Students 16

As of December 2020, the gender composition of ISA employees was: 53% females and 47% males. Individuals with an academic degree account for 94% of employees, most of whom are attorneys, accountants, and economists.

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The ISA’s Departments the Department reviews reporting corporations or their interested parties for compliance with the law, The Legal Counsel Department and refers cases of non-compliance and violations to the relevant enforcement officers in the ISA. The Legal Counsel provides legal advice and guidance to all ISA units, oversees all legal aspects of ISA actions, and directs the supervised entities Investments Department The Investments Department is responsible for on the provisions of law and their interpretation. The the development, supervision, and regulation of Department provides guidance and legal support the mutual funds, investment advising, investment to ISA departments, and audits their operations to marketing, and portfolio management sectors. ensure that activities conform to the ISA’s powers, The Department handles the following areas: policies, and positions. The Department is involved licensing of companies and individuals – activities in decision making on cross-functional issues as licensing exams, exemption requests, oversight well as in specific decisions of special importance, of internships, and all matters related to reliability and promotes key projects that are on the ISA’s and compliance; mutual funds – reviews of agenda. The Legal Counsel also leads and promotes prospectuses and reports, publication of circulars, legislation and other regulatory reforms related to regulation, corporate governance issues, approvals ISA operations, and is responsible for maintaining a of fund manager and fund trustee appointments dialogue with all government ministries, the Knesset, and permits of control in funds; investment advising, and the supervised entities on these matters. investment marketing, and portfolio management – The Department represents the ISA’s position in supervision of several thousand advisers who are legislative actions that are relevant to ISA operations licensed according to the Investment Advice Law, although not initiated by the ISA. The Department including investment advisory functions in banks, also handles legal proceedings in which the ISA is with the aim of ensuring fair and professional involved or is a party, oversees handling of public service to customers. Supervisory functions include inquiries and requests pursuant to the Freedom of reviews of licensees’ work and compliance with the Information Law, handles the legal aspects of ISA’s law, handling public complaints, regular meetings administrative matters such as its agreements and with licensees, and publication of circulars. tenders, and assists in the professional in-service training of the ISA’s legalists. Stock Exchange and Trading Platforms The Corporate Finance Department Supervision Department This Department is responsible for the regulation of The Corporate Finance Department is responsible the operations of the stock exchange, the clearing for monitoring all the corporations that issued houses, and the trading platforms, with emphasis securities to the public to raise debt or capital. on the fair and equitable operations of the stock The Department aims to ensure that these exchange, which handles the major share of all corporations’ disclosures meet legal requirements capital market activities. The Department handles and constitute a fair basis for investment decision the stock exchange’s requests to modify its by- making. To fulfill its duties, the Department laws and guidelines, conducts regular audits of operates on three levels: regulation, supervision, the stock exchange’s ongoing activities, and takes and enforcement. In the area of regulation, the action to develop and expand its operations. The Department develops disclosure requirements Department also oversees the securities clearing and adapts them to developments in the capital and settlement systems, including their compliance market to ensure that disclosures optimally serve with their obligations and requirements according to investors’ interests, reflect relevant and material accepted international standards. The Department information, and increase the use of corporations’ also oversees the proper and fair management reports in investment decision making. In the area of the trading platforms, handles trading platform of supervision, the Department ensures that the license applications, and reviews the products reporting corporations comply with applicable offered on the trading platforms and the platforms’ reporting requirements. In the area of enforcement, proper conduct.

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Investigations, Intelligence, and Market litigation and the prosecution of cases investigated Surveillance Department by the Investigations, Intelligence, and Market The Department is responsible for ensuring that the Surveillance Department. As a part of the Tel Aviv capital market and trading are fair and equitable. District Attorney’s Office (Taxation and Economics), The Department takes action to identify, expose, the Department has broad powers of prosecution, and take enforcement measures against capital and the indictments it handles concern securities market offenders. The Department conducts trading violations, Penal Law violations, Prohibition of Money inspections to identify irregular activities on the Laundering Law violations, and tax violations. The stock exchange and to analyze trading irregularities Department specializes in handling violations in and trends. The Department manages investigative these areas perpetrated in public company settings proceedings concerning suspected criminal conduct or with respect to stock exchange trading. As a in the capital market and administrative inquiry rule, indictments that the Department handles are proceedings to examine suspected administrative brought before the Economics Department of the violations in the capital market. In its efforts to District Court. The Department is also skilled in eradicate financial crime, its criminal investigations handling Supreme Court appeals against District cover securities violations as well as violations Court decisions in these areas. The Department has of the Penal Law and the Prohibition of Money extensive experience and knowledge in handling Laundering Law. The Department collaborates cases that involve multiple accounting and financial with various enforcement agencies in Israel and in issues. The Department also has expertise in the other countries, and responds to foreign agencies’ prosecution of corporations, and functions in an requests for assistance according to international advisory capacity to the Ministry of Justice and treaties to which the ISA is a signatory. represents the District Attorney’s Office in various forums. Administrative Enforcement Department Inspections and Examinations The Department is responsible for administrative Department enforcement actions, and ensures that enforcement The Inspections and Examinations Department measures are efficiently and accurately was established in late 2019 following a strategic proportionate to violation severity. The Department decision to consolidate the ISA’s departmental serves as the ISA’s administrative prosecution, and inspection units into a single, independent develops administrative pleadings after reviewing department with a holistic perspective on the the relevant inquiry materials referred by the ISA’s organizational needs. The decision reflects Investigations, Intelligence, and Market Surveillance the recognition that an organization-wide Department. The Administrative Enforcement inspection function will make optimal use of the Department also assesses whether closed criminal ISA’s supervisory tools in line with ISA priorities, cases contain evidence that may serve as grounds based on the risk level of each area of ISA activity, for administrative proceedings, and advises the ISA and will offer greater flexibility in planning and Chair to commence administrative proceedings performing risk-based inspections. The Department in the appropriate cases. The Department also conducts inspections in the majority of the coordinates and manages monetary sanction areas supervised by the ISA, including mutual proceedings and is involved in ongoing cross- fund managers and trustees, trading platforms, departmental enforcement issues. investment portfolio managers, advisory functions in banks, and reporting corporations. Inspections Securities Department at the Tel focus on supervised entities’ compliance with the Aviv District Attorney’s Department law, and examine corporate governance, various (Taxation and Economics) aspects of IT operations, and implementation of The Department operates within the Tel Aviv District AML directives, where relevant. Inspections of Attorney’s Office (Taxation and Economics), and reporting corporations cover legal and accounting its professional decisions are guided by the State issues and asset valuations. The Department also Attorney’s Office and the Attorney General. The handles cross-departmental issues related to Department specializes in all aspects of criminal unsupervised entities and investment schemes

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whose their compliance with the laws under the In the field of human resource management, the ISA’s supervision is questionable. The Department Department is responsible for personnel, positions, works under the Director General of the ISA. hiring decisions, salaries, labor agreements, terms of employment, career paths, professional International Affairs and Business training, and employee welfare. In the field of Development Department procurement and professional agreements, the The Department is responsible for all the Department is responsible for the management of international aspects of the ISA’s work, and the ISA’s material resources. The Department also implements the ISA’s strategy to adapt its activities handles security and workplace safety. Since the to growing globalization, with the aim of opening organizational restructuring of the ISA in November the Israeli capital market to leading global markets. 2019, the Department works under the Director The Department promotes the implementation of General of the ISA. international standards in Israeli securities laws to enhance the local market’s appeal to foreign Information Systems Department investors and companies, and employs various The Department is responsible for initiating, methods to encourage leading international establishing, and handling all ISA computer systems, financial participants’ involvement in the Israeli both the internal systems that serve ISA employees, capital market. The Department plays an active role and the systems that serve the general public in IOSCO policy development, and is responsible and the supervised entities. The Department is an for the ISA’s growing cooperation with regulatory active partner in defining the ISA’s IT strategy, and commissions and enforcement agencies worldwide. implements the strategy according to the approved annual work plan. Since the ISA’s organizational Research, Development, and Strategic restructuring in November 2019, the Department Economic Consulting Department works under the Director General of the ISA. The Department’s fields of responsibility are research, development, and strategic and economic consulting that support the ISA’s operations and strategy. The Department renders consulting services based on the following elements: ongoing monitoring of capital markets and economic developments locally and abroad; studies of the implications of decisions and specific events related to the ISA’s work and the capital market, and; generic research on issues with broad implications for the capital market. In these activities, the department uses digitized databases that are developed and maintained by the Department itself. The Department is also responsible for the development of designated decision-support systems.

Administration, Finance, and Human Resources Department The Department is responsible for the management of the ISA’s finances, human resources, and procurement operations, and professional agreements. In the field of financial management, the Department is responsible for the corporate fee collection system, annual budget, obtaining budget approval from the Ministry of Finance and the Knesset Finance Committee and others;

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How to Contact the ISA

Contact the Public Inquiries Office Use the electronic form available on the ISA website. Mailing address: ISA, 22 Kanfei Nesharim Street, Jerusalem 9546434 Telephone: +972-2-6556555

Contact the Freedom of Information Officer To file a request under the Freedom of Information Law or submit a question, contact Attorney Keren Gihaz. Email: [email protected] Telephone: +972-2-6556456

Contact other ISA units that provide services to the public Contact other ISA units that provide service to the public on the ISA website.4

The ISA invites you to follow its activities on social media:

Youtube Facebook Israel Securities Authority Israel Securities Authority

Twitter LinkedIn SecuritiesIL Israel Securities Authority / רשות ניירות ערך

Telegram Instagram israelsecurities / רואים שהשקעת רשות ניירות ערך

Information on the ISA’s activities are published and available to the public on the ISA website at http://www.isa.gov.il

4. On topics such as submitting information to the ISA, information on advisers, and information on licensing.

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This chapter analyzes capital market trends over the past year. Several topics Chapter B are presented with annual comparison figures for the past decade. This review offers readers an overview of the scope of the ISA’s supervision and of key capital Market Data from market trends.

the Past Year As a result of the global pandemic, 2020 was an exceptional year in many respects, including real economic activity and the observed volatility of the capital market. This chapter offers an economic review of the capital market in 2020, including specific reference to the crisis.

The Covid-19 Crisis in Review The Covid-19 pandemic began in January 2020 as a health crisis, initially in China and later spread across the globe. Due to preventive measures by governments worldwide and social distancing restrictions, the entire world found itself in a real economic crisis. The crisis trickled down to the financial markets, with full-blown effects emerging in late February. At that point, economic data indicated that the world had slid into its first recession since the 2008 crisis, and economic activity was severely impaired in the first quarters of 2020, as GDP figures for most countries including Israel indicated.

The Markets’ Response The financial markets’ response to the current crisis was rapid and dramatic, and within a mere month, risky assets (shares and corporate bonds) worldwide reached multi-annual record lows, yet policymakers responded to the crisis more quickly compared to previous crises. After having observed the results of the relatively slow response in 2008, this time monetary and fiscal authorities in most countries took steps to quickly inject funds into businesses and individuals, and helped them survive this challenging time. These efforts included interest rate cuts by central banks; plans to purchase large quantities of government bonds, corporate bonds, and stocks; credit lines in foreign currency granted to commercial banks; government-backed grants and loans, and; tax abatements.

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Alongside the fact that the crisis was considered temporary and that many public companies did not experience a slowdown in their business activity, and some even profited from the conditions triggered by the pandemic, most global indices quickly corrected for the declines and several even shifted toward considerable gains in annual terms.

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Changes in the world’s leading share indices since early 2020

Cumulative change 50

0 11/11/2020 18/11/2020 25/11/2020 16/12/2020 21/10/2020 15/01/2020 14/10/2020 11/03/2020 04/11/2020 15/07/2020 23/12/2020 17/06/2020 01/01/2020 07/10/2020 28/10/2020 13/05/2020 15/04/2020 30/12/2020 18/03/2020 01/07/2020 16/09/2020 19/02/2020 12/02/2020 02/12/2020 09/12/2020 19/08/2020 22/01/2020 29/01/2020 12/08/2020 10/06/2020 27/05/2020 22/07/2020 29/07/2020 08/01/2020 01/04/2020

-10 25/03/2020 24/06/2020 26/02/2020 26/08/2020 08/07/2020 20/05/2020 23/09/2020 22/04/2020 29/04/2020 06/05/2020 05/02/2020 05/08/2020 30/09/2020 03/06/2020 04/03/2020 02/09/2020 09/09/2020 08/04/2020

-20

-30

-40 S&P500 DAX NASDAQ CAC TA-35 FTSE 100 TA-125 NIKKEI 225 Volume in local currencies. Data source: Bloomberg

As this figure illustrates, most western world share indices declined by 30-40 percent from the beginning of the crisis to its nadir in late March. Indices in Europe and Israel suffered stronger declines compared to corresponding US indices. However, most indices, including the TASE indices in Israel, regained a substantial part of their losses by the end of the year. US share market indices, led by the Nasdaq, registered an especially favorable recovery and recorded new highs. The Nasdaq’s bias toward the technology sector played a key role in its recovery, because these firms were not significantly affected by the crisis, and many even profited from the conditions that were created.

Sectors that suffered an immediate impact at the beginning of the crisis included tourism (mainly hotels and aviation), fashion and clothing, and industries with a high exposure to China. As the crisis continued, additional sectors experienced indirect adverse effects, especially energy (as a result of declining oil prices), rental properties, and finance. The financial sector was also affected by the share market declines that affected the nostro accounts of the financial institutions themselves, and additionally caused rising default expectations, and expectations of insurance claims, customer withdrawals, etc.

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Average change in key stock exchange sectors from the beginning of the crisis to its nadir (end March 2020), weighted by market cap

Commerce and -19% services Industrial -21% Investments and -27% holdings Banks -30% Real estate and -35% construction Energy -36%

Insurance -38%

Fashion and clothing -41% Financial services -44% Oil and gas exploration -49% Hotels and tourism -50%

Corporate bonds From early March, the spreads between corporate bonds yields and the government yield curve increased significantly. Many bonds registered double-digit yields. Within days of the outbreak of the crisis, ilBBB bonds rose to their yield levels during the European debt crisis of 2011, while higher-rated bonds exceeded their 2011 yields and approached their yields during the 2008 financial crisis. Toward the end of March, spreads narrowed, first quickly and then at a moderate pace, and by the end of the year were close to their pre-pandemic levels.

Developments in corporate bond spreads in Israel in 2020, by rating (duration of over one year only)

Spread % 20

0 01/11/2020 01/12/2020 01/10/2020 01/01/2020 01/07/2020 01/05/2020 01/03/2020 01/06/2020 01/02/2020 01/09/2020 01/08/2020 01/04/2020 A AA AAA BBB

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Mutual funds Concerned by the situation in the markets and the continued market declines, many investors chose to redeem their mutual funds. As a result, total net redemptions in mutual funds were especially high during the crisis. From the beginning of the crisis in late February to the height of the crisis in early April, net mutual fund redemptions exceeded NIS 44 billion. In March alone, app. NIS 42 billion in mutual fund units were redeemed. The significant redemption rate exacerbated the effects of the declining fund values resulting from a devaluation of their assets following the sharp declines in stock market prices. Therefore, mutual funds’ asset value declined from app. NIS 357 billion on the eve of the crisis to app. NIS 255 billion at the their lowest point, reflecting a 30% decline. Since the record low values, mutual fund asset values increased significantly, which added to net mutual fund creations of app. NIS 20 billion by the end of the year. In late December, mutual funds’ asset value totaled app. NIS 330 billion.

Net and cumulative creations/redemptions (in NIS millions), by fund class

NIS millions December November October September August July June May April March February 10,000

-10,000

-20,000

-30,000

-40,000

-50,000

Active Foreign Passive Other Passive Israel Passive Foreign Active Money funds Active Bonds in Israel-General Active Corporate bonds Active Government bonds Active Shares in Israel Active Other

In March, redemptions in the mutual fund sector affected all fund classes. The fund class with the highest redemptions in monetary terms (which is also the largest fund class in absolute investment value) was “general bonds” the following months creations in this asset class contracted cumulative redemptions by app. 40% over the year. No improvement was registered in other active fund classes. In contrast, since March, significant net creations occurred in passive mutual funds and funds that invest in foreign assets, passive funds.

In August 2020, the ISA published a compilation of economic analyses of capital market trading during the Covid-19 crisis. These analyses were designed to track the financial effects of the crisis in real time, to identify and prevent market failures and support informed, empirically based decision making. The compilation is available on the ISA website. The compilation examined various aspects of capital market activities in Israel, including the activities of the various market participants that operated on the TASE on a daily basis during the crisis. The analysis shows that

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the majority of securities sales at the height of the crisis were conducted by private investors, either directly or through mutual funds, while qualified investors, including algo-traders and institutional investors, adopted a reverse strategy and purchased securities from the public. In the recovery period (April and May 2020), these directions seemed to reverse: the public returned to purchasing securities from institutional investors. The attached figure describes these trends in terms of cumulative share purchases.5 With respect to government bonds, figures showed that government bonds were sold by institutional and qualified investors as well as by private investors. In March–May 2020, these investors sold app. NIS 60 billion in government bonds on the TASE, and the Bank of Israel and market makers were the source of liquidity in these sales.

Cumulative net purchases (in NIS billion) of shares, January–May 2020, by investor type

NIS billion 4

-1

-2

-3 15/01/2020 11/03/2020 17/06/2020 01/01/2020 13/05/2020 15/04/2020 18/03/2020 19/02/2020 12/02/2020 22/01/2020 29/01/2020 10/06/2020 27/05/2020 08/01/2020 01/04/2020 25/03/2020 24/06/2020 26/02/2020 20/05/2020 22/04/2020 29/04/2020 06/05/2020 05/02/2020 03/06/2020 04/03/2020 08/04/2020

Large private investors Moderate private investors Small private investors Bank of Israel Foreign investors Nostro Market makers Mutual funds Portfolio managers Provident/pension funds

Another topic of study during the crisis was the correlation between the returns of shares and corporate bonds compared to the returns on key TASE indices in each investment track. Correlation coefficients soared to historical heights as beta and market risk values rose. These trends point to several insights: First, the response to the crisis (during the declines in the market and during its recovery) affected the entire market, across all securities types. Second, these trends adversely affected efficient pricing of isolated assets during the crisis. Third, risk minimization through asset diversification was limited.

Analyses also looked at changes in TASE liquidity measures during the crisis, by securities type. Bid-ask spreads rose sharply during the crisis (indicating a decline in liquidity), excluding for government bonds and Central Bank T-bills. The attached figure describes the average daily bid-ask spread in bonds listed in the Tel Bond 60 index. Despite the increase in spreads, they reached app. 50% of their values during the 2008 financial crisis. A reasonable assumption is that the increased use of algorithmic trading tools moderated the rise in spreads. In

5. Public accounts were divided into three groups based on the scope of their activity.

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contrast, figures show that the decline in liquidity in large volume trades was similar to (and in several securities types, even greater than) the declines in 2008. This trend can be examined through CRT (Cost of round trip) measures, which measure liquidity based on the deeper layers of the order book (see the following figure). Figures also show that the securities that are typically less liquid suffered a sharper decline in liquidity.

Liquidity measures (Tel Bond 60), 2019 to H1/2020

7.00%

6.00%

5.00%

4.00%

3.00%

2.00%

1.00%

0.00% 26/11/2019 26/12/2019 26/10/2019 26/09/2019 26/01/2020 26/05/2020 26/03/2020 26/06/2020 26/02/2020 26/04/2020

Minimal side CRT CRT 5% Bid-ask spread

Another aspect that was studied was market makers’ activities on the TASE during the crisis, distinguishing between formal market making (based on market making contracts and TASE Rules and Regulations), and informal market making (performed as a trading strategy, mainly by algo-traders). In this analysis, a measure of market making inefficiency was defined and calculated. This measure assesses the extent to which market makers dictate actual bid and ask prices. Findings of this analysis indicate that the efficiency of formal market making declined during the crisis, and especially so after the height of the crisis. This finding may indicate that formal market makers were slower to narrow their spreads compared to the market in general. Furthermore, formal market makers increased the intervals during which they did not provide quotes during continuous trading. In contrast, during the crisis, informal market makers (who routinely offer tighter spreads with respect to shares and corporate bonds compared to those offered by formal market makers) suspended their activities in many securities completely. Across all securities types, market making was most effective in ETFs (although such a comparison is qualified by inherent differences between securities types). Nonetheless, during the crisis, ETF spreads declined more than the spreads in their underlying indices.

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A multi-annual overview of the market Market cap: Over the past decade, market capitalization showed a moderate rise (especially as a result of capital appreciation). Market cap across sectors changed significantly in this period — the market cap of the healthcare and energy sectors declined, while the market cap of the technology, financial, and real estate sectors increased. Following are comparison data for the end of 2020 and the end of 2009: • The market cap of shares traded on the TASE was app. NIS 840 billion, compared to app. NIS 710 billion in the end of 2009. In 2020, market cap rose by a mere 2.6%. • The technology sector - NIS 204 billion. Accounts for 24% of the total market cap of shares. The market share of this sector is on the rise: It expanded significantly in 2020 as a result of several factors including the effects of the Covid-19 crisis described above, and the wave of IPOs described below. • The financial sector - NIS 146 billion. Accounts for 17% of the total market cap, which reflects a 4% decline from last year, after several years in which the sector’s share of the market steadily increased. • The real estate sector - NIS 155 billion. Accounts for 19% of the total market cap of shares. The market cap of this sector increased threefold during the period in question. • The healthcare sector - NIS 76 billion. Accounts for only 9% of the total market cap of shares. In the past decade, the share of this sector declined significantly, mainly due to the declines in values of dual-listed pharma companies.

Market capitalization of shares 2009-2020, by sector

5% 6% 8% 9% 10% 12% 7% 7% 8% 7% 8% 7% 2% 5% 9% 4% 3% 4% 4% 4% 9% 6% 6% 5% 9% 9% 17% 14% 8% 9% 26% 40% 28% 29% 24% 24% 33% 8% 8% 43% 13% 12% 7% 8% 17% 12% 10% 19% 17% 12% 7% 21% 8% 17% 20% 7% 19% 19% 18% 10% 17% 17% 10% 18% 19% 14% 21% 13% 12% 14% 14% 14% 12% 10 16% 16% 10% 12% 10% 11% 10% 9% 24% 7% 10% 17% 12 14% 6% 6% 8% 9% 7% 7% 7% 10% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Energy & gas exploration Investment and holdings Healthcare Commerce & services Industrial Financial Real estate & construction Technology

The Primary Market in 2020

Capital raised – The equity market • Total equity raised on the TASE was app. NIS 20 billion, a 35% increase compared to 2019. • 27 firms collectively raised app. NIS 4.6 billion in IPOs, accounting for 23% of all issues. • Most of these issues were made by 20 technology firms.

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Total share capital raised, 2014-2020

NIS million 45,000 All issues % IPOs 40,000 38,320 24.5% 24.5% 35,000 21.5% 22.6% 30,000 26,968 25,000 13.9% 20,182 20,000 14,937 15,000 11,572 9,714 10,000 7,524

5,000 0.4% 1.0% 0 2014 2015 2016 2017 2018 2019 2020

Between 2017 and 2020, IPOs captured an increasing share of the value of the domestic stock market. In 2019- 2020, this percentage was high also compared to other developed countries including the US, Germany, UK, France, and South Korea.

IPOs value as a percentage of total equity market value, by country, 2014-2020

1.0% 0.9% 0.8% 0.7% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0% 2014 2015 2016 2017 2018 2019 2020

data source: Bloomberg USA UK France Germany South Korea Israel

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Debt raised - Tradable corporate bonds • App. NIS 68 billion in corporate bonds was issued by 143 firms. In the past 5 years, debt issues totaled between NIS 60 billion and NIS 70 billion per year. • More than 90% of the bonds issued were rated ilA- or higher (Israeli rating scale).

Total corporate bond issues, 2014–2020 (NIS billions)

4 4 3 14 13 1

65 68 68 55 52 55

2014 2015 2016 2017 2018 2019 2020

*Includes issues of convertible bonds Corporate tradable bonds TASE UP corporate bonds

Developments in TASE trading volumes and liquidity measures: • In 2020, total daily trading volume in shares increased by 36% compared to 2019, reaching app. NIS 1.45 billion (NIS 1.35 billion excluding off-exchange trades). On average, 90% of the daily trading volume in takes place on the TASE. This figure does not include the trading volume of stock market index products (ETFs), which totaledd app. NIS 400 million in 2020.

• The major share of this increase can be attributed to activity during the height of the Covid-19 crisis in the first half of the year, but trading volumes remained high in the second half of the year compared to the previous year as well.

• Average daily trading volume in government bonds also increased by 17%, reaching app. NIS 3.1 billion.

• Trading volumes in tradable corporate bonds also increased by 17% in 2020, compared to 2019, with a daily average of app. NIS 930 million.

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Average daily trading volume 2012-2020, by securities type

NIS million 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2017 2017 2017 2015 2015 2015 2016 2016 2012 2012 2016 2012 2019 2019 2013 2013 2013 2019 2018 2018 2018 2014 2014 2014 2020 2020 2020

Government bonds Shares Corporate bonds

on-exchange off-exchange

Average daily trading volume in shares and participation units, 2012-2020, quarterly data

NIS million 1,600 1,400 1,200 1,000 800 600 400 200 0 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q2 Q3 Q2 Q3 Q2 Q3 Q2 Q3 Q2 Q3 Q2 Q3 Q2 Q3 Q2 Q3 Q2 Q3 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 2012 2013 2014 2015 2016 2017 2018 2019 2020

Average trading volume in TA-125 index shares has risen gradually since 2012.Up to 2019, the growth rate was similar to that of major European indices, but in 2020 the increase in the volume of trading activity in TA-125 stocks was larger than the respective increase in European indices. Trading volume in the leading US shares market index increased significantly compared to other indices.

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Changes in daily TA-125 trading volume from 2012, compared to leading international indices

160% 140% 120% 100% 80% 60% 40% 20% 0% -20% 2012 2013 2014 2015 2016 2017 2018 2019 2020

S&P 500 FTSE 100 CAC 30 DAX Index TA 125 Volume in local currencies. Data source: Bloomberg

The improvement in liquidity was also reflected in a significantdecline in bid-ask spreads since 2008, and while spreads rose temporarily at the height of the Covid-10 crisis in March 2020, they subsequently declined to pre- crisis levels by the end of the year.

Median bid-ask spreads, by security type, 2008-2020

9.00%

8.00%

7.00%

6.00%

5.00%

4.00%

3.00%

2.00%

1.00%

0.00% 17/02/2011 17/02/2017 17/02/2015 17/02/2016 17/02/2012 17/02/2019 17/02/2013 17/02/2018 17/02/2014 17/02/2010 17/02/2020 17/02/2009 17/02/2008

Corporate bonds Shares TA125

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Activities of rating companies and rating Tradable corporate debt by rating, 2007-2020 changes in the corporate bond market6 • At the end of 2020, app. 680 corporate bonds 4% 4% 4% 3% 1% 1% traded on the TASE. 19% • Today, app. 40% of these series are rated 30% 27% ilAAA-ilAA by Maalot or Midroog, 43% are rated 18% ilA-ilBBB, and app. 17% are rated lower than 49% ilBBB or are unrated. • The following figure shows that the percentage of lower than ilBBB and unrated bonds declined in the past decade.

63% 66% 67% Corporate bond series by rating, 2007-2020 44%

16% 16% 25% 1% 2007 2013 2019 2020

56% 7% Unrated Low than ilBBB A-BBB AAA-AA 47% 43%

49% Distribution of Ratings, by Rating Company In the past decade, the tradable corporate bond 20% market expanded to app. 700 bond series with a total market capitalization of app. NIS 360 billion. 37% 40% In this period, series rated lower than ilBBB and 24% 19% unrated series accounted for a diminishing share of the number of bond series (from 56% to app. 17%) and a diminishing share of the market cap (from 19% 2007 2013 2019 2020 to app. 5%). Unrated Lower than ilBBB At end 2020, 150 tradable corporate bonds (22% of A-BBB AAA-AA all series on the market) were rated by both Midroog and Maalot, the two rating companies operating • At the end of 2020, the market capitalization of in Israel. The market capitalization of these series tradable corporate bonds totaled app. NIS 360 totaled NIS 148 billion or 41% of the marketing billion (reflecting a 5% decline compared to the capitalization of the corporate bond market. previous year).7 In the past decade, the market capitalization of tradable corporate bonds more than doubled. • At the end of 2020, 67% of the total tradable debt was rated ilAAA-ilAA, similarly to the previous year. Also, at that time 27% of the total tradable debt was rated ilA-ilBBB, and a mere 5% was rated lower than ilBBB or was unrated (as compared to 2007, when lower than ilBBB or unrated debt accounted for app. 19% of the total tradable debt).

6. Ratings on the Israeli rating scale only, rated by Maalot or Midroog. 7. Including structured bonds.

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Dual-rated corporate bonds, 2014-2020

44% 45% 41% 42% 41% 39% 38%

21% 22% 21% 22% 19% 19% 20%

2014 2015 2016 2017 2018 2019 2020

% total market cap % of bond series

This figure shows that, from 2014, no significant change occurred either in the percentage share or in the percentage market capitalization of dual-rated corporate bonds.

Traded Corporations The Covid-19 crisis had a significant impact on a broad segment of reporting corporations operating in diverse business sectors that were either directly or indirectly affected by the crisis, including hotel and tourism, aviation, rental real estate, gas and oil, fashion and clothing, leasing, and finance. Reporting corporations issued over 370 immediate reports to public investors on the effects of the Covid-19 virus on their business operations. A considerable share of these reports included quantitative estimates of the anticipated effects on their business operations in the near future. When the Covid-19 crisis erupted in Q1/2020, the ISA took action on several levels:

Reports to investors on the impact of the crisis To ensure that public investors receive accurate, detailed information in real time about the effects of the Covid-19 virus on the reporting corporations, ISA Staff published bulletins and Staff positions that offer clear guidelines on the reporting requirements that apply to the reporting corporations and the information that must be reported to investors in the event that a corporation’s business operations are or may be significantly affected by the crisis. These guidelines referred to the required disclosures in immediate reports and periodic reports, such as the inclusion in directors’ reports and financial statements of reliable, quantitative, and high-quality information concerning the effects of the crisis on the corporation’s state of business, operating performance, liquidity, financial strength, and additional risks that emerged as a result.

Publication of circulars to corporations concerning relief and clarifications Due to the exceptional circumstances that arose, the ISA extended the reporting corporations’ filing deadlines for financial statements for the year 2019 and Q1/2020, and granted additional relief and made clarifications in response to questions that arose during the crisis on various topics, such as securities trading, valuations attached to reports, virtual board meetings, fees of external and independent directors, remote work by electronic means, and officers’ liability insurance.

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Responding to corporations’ concerns During the crisis, the Corporate Finance Department dedicated resources to address specific requests of corporations related to ongoing concerns related to the crisis. Among the various types of assistance it granted, the ISA supported corporations that encountered difficulties as a direct result of the crisis, and also handled pre-ruling requests.

Assistance concerning debt settlements and corporations’ financial position During the crisis, uncertainty increased with respect to the ability of several reporting corporations to fulfill their financial obligations. The crisis significantly challenged reporting corporations’ ability to service their debt. In response, the Corporate Finance Department increased its monitoring of the effects of the crisis on corporations’ ability to meet their obligations, and the ISA verified that these corporations made appropriate disclosures of their settlement proceedings in and out of court. These activities included ongoing meetings with corporations and auditing accountants about the corporations’ financial position, a review of the related disclosures made to investors and the reflection of the situation in auditing accountants’ opinions and reports. With respect to debt settlement proceedings, it should be noted that as a result of the crisis, the number of cases in which corporations managed rapid out-of-court debt settlements increased in 2020. These debt settlements typically included “surgical” measures to create quick short-term out-of-court solutions (such as amendments to financial covenants, short-term deferral of maturity dates, acceptance of added collateral in exchange for a waiver of financial covenant compliance).

In 2020, the ISA participated in a unique comprehensive international survey on worldwide regulatory responses to the effects of the Covid-19 virus on capital markets. The survey, organized by the World Bank and Cambridge University, examined the measures that regulators performed in response to the challenges of the Covid-19 crisis, the effects of the crisis on the stability of the financial system, and its contribution to further digitization of financial services. Over 95 regulatory agencies participated in the survey, most of which were central banks, financial service regulators, or securities commissions from developing and developed countries. The survey’s findings showed that the ISA’s responses to the Covid-19 crisis were similar to the measures taken by financial regulators in other developed countries.

No. of corporations listed on the TASE, 2015-2020

560 532 546 539 535 548

2015 2016 2017 2018 2019 2020

The number of corporations traded on the TASE varies over time mainly as a result of delisting of traded companies, tender offers, going-private transactions, and IPOs of new corporations. The decline in the number of traded corporations between 2017 and 2018 stems mainly from the effects of Amendment 28 of the Joint Investments Law, as a result of which 21 ETNs were removed from the list of traded corporations and became exchange-traded tracker funds. Between 2018 and 2019 there was no significant change in the number of listed corporations, but in 2020 this number increased, mainly due to the significant number of new corporations that performed an IPO (mainly in Q4/2020 by firms in the technology sector). It should be clarified that several dozen reporting corporations are not traded on the TASE (either because they were delisted or they never listed for trading).

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IPOs of new companies vs. companies that concluded their reporting requirements, 2013-2020

38 39

33 30 28 26 27 22 18 19

13 13 13 11 9 5 2013 2014 2015 2016 2017 2018 2019 2020

Concluded reporting requirements IPO

IPOs, non-uniform offerings, and technology firms that joined the TASE in 2020 In 2020, 28 companies concluded an IPO. The vast majority of these (26 corporations) completed an IPO of shares or participation units that were listed on the TASE, one corporation issued securities to the public without listing on the TASE, and another concluded its first public offering of debt securities. The technology sector was especially active, and most of the new corporations that joined the TASE (20) belong to this sector. Furthermore, this year, for the first time, the majority of issuances (over 75%) were non-uniform offerings. This offering method, which is directed to institutional investors, allows corporations to exercise their discretion in selecting the buyers of its offered securities and the quantity to be purchased by each buyer (“book building”).

Reported transactions with controlling shareholders, private placements, and tender offers 2017-2020 632 582

463 481

131 147 143 110

13 18 15 30 2017 2018 2019 2020

Transactions with controlling shareholders Material and irregular private offerings Tender offer specifications

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Debt settlements 2016-2020

Year No. of Adjusted par value of Adjusted par value of Percentage of debt firms8 debt under settlement9 tradable debt (in NIS under settlement (in NIS millions) millions)10

2020 18 16,222 341,364 4.75%

2019 5 3,746 376,601 0.99%

2018 2 1,663 339,752 0.49%

2017 4 838 310,529 0.27%

2016 6 5,106 291,687 1.75%

In recent years, the number of companies and the amount of debt that came under settlement or that were modified by consent outside the court declined, and the scope of out-of-court debt settlements was immaterial. This trend changed in 2020, apparently as a result of the Covid-19 crisis and an increase in partial ad-hoc out- of-court debt settlements that were mainly limited to amendments to bond indentures (e.g., amendments to financial covenants, short-term deferral of maturity dates, and acceptance of additional collateral in exchange for a waiver of financial covenants). In 2020, of the 18 companies that came under a debt settlement, 11 performed partial ad-hoc out-of-court debt settlements (app. NIS 9.5 billion par value) and the 7 remaining companies (app. NIS 6.5 billion par value) are involved in court-supervised debt settlements (proceedings have either been concluded, are pending, or scheduled to commence).

Permits granted to reporting corporations publish a prospectus Section 23A of the Securities Law defines the legal arrangement that permits publication of shelf prospectuses, under which a company may offer its securities to the public at various dates over a 24-month period (with option to extend this period by an additional 12 months) based on a shelf offering report that generally does not require a permit by the ISA. The shelf prospectus arrangement is designed to increase reporting corporations’ access to the capital market. As a result, the period from the date the corporation decides to raise capital to the effective capital raising date is reduced, as are the related costs. Today, the majority of applications for permits submitted by reporting corporations refer to shelf offerings. While shelf prospectuses accounted for the vast majority of permits issued (75%-84%), in 2020, shelf prospectuses accounted for approx. 60% of all permits issued, resulting from the significant share (approx. 40%) of permits to IPO prospectuses.

8. A single company may be counted multiple times if its bond series are subject to settlement proceedings in different years or if it is under a second settlement proceeding. 9. Current for the date on which the firm entered into the settlement proceeding. 10. Bonds and convertible bonds (at end of year).

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The number of applications for a permit to publish a prospectus and the permits issued in the years 2018-2020

Prospectuses11 Offers based on shelf prospectus12

Year No. of No. of Permits for IPOs Permits for shelf No. of Total shelf applications permits (% of total no. of prospectuses corporations offer reports filed issued permits issued and issue that offered prospectuses securities based (% of total no. of on a shelf permits issued)13 prospectus

2018 163 118 (25%) 30 (75%) 88 143 222

2019 149 134 (16%) 21 (84%) 113 151 252

2020 227 176 (40%) 71 (60%) 105 148 253

No. of full inspections of prospectuses and financial statements, 2018-202014

13 22

10 19 12

30 118 81 52

2018 2019 2020

Active revenues Financial statements Prospectuses

The Corporate Finance Department performs quarterly and annual inspections of reporting corporations’ annual and quarterly financial statements as part of the prospectus inspection process. The inspection is either initiated by the Department or triggered by a specific event (such as the introduction of new operations, a debt settlement, etc.). A full corporate inspection is performed according to the prospectus inspection procedure or financial statements inspection procedure, and is scheduled for each corporation on a 4-5-year cycle, on average. In addition to this cycle, the Department’s staff applies various considerations, sets priorities, and reviews the information known to the Department in order to determine which corporations will undergo an inspection, the timing of the inspection, the type of inspection (partial or full), and the key topics for review. In the past year, the Corporate Finance Department performed inspections of 118 prospectuses, of which app. 100 were IPOs (this number includes inspections that are underway and IPO prospectuses that were inspected and consequently cancelled).

11. The data cover prospectuses that were submitted and prospectuses that were granted a permit from March 1 of each year to February 28 of the following year, based on the define prospectus submission cycle. 12. The data refer to shelf offers issued between January 1 and December 31 in each year. 13. Share of prospectuses of total shelf prospectuses and issue prospectuses is negligible. 14. The data refer to full inspections conducted in the period from March 1 of each year to February 28 of the following year, according to the defined prospectus inspection cycle.

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Mutual Funds Market shares of mutual fund managers as at Mutual funds are a type of investment vehicle December 31, 2020 (%) that allows a large number of investors to pool their money to invest in a variety of investment vehicles and financial instruments, including shares, government bonds, and corporate bonds. 3.09 17.75 In contrast to direct investments in the capital 3.55 market, mutual funds allow investors to obtain 5.22 broad exposure to a diverse range of operations and assets in capital markets in and outside Israel. 1.63 7.08 0.98 The companies that manage mutual funds and their 0.87 investments (the fund managers) are approved by 0.58 14.80 the ISA and their ongoing operations are supervised 7.25 0.53 0.22 by the ISA. 0.13 At end 2020, there were 2,142 active mutual funds

(compared to 2,127 active mutual funds at end 11.49 12.72 2019). Of these, 1,146 were active open-end funds (compared to 1,564 funds at end 2019), 531 open- 12.19 ended tracker (index) funds (compared to 378 at end 2019), 531 ETFs (compared to 562 ETFs at end 2019, and one elite technology fund. In the course of the year, 172 new funds were added (of which Mutual funds, 2016-2020 49 active funds, 87 tracker funds, and 36 ETFs), while 157 funds were discontinued, of which 47 2,093 2,127 2,142 merged with other funds and 109 were liquidated (compared to 101 funds liquidated in 2019). One fund transformed from an open-ended tracker fund to an ETF, and 14 funds transformed from ETFs to 1,393 1,432 open-ended tracker funds. The number of active fund managers was 17 at end 2020, compared to 19 at end 2019. Of these, 8 fund managers also manage tracker funds. In addition, since 2017, there are 7 foreign fund managers active in Israel. At end 2020, 17 open-ended foreign funds and 23 foreign ETFs were listed for trading. There were 7 mutual fund trustees. 2016 2017 2018 2019 2020

Mutual Fund Assets At end 2020, mutual funds held NIS 330.6 billion in assets, compared to NIS 352.3 billion at end 2019. Assets declined by NIS 21.7 billion in 2020 due to app. NIS 29 billion in excess redemptions. In January 2020, mutual funds’ assets under management peaked at NIS 359.3 billion. With the outbreak of the Covid-19 pandemic, the mutual fund

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sector suffered outflows in the amount of app. NIS 44.5 billion, and assets under management in March 2020 dropped to a record low of NIS 255.3 billion. Of this amount, NIS 15.3 billion were redeemed in the Local Bonds - General category.

Value of mutual fund assets as at December 31, 2016-2020 (NIS billion)

352.3 330.6 306.8

243.1 214.1

2016 2017 2018 2019 2020

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Pursuant to the provisions of Section 73(C1)(1) of the Joint Investments Law, a mutual fund’s classification must appear in publications according to Minister of Finance directives. The list of mutual fund categories is available on the ISA website. Following are statistical data on the mutual funds, by category, including the number of funds and the value of assets in each category, at end 2020:

Managed assets of mutual funds by category, December 31, 2020

No. of funds Asset value Average fund Share of total (NIS millions) size (NIS mutual fund millions) assets (%) Local bonds – general 388 75,059 193 22.7%

Local bonds – corporate and 347 64,454 186 19.5% convertible

Active 135 22,340 165 6.8%

Passive 212 42,114 199 12.7%

Foreign shares 563 60,896 108 18.4%

Active 111 8,695 78 2.6%

Passive 452 52,201 115 15.8%

Local shares 235 44,227 188 13.4%

Active 116 13,260 114 4.0%

Passive 119 30,967 260 9.4%

Local bonds-government 237 37,014 156 11.2%

Active 139 26,088 188 7.9%

Passive 98 10,925 111 3.3%

funds 33 22,613 685 6.8%

Foreign bonds 109 9,005 83 2.7%

Active 80 7,565 95 2.3%

Passive 29 1,440 50 0.4%

Local bonds – shekel-only 73 7,146 98 2.2%

Flexible 43 4,066 95 1.2%

Local composite bonds - general 47 2,150 46 0.7%

Leveraged and strategic 41 2,005 49 0.6%

Active 15 1,060 71 0.3%

Passive 26 945 36 0.3%

Closed-end funds 1 492 492 0.1%

Commodities 9 540 60 0.2%

Local bonds – foreign currency 3 144 48 0.0%

Foreign – general 1 296 296 0.1%

Fund of funds 6 205 34 0.1%

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No. of funds Asset value Average fund Share of total (NIS millions) size (NIS mutual fund millions) assets (%) Other 4 251 63 0.1%

For foreign residents only 2 20 10 0.0%

Total mutual funds sector 2,142 330,583 154 100.0%

Total active funds 1,146 189,049 165 57.2%

Total passive funds 996 141,533 142 42.8%

Tracker funds (not traded) 465 51,026 110 15.4%

ETFs 531 90,507 170 27.4%

The market share of passive funds (ETFs and open-end tracker funds) remained unchanged from 2019. The majority of passive funds are (traded) ETFs, which manage 27.4% of the total asset value in the mutual fund sector (compared to 26.5% at end 2019), while open-ended tracker funds (that are not traded) manage 14.5% of the total asset value in the mutual fund sector (compared to 11.6% at end 2019).

Of all active funds, the “local bonds-general” category had the highest asset value in 2020, unchanged from 2019. At end 2020, the market share of the “foreign shares” category increased to 18.41% (of which 15.8% passive funds) to 16.1% at end 2019. Furthermore, the market share of the passive sector of “local bonds – corporate and convertible category” increased from 10.4% at end 2019 to 12.7% at end 2020.

Mutual Fund Trustees A fund trustee is a company whose primary occupation is to fulfill trustee obligations, and has approved by the ISA Chair to serve as a trustee after proving that it meets the conditions prescribed by law. The trustee holds the fund assets in trust on behalf of the unit owners, either in a bank account or in a securities account administered by a stock exchange member. The trustee company oversees the mutual fund manager and its compliance with the provisions of the Law, and fulfillment of all its prospectus-based obligations. The trustee receives a fee for its duties, which is calculated as a percentage of the fund’s asset value, and is collected from the fund’s assets. There are 7 mutual fund trustees.

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Market shares of mutual fund trustees, Management fees in the fund sector and December 31, 2020 (%) restrictions on the frequency of fee hikes After the Bachar Reform came into effect, and the extensive reforms in 2008, management fees in the mutual fund sector have shown a steady decline. 3.2 3.9 4.5 In the past seven years, average management fees have dropped by more than 50%, and in the past five years, average management fees have 9.0 dropped to below 1% (0.71% in the reporting year). The continued decline in management fees is the 44.4 result of the growing competition in this sector and the rising value of passive assets under 19.9 management (tracker funds), which charge lower average management fees (according to their distribution model, the fund manager does not pay a distribution fee but instead, investors pay a fee on 15.0 each buy and sale of securities). In 2016, ISA Staff drafted uniform voluntary guidelines for mutual funds’ obligations concerning their management fee hikes. According to these guidelines, mutual fund managers undertake not Mutual funds that track new tracked assets to increase the load charges paid to them, under A tracker fund is an index or a commodity that is their management within a single calendar year. The designed to generate returns that are a function of names of the mutual fund managers who adopted the changes therein, based on the tracker fund’s these guidelines are published on the ISA website. investment policy. In the reporting year, ISA Staff At the publication date of the current report, the gave its approval to funds to track 61 new indices managers of all active funds adopted the guidelines. (compared to 58 in 2019). Of these, 8 are ESG or As a result, the fees they charged on January 1, 2020 green indices and 6 are related to investment trends will remain in force until December 31, 2020. that emerged in response to the Covis-19 crisis In 2020, average management fees were 0.97% in (tourism, work from home, ecommerce, etc.). the active funds and 0.41% in the passive funds.15 New local and foreign share and bond indices, December 31, 2020

32 32 29

14 14 13

2 2 0 0 Other Bonds Shares Total

Total Foreign Local

15. Several tracker funds have a variable management fee mechanism. Average fund manager fees in this figure do not include variable management fees.

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רועיש ימד נ והי ל םיעצוממ תונרקב תונמאנה

2 .1 %

Average mutual fund management fees, 2008-2020 (simple mean) 1.9%

1.7% 1.71%

1.5% 1.45% 1.36% 1.34% 1.3% 1.22%

1.1% 1.04% 0.97% 0.9% 0.91% 0.86% 0.83% 0.72% 0.81% 0.71% 0.7% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Attendance rate of mutual fund managers in general meetings This year was also characterized by mutual fund managers’ extensive involvement in general meetings. Over 70% of the mutual fund managers attended and voted in over 98% of all general meetings. Notably, in 2016, regulations were enacted that clarify and define the types of meetings that mutual fund managers are obligated to attend, and the decision whether or not to attend is not subject to the fund managers’ discretion.

Year No. of Attended by less than Attended by 30% – 70% Attended by more than meetings 30% of the managers of the managers 70% of the managers

No. of % No. of % No. of % meetings meetings meetings 2016 593 24 4.05% 0 0 569 95.95%

2017 722 19 2.63% 0 0 703 97.37%

2018 682 27 3.96% 0 0 655 96.40%

2019 690 15 2.17% 0 0 675 97.83%

2020 718 10 1.39% 0 0 708 98.61%

Investment Advisers, Investment Marketers, and Investment Portfolio Managers Investment advisers, investment marketers, and portfolio managers provide services to public investors. They are individuals or corporations that are licensed by the ISA to provide advice to investors on financial assets and exchange-traded securities, or to manage investment portfolios that contain such assets on behalf of these investors. Licenses are granted to investment advisers, investment marketers, and investment portfolio managers after an extensive assessment of their professional qualifications and their reliability. Corporations must also meet the minimum equity and insurance requirements defined by law. Investment advisers and marketers assess the customer’s needs and recommend investments that match their needs, whereas the decision to execute the transaction remains with the customer. In contrast, portfolio managers receive power of attorney to perform transactions in the customer’s account. Portfolio managers exercise their discretion and make investment decisions on the customer’s behalf based on an assessment of the customer’s needs. Similarly

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to investment advisers, investment marketers offer investment recommendations to customers, but they are affiliated with an entity that offers financial assets to the public (such as mutual funds) and therefore may select and offer one or more affiliated investment products that match the customer’s needs. Investment marketers are subject to special rules of disclosure to customers regarding their relationship with affiliated asset managers because the investment marketer may prefer the latter’s products. However, similarly to investment advisers and portfolio managers, investment marketers are also obligated to customize their services to the needs and instructions of the customers, to whom they owe duties of fidelity, caution, disclosure, and confidentiality; Portfolio managers are additionally subject to reporting requirements.

Value of portfolio management firms’ assets under management, 2015-2020 (NIS billions)

299 295

286

272

262 263

2015 2016 2017 2018 2019 2020

Value of AUM for non-institutional customers as at December 31, 2020 (NIS millions)

Value of managed assets No. of companies % of all companies % of total asset value

Under 50 28 22.40% 0.21%

50-100 13 10.40% 0.51%

100-500 48 38.40% 6.33%

500-1,000 6 4.80% 2.42%

1,000-5,000 20 16% 19.84%

Over 5,000 10 8% 70.68%

Total 125 100% 100%

Summative reports of the portfolio management sector are published annually on the ISA website. Chapter C

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Highlights of the First Goal ISA’s Activities in Maintaining a Fair 2020 This chapter summarizes ISA’s main activities Capital Market in 2020, according to the four goals defined in its strategic plan for 2019-2022. Establishing a safe, reliable, and fair capital market environment is one of the ISA’s key goals. Participation of both Israeli and foreign private and institutional investors in the capital market is contingent on a fair and orderly market that participants find trustworthy and reliable. A fair capital market is one in which participants believe that the ability to earn a return on one’s investments is not reserved for “insiders.” Accordingly, the ISA takes action to maintain the fairness of the capital market by effectively implementing the regulatory, supervisory, and enforcement tools at its disposal.

Following are the ISA’s main activities to promote this goal in the reporting year, which were performed in addition to its ongoing regulatory and enforcement activities.

Below are selected data and information. For detailed and complete information, see the original report in Hebrew. ISRAEL SECURITIES AUTHORITY Annual Report 2020 Enhancing The Market to Drive the Economy 46

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Enforcement

Activities of the Investigations, Intelligence, and Market Surveillance Department in 2020

Criminal investigation cases opened, Requests of assistance from foreign agencies 2016-2020 (judicial inquiries) whose findings were transferred to foreign agencies, 2016-2020

4 55 6

16 17 12 1 10 4 8 9 1 2 1 4 1 2 4 1 4 3 6 2 1 5 1 1 3 2 2016 2017 2018 2019 2020 Total 2016 2017 2018 2019 2020 Total

Violations under the Penal Law: bribery, theft, fraud, and Investigation cases referred to the District obtaining by deceit Trading platforms offenses and offenses under the Attorney’s Office, 2016-2020 Investment Advice Law Misstatements or reporting failures (in a prospectus, financial statement, immediate report, or capital raising 4 without a prospectus) 4 Insider trading Securities fraud 13 *By primary offense. Penal law offenses are occasionally included with securities violations.

16 Requests of assistance to foreign agencies 1 3 1 1 1 (judicial inquiries), 2016-2020 1 1 2 3 1 2 2 49 5 7 7 4 2 3 1 2 1 2016 2017 2018 2019 2020 Total

Violations under the Penal Law: bribery, theft, fraud, and obtaining by deceit Trading platforms offenses and offenses under the Investment Advice Law 15 Misstatements or reporting failures (in a prospectus, 12 financial statement, immediate report, or capital raising 8 8 6 without a prospectus) Insider trading Securities fraud 2016 2017 2018 2019 2020 Total

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Enforcement

Administrative inquiry cases opened, Summary of enforcement files opened, 2016-2020 2016-2020 4

1 44 2 1 2 9 8 9 7 4 3 7 7 9 12 3 3 1 11 10 12 1 1 2 1 6 5 2016 2017 2018 2019 2020 Total 2016 2017 2018 2019 2020 Total

Securities fraud Administrative inquiries Insider trading Criminal offenses Misstatements or reporting failures (in a prospectus, financial statement, immediate report, or capital raising without a prospectus) Trading platforms offenses and offenses under the Breakdown of criminal files Investment Advice Law

No. of investigation No. of No. of files handled by the indictments investigation Administrative inquiry cases referred District Attorney’s in 2020 files referred to the District Attorney’s Office, 2016-2020 Office at end 2020, to the pending a decision District to file an indictment Attorney’s 5 Office in 2020

20 3 8

27 Investigation files handled by the District Attorney’s Office pending a decision to file an 1 2 indictment, by referral year: 3 1 5 3 4 8 1 7 8 3 2 3 1 Year Investigation files handled by the District 2016 2017 2018 2019 2020 Total Attorney’s Office pending a decision to file an indictment, by referral year Securities fraud 2017 1 Insider trading Misstatements or reporting failures (in a prospectus, 2018 3 financial statement, immediate report, or capital raising without a prospectus) 2019 9 Trading platforms offenses and offenses under the Investment Advice Law 2020 7

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Enforcement

Distribution of administrative files opened in 2020

Offense No. of files Misstatements or missing reports 4 Reporting failures and misleading the ISA 1 Public offering of securities in the absence of a prospectus 1 Use of inside information 1 Securities fraud 3

Fines imposed under the Securities Law or the Companies Law

Violator Fine Violation - Section and description

Yetzu Investment NIS 95,313 Regulation 24(b) of the Periodic and Immediate Reports – absence Company Ltd of disclosure in the periodic reports for the years 2016 and 2017 on an interested party’s holding in the company

Eloit Ltd NIS 5,992 Section 37 of the Securities Law –late notice by interested party of (interested party) a change in holdings

Uri Weiss NIS 5,992 Section 37 of the Securities Law –late notice by interested party of a change in holdings

Eden Energy NIS 24,000 Section 15 of the Securities Law – securities offering in the absence Discoveries Ltd. of an ISA-permitted prospectus

Next Gen Biomed NIS 30,000 Regulation 36(A1) of the Regulations of Periodic and Immediate Ltd. Reports – missing information in an immediate report

Ziron Refineries NIS 30,000 Regulation 8B(a) of the Regulations of Periodic and Immediate Ltd. Reports – failure to attach very material evaluation

Anchor Properties NIS 75,806 Regulations 30(b), 36, and 37A2 of the Regulations of Periodic and Immediate Reports – delay in immediate report

Fines imposed under the Advice Law

Offender Penalty amount Violation - Section and description

Hapoalim Bank NIS 480,000 Section 17 of the directive issued under Sections 13 and 28(b) of the Ltd. Law – failure to update needs annually

Fines imposed under the Joint Investments Law

Offender Penalty amount Violation - Section and description

Harel Mutual Fund NIS 125,000 Section 73 of the Joint Investments Law – publication of an Management Ltd. advertisement containing incorrect information

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Enforcement

Fines imposed under the Prohibition on Laundering Law

Offender Penalty amount Violation - Section and description

Failures in procedures to verify information, failures in identification eTrade NIS 50,000 and confirmation of account holders – Sections 4(a)(1), 8(b) and 9 of the Order

Failures in classifying customer’s risk level, performing ongoing Synergy Financial NIS 20,000 audits, and failure to report irregular activity – Sections 2(c), 9 and Markets Ltd. 10(a) of the Order

Department of the Ministry of Justice pursuant to International Activities the International Legal Assistance Law 5758-1998.

International collaboration on enforcement In 2020, the ISA sent six requests for information and information exchanges and assistance in judicial inquiries, which The ISA conducts a growing number of included two requests regarding “fit and proper” investigations and administrative inquiries that entail requirements. The ISA also addressed 22 requests activities outside Israel and information in foreign from foreign securities commissions, including 13 databases, and require ongoing communications requests regarding “fit and proper” requirements. between the ISA and foreign agencies. The ISA attributes great importance to its collaborations In 2020 the ISA continued to play a role in IOSCO’s with security supervisory and enforcement agencies enforcement committee. The main issues on the outside Israel, which are critical for achieving its committee’s agenda this year included enforcement enforcement goals. action and acts of fraud from the perspective of the COVID-19 pandemic, domestic securities Cooperation is based primarily on the Multilateral regulators’ enforcement capabilities and assistance Memorandum of Understanding Concerning in executing foreign judgments and sanctions and Consultation and Cooperation and the Exchange how regulators cope with the new digitization and of Information (MMoU) developed by IOSCO, the distribution of new unsupervised investment assets. international umbrella organization of the world’s In addition, the committee discussed differences securities regulators of which the ISA is a member. in the powers of securities commissions and The MMoU governs all aspects of cooperation decided to examine the best way of bridging these among securities commissions for the purpose differences in various situations, such as when of regulatory enforcement. The MMoU currently a securities commission receives a request for has 124 signatories. The ISA’s activities within the assistance yet does not have the regulatory powers framework of the MMoU are an integral part of its with respect to the specific product or enforcement enforcement activities in the global sphere. action in question. The committee also discussed specific enforcement cases that emerged in in The Department of International Affairs and different countries the course of the year. Business Development handles the requests received from and directed to foreign securities Submission of application to sign the commissions. The majority of these requests Enhanced MMoU are handled directly by the ISA and the foreign In December 2020, the ISA — through the securities commission that is an MMoU signatory. Department International Affairs and Business Where the foreign securities commission is not a Development — submitted an application to sign signatory, requests are handled by the International

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Enforcement

As at the end of 2020, a select group of 15 securities the Enhanced IOSCO MMoU. The MMoU of which commissions signed the Enhanced MMoU, and the ISA is a signatory, is a multi-lateral agreement applications of an additional seven commissions in the area of securities enforcement, concerning were under review. By submitting an application, the assistance and information exchange involving its ISA seeks to join this select group. IOSCO’s aim is to signatories, for the enforcement and supervisory have all the original signatories sign the Enhanced needs of the requesting securities commission. The MMoU within several years. The ISA’s application will MMoU was established in 2002, and the ISA joined be reviewed by an international committee that will in 2006. Requests for assistance such as those examine the ISA’s capabilities of joining this multi- noted above are submitted pursuant to the MMoU. lateral agreement and exercising these powers for A need to revise and expand the MMoU arose enforcement purposes. in view of the significant changes in the markets since the MMoU was signed, including extensive Revision to MOUs with the FCA in anticipation regulatory changes and the introduction of new of the UK’s withdrawal from the EU technologies in financial markets, as well as the In 2020, the ISA and the British securities regulator, large increase in the number of requests directed to the Financial Conduct Authority (FCA), reviewed the securities commissions (from 56 annual requests in actions required to be performed or modified as 2003 to several thousand requests in 2020). a result of the UK’s withdrawal from the European Union. Preparations for the UK’s withdrawal The Enhanced MMoU includes five new powers included revisions to two MOUs signed between in which signatories are required to provide the ISA and the FCA: The first MOU establishes the assistance: to obtain and share audit work papers, principles of cooperation, advice, and information to compel physical attendance for testimony, to exchange related to FCA approval of prospectuses freeze (or assist in freezing) assets, and to obtain issued by Israeli issuers, while the second MOU and share internet service provider records as focuses on cooperation and information exchange well as telephone and internet data. A securities concerning alternative funds. commission that is a signatory of the Enhanced MMoU may request that other Enhanced MMoU MOU signed with the Singapore Exchange signatories exercise these powers. (SGX) In August 2020, the ISA and SGX RegCo, the regulatory arm of the Singapore Exchange signed an MOU for mutual information exchange to protect investors. Regulatory cooperation will facilitate information exchanges, monitoring and tracking of supervised entities traded on both markets pursuant to the Securities Law. This agreement joins the the two markets’ mutual dual-listing agreement, which permits companies to trade concurrently on both markets under a single legal regime without added regulatory costs. The agreement will apply to companies that issue in Israel or in Singapore.

The agreement is consistent with the ISA’s policy to develop cooperation with corresponding stock exchanges and regulators worldwide. It creates significant value for companies and investors because it permits safe activities concurrently on multiple markets.

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Regulation and Supervision

The ISA works constantly to improve the effectiveness of its ongoing supervisory operations to ensure that they meet the standards accepted in comparable markets. Below are the main projects and data on regulatory and supervisory activities in the reporting year:

Legislative Amendments in Response to the Covid-19 Crisis In 2020, the ISA was involved in two main legislative amendments in response to the Covid-19 crisis. The first was the result of a temporary order and response to the crisis, the second was designed to relax regulation in the post-pandemic era and is expected to address ongoing needs more effectively.

Covid-related concessions on Fees Many organizations that are supervised by the ISA were adversely affected by the economic crisis caused by the spread of the pandemic. For this reason, the ISA initiated temporary orders to reduce the fees that these entities pay, in order to support them in these challenging times. The temporary orders were approved by the Knesset Finance and Economic Committee in December 2020.

The outline for reduced fees comprises two parts: One defines a one-time reduction in annual fees for 2020 for reporting corporations, mutual funds, and investment portfolio firms, based on determining alternative dates for calculating the annual fees such that the amount charged is the lower of the two amounts. The fee calculation method also takes into account any negative impact on the operations of the supervised entities caused by the Covid-19 crisis, and provides greater relief to those entities that sustained the most significant adverse impact. It was also determined that the ISA will credit fund managers who paid a prospectus publication fee surcharge after March 2020 due to net creations in the fund, up to a set-off of 20% on the net redemptions in March in each fund they manage. The second part defines a 15% reduction across the board for the majority of entities (individuals and corporations) that pay annual fees to the ISA, in the period from 2021 to 2023, taking into consideration the capital reserve in the ISA’s budget. In addition to these, in order to encourage the establishment of special purpose funds that operate under the 2.0 Portfolio Service model and to help them in their initial stages of operation, the ISA decided to award infancy protection to these funds as follows: each group of four special purpose funds managed by a single investment portfolio manager with the same fund manager will be considered a single fund for the purpose of annual fee obligations in each of the years between 2021 and 2023.

Improving Efficiency in Securities Regulation Law (Legislative Amendments) 5780-2020 On July 2, 2020, a Memorandum of Law Improving Efficiency in Securities Regulation (Legislative Amendments) 5780-2020 (“Memorandum of Law”) was published on the government’s legislation website as part of the Arrangements Law.

The field of securities is extremely dynamic, which explains the need to rapidly adapt regulation to the frequent developments in the capital market, to allow efficient supervision, support market development, and remove unnecessary barriers. Furthermore, the field of securities is subject to professional and technical requirements that call for extensive flexibility and attentiveness to market developments.

While the majority of securities laws are enacted in primary and secondary legislative procedures, not all regulation in this field warrants such procedures. Not only are legislative procedures unnecessary with respect to detailed professional directives that are subject to numerous modifications and adjustments over time, but experience also shows as many as several years may elapse from the date on which the need to revise a directive arises until the directive is actually promulgated. This challenge applies in ordinary times and is exacerbated during a crisis, which was the case in the past year with respect to the efforts to deal with the

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Regulation and Supervision

Covid-19 pandemic and its effects on the capital market. In such times, it becomes imperative to provide a rapid response to market events that were strongly affected by the crisis. Consequently, it is necessary to authorize the ISA to promulgate independent regulations with relative speed, in lieu of legislative amendments.

The Memorandum of Law concerns granting the ISA the power to issue directives on several specific issues whose adjustment to the current state of the market requires greater flexibility: investment limits, asset diversification and evaluations in mutual funds; shareholders’ equity and insurance of holders of investment management, advice and marketing and their reports; special disclosure rules for reporting corporations, and leverage rates in trading platforms to their own account.

Implementing the findings of the FATF evaluation report and preparations for compliance monitoring The international audit of the Financial Action Task Force (FATF), an international organization that promotes policies that fight money laundering and terror financing, was concluded in October 2018. On December 10, 2018, the organization’s plenum decided to admit Israel as a member state. Israel is monitored by the organization and is required to file progress reports on rectifying the defects that were discovered in the audit. The plenum is scheduled to discuss Israel’s progress report in June 2022. In 2021 together with other regulators, the ISA will take steps to correct the defects and submit the progress report.

Inspections Inspections are one of the means of supervision used by ISA departments in the performance of their work. Inspections supplement the ongoing supervisory actions performed by the referents of the supervisory departments. Inspections have an important place in the supervisory toolbox, and provide an opportunity to perform an in-depth review of the supervised entities’ compliance with the applicable provisions of law and regulations. Inspections also increase the ISA’s deterrence and the degree of compliance of its supervised entities. Inspections also make it possible to conduct an in-depth examination of supervised entities’ conduct in a specific area or topic and these examinations may result in the publication of ISA positions that guide the market toward the desired mode of conduct, as outlined by ISA Staff.

In 2020, the Inspections and Examinations Department performed inspections of a range of supervised entities including the TASE and its clearing houses, reporting corporations, crowdfunding platforms, trading platforms, investment managers, and mutual fund managers and trustees, and conducted an AML inspection of a TASE member. With respect to several of these inspections, the ISA published or will publish circulars later this year summarizing insights and guidelines for the market. Furthermore, the Department conducted an examination of the supervised entities’ business continuity programs and effective solutions to ensure continuity of their service delivery during the Covid-19 crisis, and published a circular summarizing the insights on this topic.

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Regulation and Supervision

Inspections conducted in 2020

Type of supervised entity Topic of the inspection No. of Comments inspected entities

Mutual fund managers Transfer of assets from ETNs to ETFs after 4 Inspections that Amendment 28 of the Funds Law commenced in 2019 and were Mutual fund trustees Transfer of assets from ETNs to ETFs after 5 concluded in Amendment 28 of the Joint Investments Law 2020

Mutual fund trustees Review of the trustee’s oversight model 2

Advisory function in banks Compliance with the Advice Law 2

Mutual fund managers Corporate governance 1

Investment houses Business continuity and disaster recovery 1 program

Reporting corporations Balance sheet committee 4

Reporting corporations Payments to the controlling shareholders 4 and CEO

Reporting corporations In-depth inspection of a project 1

Investment house Business continuity and disaster recovery 1 Inspections program conducted in 2020 (some will be concluded in Trading platform Inspection of marketing activities 4 2021) TASE member AML 1

TASE and clearing houses Corporate governance and risk management 3

Investment portfolio Mapping activities to review concerns of 4 managers violations of uniqueness of occupation and conflicts of interest directives

Investment portfolio Compliance with the Advice Law and 1 managers qualification requirements

Investment intermediaries Adjustment of business continuity plans in 14 view of the Covid-19 crisis

Crowdfunding platforms Recruitment of investors and review of 3 technological aspects of operations

Reporting corporations Income recognition – IFRS 15 4

Reporting corporations Financial covenants 2

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Regulation and Supervision

Actions related to unsupervised ventures in performing their duties as prescribed by law, Securities law define the legal framework for the and to improve the quality of financial statement ISA’s oversight of entities that offer securities to the auditing and reporting (in this context, and as part public, entities that manage investments on behalf of its efforts to improve the quality of the directors; of the public (joint investments, investment advice, work, see the 2020 inspection conducted by the and investment portfolio management), and other Inspections and Examinations Department jointly intermediaries such as crowdfunding platforms, with the Corporate Finance Department on the stock exchanges, and trading platforms, involved topic of balance sheet committees). The code of in offering investments in securities and financial professional conduct was published in early 2021. instruments to the public. Among other functions, the Inspections and Examinations Department Companies with No Controlling Shareholders examines whether various ventures operating in In recent years, the number of public companies areas that are relevant to ISA supervision are not in with no controlling shareholders has increased. violation of securities laws. Corporate governance rules established in Israeli legislation are primarily designed for companies In 2020, the number of unsupervised ventures with a controlling shareholder. Various concerns marketed on social media showed an increase. and issues arise with respect to companies with no Another prevalent phenomenon was increased controlling shareholders, which is the reason that access to unsupervised foreign ventures and a joint team of the Ministry of Justice and the ISA their marketing in Israel by Israeli residents using was established to review the need for adjustments pyramid/MLM schemes. This year, the staff of to corporate governance rules determined in the Inspections and Examinations Department the Companies Law. These efforts are also an reviewed a large number of unsupervised ventures, opportunity to introduce amendments designed and members of the Department staff continue to to encourage companies with no controlling improve their ability to monitor social media in order shareholders to list for trade on the TASE, and join to eradicate such and other problematic ventures. the dual-listing arrangement.

Code of professional conduct for members of In 2019, the joint team published a call for public audit and balance sheet committees comments, met with a large number of public In 2019 and in 2020, ISA Staff drafted a code representatives (company representatives, of professional conduct for the members of attorneys, and academic scholars), studied the large independent board committees, which stresses number of comments received, and developed the processes they administer in the capacity of recommendations to amend corporate laws and their duties as one of several gatekeepers of the securities laws. In 2020, the joint team continued to public’s money. For example, the code addresses work on the necessary legislative amendments, and the considerations that should be taken into a governmental memorandum of law on this topic is account in the appointment of accountants and in in the final stages of drafting before publication. developing recommendations on the accountant’s appointment and salary; in defining the appropriate ESG Disclosure type of ongoing communications with the auditing In 2020, the ISA issued a call on corporate accountant and defining methods of oversight responsibility and ESG risk disclosures, after over the auditor’s compliance with standards of an internal ISA team studied the justification for independence, and in defining the committees’ such disclosures, and whether such disclosure duties in approving the financial statements. In the requirements would be best placed in securities process of developing the code of professional laws. The team conducted a cross-country conduct (which included a comparative study of law comparison of ESG legislation and met with many and meetings with various capital market actors), participants in Israel’s capital market. The ISA ISA Staff found significant variance across firms received several dozen responses to the call from in the manner in which their committees perform local and foreign entities and in December the ISA their duties. The code of professional conduct is conducted a series of round-table discussions therefore expected to assist committee members to develop a final outline of the disclosure

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Regulation and Supervision

requirements of corporate responsibility and in the periodic report for the year 2019, which ESG risks for all or some public companies. In includes reference to the exposures and their January 2021, the ISA published a referral to the scope, and a description of the measures taken Impact Nation Program of the Ministry of Strategic to reduce the existing exposure. Affairs, which encourages companies, including public companies, to publish reports on corporate • SAB 99-6: Decision Update – Use of non-GAAP responsibility or ESG-based reports. The ISA plans Financial Measures (March 2020) to publish a final outline in 2021. In view of the increasing use of non-GAAP measures to analyze corporate performance, Staff Positions on Accounting and Auditing ISA Staff revisited the provisions of existing Issues decisions to determine whether the Pre-rulings requirements that apply to corporations when Pre-rulings on accounting issues were published on presenting non-GAAP measures should be the following topics: highlighted. The findings of the review show • request for an exemption from the requirement that the use of non-GAAP financial measures to attach financial statements to reports of may benefit investors, yet at the same time, transactions with controlling shareholders; there is a need to further stress the points that examination of a material effects; examination corporations must implement with respect of independence of an outside director; to these measures in order to increase the accounting treatment of gas purchase reliability, relevance, and added value of these agreements; recognition of income from the measures for investors. On the basis of this sale of land rights in a mixed residential/office re-consideration, ISA Staff decided to update project (February 2020). the decision. The modifications primarily highlighted the required scope of disclosure • request for exemption from the requirement concerning non-GAAP measures and other to publish pro-forma information; request for points related to the consistent application extension to publish pro-forma information; of calculation methods. The applicability of examination of control; examination of specific provisions of this position was also material effect; change in accounting policy extended to the presentation of operating on classifying interest payments and interest performance measures. receipts in cash flow statements (October 2020). • SAB 99-7: Effects of the Corona Virus on Financial Disclosures and Reporting in Staff Accounting Bulletins (SAB) Financial Statements for Q1/2020 and • SAB 7-13: Disclosure on Exposure to Subsequent Periodic Reports (May 2020) Discontinued Use of LIBOR interest (February In view of the outbreak of Covid-19 toward the 2020) end of Q1/2020, the ISA published an SAB in ISA Staff published a bulletin on disclosures May 2020 on the effects of the crisis on the related to exposure of discontinued use financial disclosures included in companies’ of LIBOR interest in view of global market periodic reports beginning from financial estimations on this issue and the transition statements for Q1/2020. The points highlighted to new benchmark interest rates beginning in this bulletin relate to the detailed disclosures from end 2021. This transition may also have required in the directors’ report on the effects a material effect on reporting corporations of the crisis on the state of the corporation’s in Israel. In this bulletin, ISA Staff encouraged business, disclosures required in the financial corporations to prepare for the transition, statements according to IFRS, and various identify contracts with exposure to LIBOR accounting issues. interest, and take steps to reduce the related risks. Reporting corporations that have significant exposure to this reform are required to include an appropriate disclosure

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Regulation and Supervision

• SAB 23-1: Disclosure on Assumptions Used Staff Notices in Estimating the Net Fair Value of Biological • Extension on the publication date of periodic Assets in Medical Cannabis Corporations reports for the year 2019 (re-issued March (August 2020) 2020) and quarterly reports for Q1/2020 (re- Based on its inspections, ISA Staff found issued April 2020) that several reporting medical cannabis Under the extraordinary circumstances corporations failed to include an adequate created by restrictions imposed to prevent disclosure of the material assumptions used the spread of the pandemic, ISA Staff granted to measure the net fair value of their assets, a 30-day extension to reporting corporations as required by accounting standards. In to file periodic reports for the year 2019 and response, the ISA published a bulletin on the quarterly reports for Q1/2020. disclosure requirements concerning all the material assumptions used to measure the • Q&A on issues related to the Covid-19 crisis net fair value of those assets, subject to the (May 2020; Revised July 2020; materiality of each assumption. To illustrate, ISA revised November 2020) Staff included in the bulletin several examples Following ISA Staff notice on reporting of material assumptions and key factors that corporations’ activities under restrictions to might be used to estimate the net fair value of prevent the spread of the Covid-19 virus, ISA medical cannabis assets, specifically after the Staff published a Q&A on the following topics: new regulation on the cannabis sector came possible reductions in fees of external and into effect in the past year. independent directors; possible inclusion in projected cash flows of sensitivity analyses • SAB 19-3: Accounting treatment of Covid- of non-market-related variables; attachment related rent concessions attributed to the of valuations used in assessing impairment of Covid-19 crisis period (August 2020) cash-generating units. Against the backdrop of the Covid-19 crisis, the International Accounting Standards Board ISA Staff Positions on Legal Issues (“IASB”) published an amendment to IFRS • Staff Position 106-5: Considering Distribution 16, granting a practical expedient to lessees Activities as Underwriting Activities (August to treat rent concessions attributed to the 2020) Covid-19 crisis, such that these concessions are In August 2020, ISA Staff published a position, immediately recognized in the lessees’ profit according to which a distributor or entity close and loss statement, instead of recognizing their to a distributor who purchases securities in an effects over the entire lease period. A study offering in which they function as a distributor, conducted by ISA Staff indicates that lessors and then sells the purchased securities within (rental property companies) may develop a short time, shall be considered as having diverse approaches to practices for treating committed from the outset to purchase the such rent concessions. ISA Staff therefore securities with the intention of selling them and published a bulletin on the accounting effects therefore functions as an underwriter in the of rent concessions in lessors’ financial offering. statements. For example, ISA Staff notes the conditions under which the effects of the concessions may be immediately recognized in profit and loss, the required disclosure in the financial statements of lessors and lessees, and other issues.

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Regulation and Supervision

• Staff Position 103-41: Summary Disclosure Mutual Fund on Defense Mechanisms in Trust Indentures The outbreak of the Covid-19 virus demanded that (August 2020) the ISA devise rapid and effective solutions and In August 2020, ISA Staff published its position grant some degree of flexibility to mutual fund that corporations that issue debt securities managers who suffered large-scale redemptions must describe and summarize (in tabular and a sharp drop in the value of the assets under form) within the description of the material mutual fund management, in implementing the terms of the trust indenture, the defense provisions of law. ISA Staff maintained contact mechanisms included in the trust indenture with the fund managers and trustees, and handled in the securityholders’ favor. This position requests for interpretations and relief. Alongside was developed with the aim of improving practical expedients, ISA Staff placed great the efficiency and creating greater clarity for emphasis on fund managers’ obligations to maintain investors regarding the quality of the defense risk management procedures and compliance with mechanisms defined in the trust indenture, orderly investment decision making procedures and facilitating investors’ ability to use all the that include reference to bond ratings by two rating information presented by corporations to companies. Examples of relief granted: Deferral of assess their investments. filing dates of annual reports, financial statements, and other reports; relief from various statutory • Staff Position 103-42: Distribution of Non- restrictions due to excess redemptions and Tradable Securities to Investors (August 2020) significant decline in the value of assets, including In August 2020, ISA Staff published a position relief on the limits to collateral and credit leverage on the distribution and marketing of securities due to operations involving future contracts and that are offered by a prospectus and are options that were part of synthetic contracts not listed for trading on the stock exchange. in tracker funds, relief from bank diversification In this position, the ISA clarifies that issue restrictions and from limits of exposure to financial marketers must take investors’ attributes into entities defined in the custody directives, and consideration in their marketing activities. others. The ISA also noted several issues (the list is 1. A Draft Amendment of Joint Investment Trust non-exhaustive) on which issue marketers Regulations (Offering of Foreign Fund Units) must provide information and explanations 5776-2016 (“Foreign Fund Regulations”) was to potential investors, based on potential published in late 2020. The draft proposed investors’ knowledge and expertise. to amend the Foreign Fund Regulations such that the list of recognized stock exchanges for • Staff Position 101-23: Disclosure on Special the purpose of listing ETFs on the TASE will be Negotiations Committee for Transactions with determined independently of the definition Controlling Shareholders (October 2020) of foreign exchanges in the Securities Law, In October 2020, the ISA published a position and will be based on various quantitative on disclosures of the activities of special parameters related to mutual fund trading independent committees that manage the on those exchanges, such as trading volume, negotiations on transactions with controlling number of traded funds, and asset value. shareholders. This position was developed in This amendment will effectively lead to the response to developments in case law and the creation of a separate list of stock exchanges growing use of special committees to negotiate for dual-listed mutual funds, significantly in transactions with controlling shareholders. adjusting the list of exchanges that currently According to this position, companies are appears in Schedules Two and Three of the required to include a disclosure of the work of Securities Law (Dual-Listing Stock Exchanges). the special committee in reports convening a This amendment will potentially lead to the general meeting to approve the transaction. recognition and dual-listing of the vast maturity of ETFs traded in Europe and 100% of the ETFs traded in the US, provided that they also meet the remaining conditions listed in the

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Regulation and Supervision

Foreign Fund Regulations and the TASE Rules imposes on fund managers the duty to identify, and Regulations. The ISA’s qualitative test for estimate, manage, document, and disclose risks approving foreign funds is based, first and and report them to the relevant authorities. foremost, on whether they are supervised and The directive also defined an obligation regulated under UCITS Directive or US law, to appoint a risk manager and described pursuant to the Foreign Funds Regulations. the procedures and principles that the risk 2. Risk Management in Mutual Funds - In July manager must follow. In the second half of 2020, a directive that defines the key risk the year, mutual funds began to implement management principles for mutual funds came the directive, and appointed risk managers, as into effect. Among other things the directive required by the directive.

Investment Advice, Marketing, and Portfolio Management Investment advice, marketing, and portfolio management require a license issued by the ISA. This license is granted to individuals who pass the licensing exams conducted by the ISA, completed an internship pursuant to the law (partial exemption from these requirements is available, depending on the circumstances), and after the ISA conducts a review of the applicant’s credibility, which includes an inspection of the individual’s criminal record.

Investment advice, marketing, and portfolio management licenses issued to individuals, 2015-2020

Year Portfolio managers Investment advisers Investment marketers

Up to 2015 2,934 7,444 1,717

2016 128 114 104

2017 114 139 112

2018 116 79 109

2019 90 53 119

2020 62 18 39

Total licenses issued 3,444 7,847 2,200

At end December 2020, there were 3,279 licensed individuals: 782 portfolio managers, 2,027 investment advisers, and 470 investment marketers.

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Regulation and Supervision

Corporate licenses granted, converted, and revoked in 2020

Portfolio Investment Investment Total management advising firms marketing firms firms

On December 31, 2019 166 123 10 33

Licenses isued 9 5 0 4

Licenses cancelled due to - - - – conversion

Cancelled voluntarily 5 3 1 1

Revoked by the ISA - - - -

Added due to conversion - - - -

On December 31, 2020 170 125 9 36

Licensing – Exams and internships Through the Investments Department, the ISA is also in charge of administering the licensing exams for investment advisers and portfolio managers. The licensing exams take place on twice a year. The summer session of the basic exams for the year 2020 was originally scheduled for May-June but exams were postponed to July-August due to the Covid-19 crisis. The winter session took place in November-December as scheduled.

This year, 4,055 exam units were administered, compared to 4,456 units in 2019. Due to the irregular circumstances, the ISA expanded examinees’ right to receive a full refund of the licensing exam fee or to cancel their participation in the exam due to the Covid-19 crisis. As a result, 14% of the registrants did not sit for the exam, compared to 9% in 2019.

On March 30, 2020, ISA Staff published a staff position on internships during the Covid-19 crisis period. The position addressed the social distancing restrictions that impair the ability to travel to internship sites, and made it possible for interns to continue their internships during this period.

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Regulation and Supervision

Pass rates in 2020 licensing exams16

Subject No. of examinees Annual pass rate17

Securities law and professional ethics 366 65%

Accounting 874 50%

Statistics and finance 710 53%

Economics 835 46%

Professional A 1,159 50%

Professional B 111 59.5%

Supervision of Licensees Since the outbreak of the Covid-19 crisis, ISA Staff has worked intensely to identify and resolve the challenges posed by the pandemic. To this end, the ISA conducted hundreds of conversations with licensees, after which the ISA took a number of steps, including: ISA Chairwoman conducted conference calls with hundreds of investment advisers in banks in order to help them to cope with the pressure they faced from their customers; the ISA published guidelines for licensees, which included a user-friendly explanation of how to recruit new customers without in-person meetings while complying with regulatory requirements; banks were encouraged to develop capabilities that allow customers to join portfolio management services without physically visiting the branch; the ISA granted relief regarding implementation of KYC directives for customers interested in investment advising, investment marketing and portfolio management services.

Mandatory insurance – This year, once again the premiums on licensees’ mandatory insurance coverage increased significantly. ISA Staff discovered that the hike in premiums was not related to an increased risk in this sector, and that the rising premiums might cause licensees to discontinue their business and consequently adversely affect competition. The ISA therefore issued a call for insurance solutions that meet the current regulations. At the same time, the ISA Plenum approved the initiation of an amendment to the regulations to allow licensees to use alternative types of collateral in favor of their customers, and to impose on licensees the responsibility of defining the protection level to be afforded to customers while considering the scale and nature of their operations. Furthermore, the ISA published a No-Action Circular, in which it declared that it would not use means of enforcement or procedures to revoke licenses due to licensees’ failure to meet the requirements related to insurance, provided that the insured amount is at least one half of the required insurance amount defined in the regulations.

Reports to bank customers who receive investment advice services - To allow customers who receive advice services to assess the services they receive, the ISA is promoting guidelines for customer reports, in conjunction with the Commissioner of Banks. The ISA expects that a Proper Banking Procedure directive, imposing on banks a requirement to send such reports to their customers, will be published in 2021.

16. Exemptions from the exams – Regulation of Investment Advising, Investment Marketing, and Portfolio Management Regulations (License Applications, Exams, Internship, and Fees) 5757-1997 determine that whoever holds a relevant degree, as defined in the Regulations, is eligible for an exemption from the three basic exams: economics, accounting, and statistics and finance. In the reporting year, 515 applications for exemptions were reviewed and 491 were approved. 17. Beginning in 2017, the calculation is based on the number of examinees who pass the exam relative to the number of units in the exam (and not relative to the number of examinees). Pass rates are calculated as a weighted average of the two exam dates.

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ISA invests in investors The protection of investors’ interests is the foundation for all ISA activities. The ISA invests directly in efforts designed to promote the general public’s knowledge of the capital market and to teach the public rules of conduct and caution. The ISA believes that the capital market should be accessible to the general public and even in 2020 the ISA invested in efforts to develop unmediated communications with investors, and produced accessible, user-friendly contents for the public.

Social media activity In recent years, social networks have become a key channel used by the public to consume information. In 2020, the ISA’s media activities targeted two major audiences: professional investors and public investors. The ISA expanded its communications targeting the professional segment — the companies that are supervised by the ISA and the economic-business market — to increase the visibility and accessibility of ISA’s activities to members of the Israeli and global business communities, and to raise their awareness of the regulation that the ISA is promoting to develop the capital market. With respect to the second target audience, public investors, the ISA mainly published information on existing investment products worked to raise the public’s awareness of warning signs in order to protect themselves against fraud. The style of the information posted on social media helps the ISA break through the “psychological barrier” that constitutes a hindrance to the public’s financial education.

In 2020, the scope of ISA social network activity increased significantly. For example, there was a 200% increase in exposure measures and interactions with social media users. In 2020, the ISA also launched activities on Instagram and Twitter, two additional social media platforms, which gives new target audiences access to the ISA’s contents and tools for responsible consumption of financial services.

)+189%( +2,164 )+240%( +15,203 725 5,500 4,600 26,100

2,436 10,897 opened in opened in 4,180 March 2020 June 2020 2019 2020 2019 2020 2019 2020 2018 2019 2020

1,160,000 637,000 220,000 2019 2020 views views views 3,560,000 5,501,000 )+155%( +1,941,000 views 2019 2020 55,000 155,000 680 22,600 13,000 )+281%( +100,000 Profile visits Interactions Interactions Interactions

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Diverse contents and events are disseminated on social media every day. Following are details of the main events that the ISA organizes:

Meet the Team - Official ISA pages on social media host senior ISA officials, who introduce themselves and their work to the public in a series of posts.

Investor Month July 2020 was designated “Investor Month on Disclosures and Reporting” while December was designated “Investor Month on Criminal Enforcement.” In the selected months, the ISA creates a structured public education social media campaign that covers all aspects of the selected topic of the month. Each investor month ends with a live broadcast entitled “Let’s Talk About It” where the public discusses issues related to the topic of the month directly with senior ISA officials who provide answers to questions and clarifications. This activity is a unique initiative of the ISA, designed to provide personal service and answers to specific questions raised by members of the public.

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World Investor Week (WIW) 2020 World Investors Week (WIW) in an international campaign led by Committee 8 (also known as C8), the IOSCO Committee on Financial Education, of which the ISA is a member. The event was established to raise public awareness of the importance of financial education. The campaign is marked by securities commissions across the world in the first week of October every year, and 2020 was the fourth consecutive year in which ISA commemorated WIW. This year, due to the pandemic, participating countries were encouraged to conduct activities that matched the restrictions, and to focus on activities on digital platforms rather than in-person conventions. In view of the situation, the Committee decided to permit the domestic commissions to independently determine an appropriate date in October and November for their campaigns, as their circumstances allow.

In 2020, the ISA marked WIW 2020 in the second half of October. The main event of WIW 2020 was an online survey entitled “Discover Your Inner Investor,” which was designed to spark investors’ interest and raise their awareness. The survey was developed in conjunction with the Institute for Financial Education of Ben Gurion University of the Negev, and included 10 questions. Responses were used to build potential investors’ behavioral profiles (based on behavioral practices and financial literacy levels) and respondents were then classified into one of these five profiles. Each profile description was accompanied by summative information and a link to more detailed information on the ISA website. Using the creative concept used to design the survey, the ISA produced and shared clips, Instagram filters, and message stickers, and created an interactive experience related to the campaign.

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In WIW 2020, as part of its efforts to communicate with diverse target audiences, the ISA held anonline conference for women investors (Female Investors’ Meet-Up), where it present a wealth of enriching and current information.

New ISA website The specifications and design of the new ISA website were completed in 2020. These efforts were designed to improve dissemination of information to public investors and to the capital market sectors both in and outside Israel. Website development will commence in 2021.

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In the reporting year, the ISA took the following actions to promote this goal: Second Goal Diversifying financing sources for Israeli high- Enhancing the Public tech companies and enhancing their access to the local capital market Capital Market The ISA recognizes the important role of the local high-tech sector and its contribution to the Israeli economy. As the major share of financing for this Over the past decade, we have sector comes from foreign investors, the ISA is witnessed steady growth in the field taking steps to increase high-tech companies’ of alternative investments that use access to the local capital market in order to investment vehicles that were not diversify their sources of financing, and to allow typically used in the past and do not public investors in Israel to participate in and benefit necessarily meet the classic definition from the sector’s success. of securities. The result is a decline in the scope and appeal of the public The ISA accordingly established an Advisory capital market. The relative retreat Committee on Technology and Capital Market of the public capital market is not Matters. Members of this committee included major consistent with Israel’s public and actors in the high-tech sector, academia, venture national interests, since an attractive, capital funds, institutional investors, and public well-established capital market offers officials involved in relevant regulatory aspects of unique advantages. Therefore, creating the high-tech and capital market sectors, including a well-established, attractive capital representatives of the Capital Market Authority, market is a public and national interest. the Innovation Authority, the Tax Authority, Bank of Israel, and the Ministry of Justice. The committee convenes on a quarterly basis. The ISA also established an ad-hoc team to provide background material for the Advisory Committee’s hearings. The team published a document for public comments in November 2019 and is available on the ISA website. The ISA worked vigorously to develop proposals and solutions to facilitate the diversification of capital sources for Israel’s high-tech companies and enhance the public’s opportunities to invest in the local high-tech sector. In the past year, the ISA collaborated with the Innovation Authority to promote two benefit tracks sponsored by the Innovation Authority: The first, Benefit Track 40, subsidizes reports prepared by high-tech analysts for institutional investors in Israel (five institutional investors were selected as grant recipients). The second is Benefit Track 43, offers government guarantees against declining investment values in order to protect institutional investors’ investments in local high-tech companies (10 institutional investors joined the program).

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Expanding the Institutional Investors’ Trading technologies (such as blockchain). Establishing a Platform dedicated stock exchange with a specific profile In 2020, the ISA granted its approval to the TASE is to designed to promote and expand investment to significantly expand the operations of its trading opportunities in the capital market and generate system for institutional investors. As a result, it is benefits for the public and for companies seeking now possible to open new financing channels that financing for their operations. Creating new significantly facilitate capital raising, debt raising, channels financing for various corporations is of trading in corporations, and partnerships that great importance to the economy, especially today, mainly are engaged in real estate and investment in view of the current Covid-19 crisis that created a property, R&D (high-tech) and venture capital funds, need for sources of financing to support businesses financing funds, growth funds, and other financing seeking to return to activity after the economy’s instruments, including instruments supported by slowdown. The establishment of designated stock government aid programs for the business sector exchanges will also expand public investors’ access and SME financing. Launch of the new TASE UP to new investment sectors such as high-growth platform allows corporations and partnerships companies in the high-tech sector, which are in these sectors to raise equity or debt on a typically available only on the main exchange. dedicated trading platform for qualified investors. It allows them to invest in these corporations and In March 2021, the Ministerial Committee for partnerships and later trade in the securities they Legislation approved the proposed law. purchased. The initiative for the new platform comes to meet the needs of corporations and Adoption of I-XBRL, the world’s most investors that typically remain private for longer advanced electronic reporting standard than before. The new platform is expected to bring Under the current reporting system, periodic and Israeli start-ups and high-tech companies that interim financial statements pose several serious currently remain private, and institutional investors challenges to their users. For example, they do not that are not currently heavily invested in this sector support rapid retrieval or extraction of financial into the capital market. The initiative will expand data for use in analyses and comparative studies. the range of investments available to qualified and Furthermore, financial statements published institutional investors, and in the long term should exclusively in Hebrew make it difficult to foreign contribute to the development of the public capital investors to read and analyze the information they market. After granting its approval to the move, the contain or make informed decisions on whether to ISA continues to worked intensely with numerous invest in Israel’s capital market. Within the policy market participants and government agencies proposed by the ISA, companies will be required to ensure that the new platform will support the to report all sections of their periodic and interim ISA’s goal of connecting Israel’s capital market financial statements in a structured format, and tag and its high-tech sector, and will contribute to the different sections at varying levels of detail. expansion of the public capital market in the long Use of I-XBRL, which is an accepted standard used run. in developed markets, will open the Israeli capital market to investors from all over the world, and will Designated Stock Exchange ensure that the Israeli market uses the standards In 2020, the ISA in conjunction with the Ministry conventionally used in those markets. of Finance promoted a memorandum of law on a designated stock exchange, within the The ISA plans to implement this policy in a staged Arrangements Law. The proposed law is designed manner. In the first stage, which was executed in to promote securities trading on trading platforms the past year, the ISA conducted a non-public pilot that have specific features or that operate on a study with a small number of companies listed on more limited scale compared to a primary exchange the TA-125 index. The aim of this study was to select like the TASE, for example, trading platforms a tool for tagging financial statements using I-XBRL. whose activity is limited to qualified investors only ISA Staff participated in the pilot study to learn (insurance companies, provident funds, and banking about the various conversion tools before selecting corporations) or platforms that use innovative the product to be used for reporting. Participation in

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this stage was voluntary, and the experience gained The ISA considers the conclusion of this legislative in this stage will be used by the ISA in the future. As reform and adoption of the reporting standards the legislative and regulatory initiatives on this topic practiced in major markets worldwide an additional advance, and the experience gained by market step toward expanding major international firms’ actors and technological developers, the policy will access to the local capital market, and transforming be applied as a mandatory directive to all reporting the capital market into a magnet for foreign companies (excluding banking corporations, investors. insurance companies, and dual-listed companies). Diversification of available investment Concurrently, work is proceeding on adapting the instruments in the local capital market MAGNA system to I-XBRL reporting, to eventually • Securitization – In 2019, the ISA published allow the system to include a user-friendly tool that a policy document for public comments on supports data analysis and comparison, similarly to public offerings of asset-based securities the SEC’s use of Inline XBRL. (securitization products) by potential issuers. In this document, the ISA presented its position In the coming work year, and until work on the on the issuance of and outlined the features of mandatory reporting requirements is concluded, simple securitization products. The ISA studied the ISA will prepare for voluntary adoption of I-XBRL the public comments it received and in June reporting and will invest in various campaigns to 2020 published a final document on public raise awareness of I-XBRL reporting. The goal is issues of asset-backed bonds. The document to enable any company that so wishes to file their is designed to increase market actors’ financial statements in I-XBRL. The ISA hopes that familiarity with, and understanding of, the main app. 50 companies will voluntarily adopt before features of public securitization transactions, legislation is passed. so that the ISA may more easily promote these products on the Israeli capital market. At the Reporting in the English Language same time, the ISA continues to work with As part of the ISA’s efforts to develop the Israeli other governmental and regulatory entities capital market and increase its accessibility to to promote a proposed law on securitization, foreign investors, the ISA promoted a reform that based on the conclusions of a public permits all reporting corporations in Israel that so committee on this topic that were published in desire, to publish their reports in English as their November 2015. default reporting language, rather than in Hebrew. This decision was approved after the ISA completed • Hybrid bonds – In 2019, the ISA published a comparative study on the situation in leading a policy document for public comments on markets worldwide, and held a series of meetings non-convertible hybrid bonds in which issuers with various market actors on this issue. have flexibility regarding principal or interest payment dates. The document was designed The legislative proposal was approved by the to increase market actors’ awareness of and Knesset in October 2020, and a new version of familiarity with the key features of hybrid Securities Regulations (Reporting in the English bonds, and to solicit public comments on Language) 5781-2020 was published in Reshumot, the terms and features that the public seeks the official gazette, in November 2020. This version in such instruments. After adopting public will come into effect three months after the comments, in May 2020 the ISA published a publication date in Reshumot. The ISA is currently final policy document that permits the issuance working to complete the translation of the electronic of hybrid bonds in Israel. filing forms, which will allow reporting corporations to complete these forms in English.

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• R&D partnerships – In the past year, the • Hedge funds and funds of hedge funds – ISA completed its R&D partnership project, In the reporting year, the ISA continued to which permits partnerships engaged in work on promoting alternative mutual fund R&D to list on the TASE. To this end, the ISA offerings to the public — hedge funds in trust approved an amendment to TASE Rules and and funds of hedge funds — that would be Regulations, a procedure for approving R&D regulated under the Joint Investments Law investments was determined together with and operate as mutual funds. This initiative the Innovation Authority, and the tax status of is designed to give the general public access these partnerships was determined. In 2020, to investment products that are currently four R&D partnerships issued securities, and restricted to a limited group of investors (mainly ISA Staff are currently handling a consideration qualified investors). Accordingly, following a call number of listing requests from additional R&D published in 2019, the ISA published an outline partnerships. The ISA intends to modify and of specifications of these two products for improve the current model in the coming year, public comments in 2020. A revised outline of based on its accumulated experience. the proposed specifications of these products was subsequently published on the basis of the • Infrastructure funds – National infrastructure insights gained from the public comments and investment makes an important economic from the dialogue that the ISA conducted with and social contribution to economic growth relevant market participants. and employment. In view of the fact that until now, credit to infrastructure projects has Based on the proposed specifications, a hedge come mainly from major banks, the ISA and fund in trust will be similar to unsupervised the Ministry of Finance established a joint hedge funds, both in terms of their features committee to develop recommendations and their operating patterns, yet restrictions to encourage the establishment of traded on various quantities that apply to mutual infrastructure investment funds. The funds will be relaxed. A fund of hedge funds committee published its recommendations in will allow the public to gain exposure to June 2019. The recommendations focused on unsupervised hedge funds through a fund of the regulation of traded funds that invest in funds that is a supervised product subject to infrastructure development. This will expand the Joint Investments Law, and that invests the financing sources for infrastructure in unsupervised hedge funds that meet the projects in Israel, reduce their credit and conditions defined in the specifications. capital costs, increase the government’s ability to execute projects of strategic national In 2021, the ISA will promote the regulation of these importance, drive the economy forward, and products in order to make it possible to offer them diversify the investment channels available to the public. on the TASE. In 2020, work will continue on preparing a draft amendment to the Income Tax Ordinance that will support implementation of the committee’s recommendations.

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Expanding mutual fund managers’ investment 2014, these rules defined a mechanism for fees to opportunities on the TASE TACT-Institutional analysts who provided reports under the Analysis trading system (“TASE UP”) Program of Public Companies in the High-Tech and Following the ISA’s decision in May 2020 to expand Industrial Sectors, which is mediated by the TASE. trading on TASE UP, a temporary directive for The amendment to the TASE Rules defined two mutual fund managers came into effect in October additional fee tracks, which permit publication of 2020 concerning securities traded on the TACT- analytical reports even where the end-customer Institutional trading system. Expanded trading does not pay the analysts’ fee: (a) an “authorized also makes it possible to list securities that are not corporation” (under the Investment Advice Law) debt securities and securities of corporations that publishes the analysis during an IPO and receives a are not companies. TASE Rules and Regulations fee directly from the issuer; (b) a company related were amended accordingly. The purpose of the to the underwriter or distributor of the issuance, temporary directive is to determine rules that will either due to a structural relationship or because allow mutual funds to purchase and hold securities the underwriter pays the analyst’s fee, publishes that are traded on the TACT-Institutional system in the analysis during an IPO or a repeat issuance. larger quantities than currently permitted according The rules will also determine directives regarding to the Asset Regulations, in line with the expanded the contractual arrangements, analysts’ fees, the basket of products that will be traded on the independence of analysts and underwriters, the TACT-Institutional system. The directive defines format of analytical studies, and disclosure rules. restrictions on the maximum quantities of securities Required disclosures include price history or YTM of traded on the TACT-Institutional system that may be the securities reviewed by the analyst according to held by a mutual fund, and the directive applies to these rules at different times. all securities, notwithstanding the current provisions of the Asset Regulations. Fixed-date funds and Proposed Amendment to the Advice Law closed-end funds that are subject to a 14-day pre- The Investment Advice Law regulates investment redemption early notice requirement will benefit advising, investment marketing, and portfolio from more relaxed restrictions compared to to management operations. The Law imposes a other funds. licensing requirement on anyone engaged in investment advising, an area that by law includes Amendment to Rules for Analyzing Capital any advice relating to the profitability of investing Market Information in securities and financial assets. The Law does not An analysis report is prepared by an external entity distinguish in the manner in which these services that presents and analyzes the operations of a are rendered, either in a personal interaction reviewed company and assesses the investment between an investment adviser and a customer potential in the company. Analytical studies are sitting opposite them in a branch of a bank, or important tools that may help investors make whether advice is rendered in the form of analyses informed investment decisions and therefore the that are disseminated to the general public. ISA believes that such reports are instrumental in increasing knowledge about the capital market, Initially, the Law targeted “classic” investment make an important contribution to fair pricing and advising, which typically took place in banks, increased tradability of the reviewed companies’ where advising is rendered on a personal basis securities on the stock exchange, and also and customers expect the advice to be based on increase interest in these companies. To increase their individual needs, wants, and preferences, the number of analytical studies conducted on as these are conveyed to the investment adviser. companies traded on the stock exchange in For this reason, the statutory obligations imposed general, and especially during a securities issuance, on investment advisers refer to a “personal” the ISA is taking action to regulate the field of relationship between investment advisers and analyses. Before the amendment to the Rules their customers, and include actions to identify the of Regulation of Investment Advice, Investment customer’s needs and instructions, customize the Marketing, and Investment Portfolio Management services to these needs, a signed agreement with (Receipt of Benefits for Analytical Studies) 5774- the customer, disclosure of any conflicts of interests

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that the adviser may have, and the requirement to obtain the customer’s consent before the adviser may perform some action. These obligations are not suited for activities and services that are not personal and are rendered to a large public. They are also not suited to activities and services that may be conducted on a broad range of technological platforms that did not exist in the past. Although some adjustments were made within the limits of the ISA’s powers and published, recent developments and new technological means that make it possible to communicate with a large public with unprecedented ease stress the need to separately define and regulate the area of general advising, in distinction to personal advising that is regulated under the Investment Advice Law.

To this end, the ISA has taken steps to promote an amendment to the Investment Advice Law in a manner that will separately regulate the field of general investment advising. After public comments were received, in November 2020 the ISA Plenum approved the proposal in order to promote a legislative reform.

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investments by nature. This year, discussions Participation in Committees of and surveys focused on two main topics: index International Organizations sponsors and ETFs. Discussions on index sponsors stemmed from the growth in passive To strengthen Israel’s public market and promote investment products, which increased index actions that lead to its growth and development, sponsors’ influence. Discussions centered the ISA participates in committees and work on several issues including the appropriate groups of international organizations that focus treatment of conflicts of interest between an on securities laws and corporate law. Through index sponsors and a fund manager, liability in its active involvement, the ISA seeks to gain in- the event of harm caused to public investors, depth knowledge of the regulation, oversight, and and methods of oversight. Discussions on enforcement procedures in various markets in order ETFs centered on crisis-related risks, such to optimize corresponding procedures in the local as liquidity risks caused by redemptions, and capital market, create an impact at the international methods of reducing systemic risks. level on policymaking related to the regulation of securities laws and corporate law, consult with • Committee on Issuer Accounting and foreign regulators in these areas, and present Disclosure (C1). This committee works on the Israeli public market to foreign countries and accounting-related issues. The work group regulators when it is required to do so. on accounting, audit, and disclosure, in which the ISA is a member, discusses the key issues IOSCO, the most senior forum of information in these areas from a global perspective. exchange between securities commissions The committee is devoted to improving worldwide, has 219 members from 115 countries, international accounting and auditing mainly financial regulatory agencies and stock standards developed by the international exchanges. The forum defines the agenda for organizations responsible for these standards, regulators in the financial world. The organization improving the quality of financial reporting and strives to define uniform international policies the transparency of information published and rules, and its guidelines are recognized as by listed companies in order to improve the leading standards of financial analysis and investors’ decisions. The committee also assessment used by international organizations monitors implementation of accounting and (e.g., IMF report), and as the foundation for financial auditing standards, publishes position papers legislation. In the reporting year, the ISA attended on behalf of IOSCO, and discusses practical discussions of the following IOSCO committees: issues raised by the regulators. In 2020, the committee held discussions with accounting • European Regional Committee (ERC). This and auditing standard boards on the major committee serves as a forum for broad projects they promoted during the year. The regulatory matters that impact European Committee also issued response letters on countries and the region. behalf of IOSCO, and published position papers, such as a document highlighting • Committee on Regulation of Market specific accounting issues that were materially Intermediaries (C3). This committee works on affected by the Covid-19 crisis and a document various issues related to market intermediaries. on implementation of IFRS 9 and financial In 2020, the ISA participated in a work group instruments during the crisis. that studied digitization and digital marketing activities of financial intermediaries. The • Committee on Emerging Risks (CER). This group’s report is expected to be published in committee analyzes global capital market the coming year. This committee also examines risks the aim of determining priorities for the AI and its use by market intermediaries. organization’s projects. This year, as part of its analysis of the risks expected to affect markets • Committee on Investment Management (C5). in 2021, the ISA participated in a discussion on This committee works on various issues related the risks in various jurisdictions. to investment vehicles that are collective

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• Assessment Committee (AC). The Assessment Visit of Representatives of the Securities and Committee refines and revises IOSCO Exchange Commission of Nigeria Principles of Securities Regulation, which is a In February 2020, representatives of the Securities set of 38 principles that serve as a comparative and Exchange Commission of Nigeria (SEC Nigeria) framework for assessing securities regulation visited ISA offices in Tel Aviv. The visit was part of a operations. The committee also assesses the series of activities designed to reinforce the global securities commissions of its members and status of Israel’s capital market. During the visit, the their implementation of the Principles based on ISA presented the strengths of the Israeli capital a methodology developed by the organization. market, various policy issues that the ISA is working The ISA aims to advance the public market in on, such as fintech, innovation, crowdfunding, and Israel to stand at the forefront of the world’s robo-advisers, and the ISA’s enforcement powers. most advanced capital markets. The ISA is a member in various work groups that study Representatives of SEC Nigeria gave a presentation securities regulation in various countries, and of the Nigerian capital market, which is one of self-assesses Israeli legislation in order to Africa’s leading capital markets, the Nigerian identify gaps that the ISA then seeks to reduce securities commission, the reforms that it is in order to meet the highest standards of promoting, and its activities in the fields of fintech capital market oversight. and innovation.

• Committee on Retail Investors (C8). This Collaboration following the normalization committee has a primary mandate to conduct agreements with UAE, Bahrain, Sudan, and policy work on retail investor education, and Morocco it advises the IOSCO board on retail investor In 2020, Israel signed a series of peace agreements, education and implementation of related peace declarations, MOUs, and collaboration policy. protocols as part of the Abraham Accords. These agreements acknowledge the importance of • OECD Corporate Governance Committee. maintaining peace in the Middle East and normalize This committee works on diverse the relationships between Israel and other Arab corporate government issues. This year, countries. Immediately after the governments ISA representatives to this committee were signed these agreements, the ISA embarked on involved in several projects, including drafting a study of the markets in these countries and a chapter in a report on the duties of directors potential areas of collaborations. To this end, ISA in business groups, based on a study of the Chairwoman conducted a series of introductory interface between technology and corporate meetings with heads of the corresponding government, and completing a survey on securities commissions to kick-start joint work. A the legal regime that applies to corporate formal declaration at the annual IOSCO Conference governance in various countries. addressed the ISA and three UAE securities commissions, and established initial contacts with As a result of the Covid-19 crisis, and in an effort to the Bahrain securities commission. devise appropriate solutions to the situation, the above committees discussed the regulatory actions To establish and strengthen these relations, the performed in various markets in their respective ISA secured agreement on cooperation. The areas of interest; numerous consultations took commissions agreed to sign MOUs on innovation place; and members exchanged insights related to and fintech; establish work groups on various the crisis and its outcomes. topics that will meet frequently for discussions and information exchanges, and; establish a work group to study actions to encourage institutional investors’

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investments in the capital markets in partners’ statements. Over the year the ISA published jurisdiction. The ISA is also working with other Israeli several one-pagers on various topics including the entities such as the Prime Minister’s Office, the dual-listing arrangement, investments in the Israeli Ministry of Economy, the Ministry of Finance, and capital market, global IPOS, and bond issues on the the Innovation Authority to coordinate, enhance, TASE. These succinct publications are designed and strengthen relations with UAE and Bahrain with to increase exposure to specific topics and to the the aim of achieving the above goals. opportunities available to dual-listed companies, foreign companies, and foreign investors interested The ISA attributes great importance to the in raising capital on the TASE. These publications will entry of foreign companies, underwriters, and also serve the economic attachés across the world investors in the Israeli capital market, and is when they introduce Israel’s capital market and its working toward this goal in several ways: advantages for companies and investors.

Collaboration with the economic attachés of the Exposing the Israeli capital market to foreign Ministry of Economy capital market participants and promoting In the past year, collaboration was initiated with global IPOs in Tel Aviv the Foreign Trade Administration of the Ministry The ISA developed a strategy that views the entry of Economy with the aim of mobilizing Israel’s of international actors to Israel’s capital market economic attachés in relevant countries to assist in as a significant component of the market’s global the mission to develop Israel’s capital market and development in upcoming years. ISA Staff has open it to international actors in the interests of therefore been working in the past year to introduce Israel’s economy. To this end, various informational the Israeli capital market to significant global materials and information kits were prepared for actors including investment banks, underwriters, the attachés, who also attended a series of online investment funds, and listed companies. ISA Staff webinars. The ISA conducted follow-up meetings conducted a series of meetings, lectures, and to discuss issues on the agenda, including efforts webinars with senior officers of these organizations, to attract foreign investors and international and maintains an ongoing dialogue in order to investment banks to Israel’s capital market. Activities increase their awareness of various aspects of in 2020 created a solid foundation for future joint Israel’s capital market. In these meetings, the ISA work with the economic attachés. In 2021 these gains information that will help the ISA to identify activities, led by the Department of International and remove the regulatory barriers that prevent Affairs and Business Development, are expected to these participants from operating in Israel. continue. In the past year, the ISA invested resources to Publication of the Guide to Global Listing in Tel Aviv promote and support the “IPO in Israel” project, and Other Informational Brochures which involves global underwriters and international In the past year, in conjunction with the TASE, investors in IPOs. The ISA also conducted a round ISA Staff developed a guide that describes the of talks with foreign underwriters in order to identify listing process on the TASE. The guide contains the entry barriers that the Israeli capital market all the information necessary to understand the represents. As a result, the ISA made several listing process, including the structure of IPOs, a regulatory adjustments and made market-related description of the necessary steps vis a vis the information more accessible to those market ISA and the TASE, and underwriting procedures. participants. The guide, which targets foreign companies and underwriters and other capital market participants who are considering an IPO in Tel Aviv, is scheduled for publication in 2021. The ISA also intends to update the guide regularly, as necessary, to reflect regulatory changes and ISA Staff position

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ISA brochures published in 2020 for the international business community, to raise awareness of Israel’s capital market

The Israeli Investing in the Israeli Bond Market Capital Market

• The corporate bond market in Israel is highly evolved, offering high liquidity to small and institutional investors, relatively to other global Benefits of Issuing Bonds capital markets. in Tel-Aviv No. 1 Globally 9.3 Million 40, 900$ GDP GROWTH AA- • The Israeli bond market is the fourth largest publicly exchange-traded Startups per Population GDP Per 4TH STRONGEST Israel Credit bond market in the world (WFE). Capita Rating Interest rates are usually more capita (PPP) IN OECD* (S&P) • Bonds in Israel are traded the same way as equity, through a continuous attractive (compared globally) trading on the primary exchange, accompanied by a transparent legal due to strong demand from and financial infrastructure. broad range of institutional Why Israel? What You Get • It is possible for a company to go public on TASE through bond and retail investors. issuance alone, without offering any equity to the public of investors. One of the fastest recovering economies in the world post-covid Transparent legal and financial A full member of the OECD and the Financial Action Task Force (FATF) reporting and high quality Offering expenses are significantly A global hub for innovation and a powerhouse for revolutionary R&D regulatory regime lower in comparison to other One of the strongest currencies in the world - The Israeli Shekel The Israeli Bond Market markets. continues to see a strengthening trend in recent years Access to Israel's vibrant Inclusion in flagship bond indexes tech sector (through TA-Technology & TA-Tech Elite indicies) and global bond index (for foreign TA-Tech Elite & TA-90, 35 AND INTERNATIONAL INDICES, 2020

20 B$ 306 B$ 8.7 B$ debt issuers). 50% In US 46% Dollar ($) 43% Raised in the Israeli the Israeli bonds Raised on TASE 45% terms bond market market cap bond market by 37 Exposure to a pool of global Israeli in 2020 international 40% 35% companies 22% companies that are dual Clearing and settlement is done 30% 19% -listed on other global markets via TASE Euroclear or DTC 20% 15% 14% * 36 series of gov. bonds and 670 series of corp. bonds 15% 12% account. 6% 10% 1% 5% -10% -7% Ability to vote in companies' general and anywhere סמל - רשות anytimeניירות ערךmeetings 0% סמל - רשות ניירות ערך

TA-35 TA-90 Coupon and principal may be CAC 40 DAX-3O using ISA's Electronic Voting System FISE 100 MSCI EM S&P 500 Dow-Jones NIKKEI 225 NASDAQ 100 Corporate Bonds Issuance Process paid in USD, EUR, GBP. TA TECH-ELITE סמל - רשות ניירות ערך סמל - רשות ניירות ערך

About 10-14 ESG investments through relevant Preperationweeks Opening of The Israeli Capital Market?** trading index (TA-MAALA) About 10-14 445 Companies traded on TASE weeks Publication Roadshow Offering of draft process 62 IPOs between 2017-2020 (40+in Q1/2021) prospectus th Israel securities authority רשות ניירות ערך Israel securities authority 5 largest trading volume in Exchange-traded רשות ניירות ערך corporate bonds in the world. Renewable energy investment TA-CleanTechIsrael index) securities authority רשות ניירות through)ערך Israel securities authority רשות ניירות ערך Issuance Rating structure by rating Registration Highly ranked in the World Bank's "Protecting Minority Feasibility & DD agency Listing on TASE and study beginning of Shareholders" index About 2 Submission Meeting About 3-5 trading weeks of draft with the weeks *As of February17 th, 2021 (OECD, the Israeli bureau of statistics) prospectus ISA **Year End 2020

International Affairs and Business Adv. Ron Klein +972-50-7210001 International Affairs and Business Adv. Ron Klein +972-50-7210001

IsraelIsrael securities securities authority authority רשות ניירות ערךרשות ניירות ערךIsraelIsrael securities securities authority authority Development Department, ISA Adv. Heli Battan +972-52-8784778 [email protected] רשות ניירות ערךרשות [email protected]ניירות ערך Development Department, ISA Adv.(CPA) Orly Goldstein +972-50-7338696

Pantone: 533c Pantone: 533c Pantone: 533cc=100 M=91 Y=33 K=22 Pantone: 533cc=100 M=91 Y=33 K=22 c=100 M=91 Y=33 K=22 c=100 M=91 Y=33 K=22 Global IPO in Dual Listing in Tel Aviv Tel Aviv Two Markets for the Price of One

The Dual Listing arrangement allows companies traded on certain stock • A Global IPO in Tel-Aviv means an offering of securities to overseas exchanges, to trade on the Tel- Aviv Stock Exchange (TASE) as well, based The Benefits of Dual Listing investors, usually through a global investment bank, utilizing the book Benefits of Global Listing on the regulation imposed on them in their home (primary) market. building process. in Tel-Aviv This means that all reporting, disclosure and corporate governance of the The Global IPO process enables companies to gain exposure to company will remain the same. Diversification of investor base leading global institutional investors, achieve valuation in-line with Access to Israel's fast-growing After dual listing, the companies will also be able to raise money on TASE based global markets and receive English research coverage from globally pool of capital. on their foreign prospectus, in compliance with their primary market regime. recognized sector analysts. In addition, companies will also be able to issue bonds and other securities that Enhanced market traction Potentially more attractive are not traded in their home markets. and possible inclusion in pricing by global investors main indices and potential for issuance The Israeli Capital Market to achieve substantial amounts.

Greater liquidity Issuance and ongoing expenses 445 Companies 62 IPO 40+in Q1/2021 20 B$ 306 B$ on TASE are significantly lower Traded on Raised Raised in the Israeli TASE 3.5 B$ the Israeli bond bonds market compared to other global stock (2017-2020) market cap Ability to delist anytime (in 2020) exchanges. 24 at the company's sole discretion (90-day notice) * 36 series of gov. bonds and 670 series of corp. bonds Trading as "the big fish in the small pond". Seamless global clearing and settlement Joining TASE flagship indices - Who Is Eligible for Dual Listing? increases liquidity. Companies that are traded on the following markets for at least one year Listing Process Diagram - Book Building or with market capitalization exceeding 150USD million (regardless of how Ability to raise money on English prospectus and ongoing long they have been listed): TASE based on existing disclosure reports for Tech & סמל - רשות ניירות ערך ProspectusMeeting review Roadshow Opening of סמל - רשות ניירות ערך prospectus w i t h Biomed companies on US New York Stock Exchange (NYSE): NYSE, NYSE America; by thethe ISA ISA trading NASDAQ: Global Select Market, Global Market, Capital Market; and TASE GAAP/IFRS. London Stock Exchange (LSE): Premium List and High Growth Segment (HGS) only - Offering expenses are 2-3 month 2-4 weeks Up to 4 days סמל - רשות ניירות ערך סמל - רשות ניירות ערך Standard list not included; significantly lower in Filing request with ISA Offering process Issuance expenses are tax- Toronto Stock Exchange (TMX): Main Board only – TSX-V not included; and TASE + submission Registration on TASE comparison to other markets of draft prospectus and beginning of deductible. Singapore Stock Exchange (SGX): Main Board only – Catalyst not included; Prospectus publication trading Hong-Kong Stock Exchange (HKEX): Main Board only – GEM not included. Meeting with the ISA Ability to issue new and Publication of draft Public tender (optional) Exposure to global small and prospectus How to Dual List? different securities mid-cap investors (investing (such as bonds) their home market).Israel securities authority רשות outsideניירות ערך Israel securities authority רשות ניירות ערך In order to dual-list on TASE, a company must file a one-time short registration document that contains a summary of important information reports for Israel Tech& securities authority רשות ניירות ערךevolvedIsrael & securities liquid authority Financial רשות ניירות ערךregarding the company, alongside previous annual reports filed by the Extremely company on its current stock exchange. A foreign company must also corporate bond market Biomed companies on US obtain a permit for registration, granted by the ISA. Trading opens two (compared to other leading markets GAAP/IFRS days after filing the registration form. globally)

International Affairs and Business Adv. Ron Klein +972-50-7210001 International Affairs andBusiness Adv. Ron Klein +972-50-7210001

IsraelIsrael securities securities authority authority רשות ניירות ערךרשות [email protected]ניירות ערך IsraelIsrael securities securities authority authority Development Department, ISA Adv.(CPA) Orly Goldstein +972-50-7338696 רשות ניירות ערךרשות ניירות [email protected]ערך Development Department, ISA Adv.(CPA) Orly Goldstein +972-50-7338696

Pantone: 533c Pantone: 533c Pantone: 533cc=100 M=91 Y=33 K=22 Pantone: 533cc=100 M=91 Y=33 K=22 c=100 M=91 Y=33 K=22 c=100 M=91 Y=33 K=22

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As it looks to the future and performs its statutory duties, the ISA studies these trends and developments and takes steps to design a supportive regulatory environment for innovation Third Goal in general, and specifically for fintech innovations, in acknowledgment of this field’s contribution to Advancing Israel’s economy, to its public investors, and to the Technological resilience and growth of the local capital market. As a preliminary step, in 2018 the ISA established Innovation in the the FinTech Innovation Hub, which provides regulatory assistance to technology companies that Capital Market develop innovative products for financial services.

Following are the ISA’s main actions in the reported The past decade was characterized period to advance technological innovation in the by the accelerated development of capital market: ground-breaking technologies, and the introduction of innovative technologies Fintech Pilot Program for financial markets. These specialized At the beginning of the year, the ISA and the financial technologies known as Innovation Authority launched a new pilot program fintech are designed to increase the that gives Israeli fintech companies and start-ups accessibility and efficiency of financial access to ISA databases and TASE trading data. services and lower their costs. The The companies selected for the program received scope of local and global investments funding for 30%-50% of the pilot costs as well as directed to the fintech industry shows regulatory oversight by ISA Staff on all program- considerable growth over the past few related issues. The joint program was established years, and Israel is a leading innovator to promote the ISA’s strategic goal of promoting in this field. With these technological financial innovativeness in Israel’s capital market developments in place, public investors by supporting the introduction and adoption of are changing their habits with respect financial technologies that make the capital market to the use of financial systems, and more accessible to Israeli consumers, and by a new wave of young end-users is increasing the efficiency of the work of the ISA and entering the market. These same its supervised entities. technological changes challenge existing regulatory regimes, which were In the program, participating companies learned designed decades ago, and therefore of the challenges that are on the agenda of the ISA require structural and operational and the capital market, so that the companies might adjustments. develop technological solutions for them. These challenges include: • Assessing the advantages attributed to new, advanced technologies, such as DLT, for developing the capital market through development of the trading platforms and stock exchange infrastructure;

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• Structured and unstructured tools for a manner that also facilitates comparisons analyzing, drawing conclusions, and generating among portfolio management firms’ alerts from supervised entities’ reports, performance. especially Hebrew-language text-analysis 2. Development of financial services that benefit tools (NLP) and tools for data retrieval from the public: personal portfolio management unstructured reports; at a low cost that is also available to small portfolios and benefits from tax relief based on • Use of innovative mutual fund rating tools that investment portfolio management on a mutual increase customers’ ability to make choices fund platform. based on a wide range of quantitative and According to the Directive, 2.0 portfolio qualitative criteria; management services are rendered by portfolio management firms that are also engaged in • Improving the KYC procedure and customize investment marketing, which will offer portfolio investment products to customers’ needs management services based on four special in order to encourage them to use digital purpose mutual funds that each portfolio investment advisory and management services, management firm will manage on behalf of the and increasing the accessibility of these mutual funds’ manager, in a hosting model. These services to small-scale customers or improving four special purpose funds correspond to four traditional investment procedures; customer risk profiles. The service includes a procedure to identify customers’ needs and • Tools to examine the efficiency of ISA oversight preferences, and a recommendation regarding and to enhance the efficiency of oversight and the purchase of units in the special purpose fund regulation; that best matches the customer’s needs (of the four funds). Additional conditions and features of • Increasing the public’s access to financial the service are described in detail in the Directive. information and to innovative products and According to this outline, decision making in the 2.0 services through financial entities’ open APIs. portfolio management service model will take place entirely online. Approximately 20 companies applied for the program in response to two ISA calls issued in In the reporting year, the Directive was amended 2020. The Investment Committee of the Innovation to include an additional service outline, which Authority, which includes ISA representatives, also allows 2.0 portfolio management service selected 7 companies that were awarded a total distributors to offer 2.0 services. These distributors of NIS 7 million to promote their pilot products and — investment marketers — will contract with the services.18 investment portfolio managers who manage the special purpose funds in a hosting model, and will 2.0 Portfolio Management Service Model offer customers agreements to purchase units In January 2020, the ISA issued a directive to of the special purpose fund that matches their portfolio managers, mutual fund managers, needs. In this model, the service provider allows and fund trustees concerning the 2.0 portfolio the customer to choose the special purpose fund management service model (“the Directive”). The that matches their needs out of a range of special Directive established the regulatory foundation for a purpose funds managed by various portfolio new public service to be known as the 2.0 portfolio managers (who have a distribution agreement with management service, which essentially combines the service provider). The service provider will give investment marketing and investment management the customer information and comparative data on on a mutual fund platform, and as a result offers the the performance of the special purpose funds that following advantages: match the customer’s needs to allow the customer 1. Development of the portfolio management to make an informed investment decision. sector, including increased competition, in

18. For information on the selected companies, see ISA publications (Hebrew) dated June 20, 2020 and December 7, 2020.

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In view of the demand to offer a different service GFIN is a new framework for financial regulators format that makes the most of the various to collaborate and share their experiences and advantages underlying this model, on December 20, approaches related to innovation. GFIN aspires to the ISA published an amendment to the Directive, provide innovative firms with an efficient channel of which includes a third service format. According communication with various regulators in a manner to the proposed amendment, the service provider that supports the cross-border financial innovations may also provide investment management services of those firms. The international sandbox creates (in lieu of investment marketing) based on the an opportunity for firms that wish to test their conditions proposed in the Directive (i.e., portfolio innovative products, services, or business models in management in a managed account). In this format, multiple jurisdictions concurrently. after a generic or specific procedure designed to identify the customer’s needs, the units of only one The ISA is a member of the collaboration work special purpose fund that matches the customer’s stream and an active participant in the GFIN risk profile will be purchased in an investment work stream and in the RegTech work group, and account managed by the service provider under it initiates activities and promoting GFIN’s goals. a power of attorney. Such services may also be The ISA also seeks to promote the reputation of rendered off-line. Israel’s capital market as an efficient, advanced, and attractive market, and its image in the eyes of In the reporting year, in order to remove barriers international entities through the relationships that it to 2.0 portfolio service offerings to the public, ISA builds with other GFIN members. Staff promoted an initiative to reduce the annual fees payable for 2021-2023 by special purpose fund MOUs in Innovation and Fintech managers, such that the four special purpose funds In recent years, the ISA has actively worked to that are managed jointly by the fund manager and a increase its collaborations in the field of innovation single portfolio manager will be considered a single by signings specific fintech MOUs with foreign fund for the purpose of calculating annual fees. This regulators. These efforts also continued in 2020, temporary order was approved by the Knesset in during which it signed MOUs with two additional December 2020. regulators: A. FSRA (ADGM) - The Financial Services GFIN Regulatory Authority of the Abu Dhabi Global In January 2019, the ISA and other regulators from Market around the world launched the Global Financial B. SFC – Hong Kong Innovation Network (GFIN), an international network for promotion of financial innovation. The network The MOUs establish principles for cooperation and has over 80 organizational members including information exchanges with the aim of encouraging regulators and international organizations such as and cultivating innovation in financial service the IMF and the World Bank, that are committed sectors. Among other things, MOUs regulate the to support financial innovation while ensuring referral mechanisms used by regulators, which investor protection. The international network was allow them to refer entrepreneurs’ requests the initiative of the British regulator (the FCA) and for regulatory assistance and guidance. These other organizations, with the aim of establishing an and other arrangements allow entrepreneurs international sandbox and a forum in which leading to offer innovative financial services in several regulators worldwide can exchange practical markets concurrently, with the support of the information and insights.19 relevant regulators and their assistance in helping entrepreneurs understand the regulatory practices in each market. In 2021, the ISA will continue to sign MOUs concerning fintech and innovation with additional regulators.

19. http//:www.thegfin.com/

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Activity in IOSCO Fintech Groups CapiTech Conference The ISA strongly believes in the importance of In January 2020, before the outbreak of the expanding international cooperation in the fields Covid-19 crisis, the ISA held the CapiTech of technology and innovation in financial services. conference on the effects of the technology In 2020, the ISA continued its involvement in work revolution on the capital market. The conference streams and international initiatives dedicated to was attended by several current and former senior the unique risks and challenges posed by innovative figures in Israel’s capital market, alongside senior capital market technologies such as distributed ISA officials. ISA Chairwoman Anat Guetta presented ledger technology (DLT), AI, and information privacy the ISA’s vision on the supervision of the advanced technologies. payment services that are scheduled to enter The ISA believes that technological change has the market (API — a system that compares bank a global character and therefore poses similar interests and fees; and PSD — “digital wallets” and challenges to many countries. Therefore, financial advanced payment applications). ISA Chairwoman regulators should increase their cooperation and elaborated on the implications for citizens of coordination in order to share the lessons of their adopting these new technologies, such as the experience, develop effective policy to cope with availability of digital investment advisory services the new challenges, and prevent harm to public for any investment amount, investment vehicle, investors in the form of international regulatory and market, and from anywhere. She summarized arbitrage. Furthermore, forums for cooperation are that the ISA believes that it has a responsibility to also an opportunity to raise awareness of the quality be the harbinger of this technological revolution of Israeli securities regulation and to promote the and ensure that it makes a positive contribution to local capital market among the foreign participants the public, the sector, and Israel’s economy. That in these forums. is the reason that the ISA is studying this field and The ISA is an active member of international taking vigorous action to reform the regulatory forums dedicated to innovation and technology. regime to ensure that it is suited for the advanced In addition to membership in GFIN (see above), in technologies that are adopted. 2020 ISA representatives attended discussions and The closing panel at the conference focused on initiatives of IOSCO work streams dedicated to the “building value in Tel Aviv,” and was attended by challenges created by the capital market’s adoption Attorney Karin Meir Rubinstein, CEO and President of innovative technologies. In the first quarter of of Israel Advanced Technology Industries (IATI); the year, the Covid-19 crisis significantly curtailed Mr. Shlomo Dovrat, founder and general partner these activities, but work groups almost completely in the Viola Ventures group; Dr. Ami Applebaum, returned to normal operations by the end of the Chief Scientist of the Ministry of Economy and year. Industry and Head of the Innovation Authority; Mr. Haim Shany, founder and partner in IGP and former general director of the Ministry of Finance; and Mr. Itay ben Zeev, CEO of the Tel Aviv Stock Exchange.

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Following are the ISA’s actions in the reporting year:

Licensing and Oversight of Financial Information Service Providers Fourth Goal In June 2020, the Minister of Finance issued a memorandum of law on financial information Promoting services, determining the ISA as the statutory regulatory authority in charge of licensing and Competition in the oversight of new entities that wish to engage in “financial information services.” The ISA attributes Capital Market great importance to the promotion of the area of financial information, which is part of its vision to promote a competitive, advanced capital market In the Israeli capital market, financial that encourages technological innovation and Israeli services and management of the enterprise. public’s financial assets are highly centralized. Healthy and effective The efforts to promote financial information competition enhances market efficiency services are designed to achieve several goals: and improves the services and product unbundle financial service bundles, increase offerings available to the investing customers’ capacity to compare financial providers public. The ISA endeavors to promote and facilitate transitions between providers; reduce competition in the capital market information asymmetry between various financial to increase market efficiency and providers regarding customers’ unique attributes; public access, and render the market allow customers to access a complete picture of attractive for investors on a global their financial situation in real time in a single click scale. of a button — all of which are designed to remove barriers to competition in the market and increase the efficiency of financial services in Israel. Many customers typically concentrate their financial products and services in the hands of a single provider, generally where they maintain their bank account. This tendency is based on convenience (it allows them to easily obtain a full picture of their financial situation) and cost (the financial provider has extensive information on the customer, which allows it to efficiently price the customer’s unique risks and offer the customer products and services that suit their unique needs). Occasionally financial providers cross-subsidize the services and products that a customer consumes, or cross-subsidizes across multiple customers, which incentivizes customers to obtain all the financial services and products they use from the same financial provider.

Regulation of financial information services will allow customers to obtain a complete real-time picture of their financial situation from a single access point (that is not necessarily their bank), which includes information from all their financial service and product providers, and will make it easier for

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customers to consume financial products and This is also in contrast to the situation in most of services from multiple providers. Furthermore, it the western world, broker-dealer operations are will allow customers to access information on their regulated activities that are subject to oversight by financial situation at any given moment, including regulatory agencies. various charges and credits in their account, and For this reason, the ISA drafted a proposed to monitor their financial situation in an ongoing legislation to regulate broker-dealer operations manner. Through licensed financial information in Israel, placing the entities engaged in these service providers, customers will also be able to operations under the supervision of the ISA. easily, rapidly, and simply compare the financial Such regulation will protect public investors who products and services offered to them by various obtain services from broker-dealers and increase financial providers, compare interest rates and public trust in these operations, which will lead to fees of various financial products, and select the the development of this field and will encourage most suitable of these. Financial information service competition among the various service providers providers will also be able to offer advisory services in the interests of public investors. The proposed regarding their customers’ financial decision regulatory framework also includes a legal making, based on customers’ complete detailed foundation for regulatory incentives to entities that financial information. establish technology-based platforms for retail brokerage services in Israel, thereby encouraging Regulation will allow various financial providers the adoption of innovations and fintech solutions by to obtain detailed information through financial Israel’s capital market. The incentives will be defined information service providers, subject to the in regulations and directives under the Securities customer’s consent, including information on a Law. The Memorandum of Law was published for customer’s risk attributes, their financial decision public comments on November 5, 2020, and in the making patterns and individual attributes, and coming year work the ISA will continue to promote to offer them various products and services that its legislation. match their unique needs. Promoting a Directive on the Use of Visual Regulation of Broker-Dealer Operations Identification Technologies for Opening Most financial intermediation activities in Israel’s Securities Trading Accounts capital market are subject to specific legislation. Today, non-bank TASE members are permitted to The field of investment advising and portfolio open accounts for remote customers in a “closed management is regulated through the Regulation system,” without meeting the customer or obtaining of Engagement in Investment Advice, Investment original documents. That is to say, funds, securities, Marketing, and Portfolio Management Law, while and financial assets are transferred to a non-bank operations of underwriters and trading platforms TASE member’s account from the customer’s for one’s own account are regulated under the account of origin (the customer’s account that Securities Law. Brokerage operations in Israel and is managed either in a banking corporation or the operations of dealers who do not operate as by another TASE member), and ultimately are trading platforms (as this term is defined in the transferred back to the account of origin. The ISA Securities Law), however, are not currently subject intends to extend the option of opening digital to specific regulation or oversight. This situation accounts with non-bank TASE members outside the creates a significant regulatory gap: The operations closed system, based on customer and document of stock exchange members, who perform the verification procedures that use advanced online majority of brokerage activities in the market, are and off-line technological means. subject to TASE Rules and oversight, and TASE members that are banking corporations are also Promoting the Establishment of Retail Brokers subject to the supervision of the Commissioner in Israel of Banks in the Bank of Israel. However, there In August 2019, the ISA and the TASE jointly is no specific regulatory regime that applies to published a call to the public to promote broker-dealer activities for entities that are not technological innovation in the retail brokerage stock exchange members or bank corporations. market, whether in securities trading or in the sale

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of mutual fund units to the general public. This move is consistent with the strategic programs of the ISA and the TASE, which both seek to advance technological innovation in the capital market and reduce the costs of financial services, in order to allow the general public to benefit from direct, advanced, low cost, and more easily accessible trading services. The TASE and the ISA took steps to remove barriers to allow the entry of new stock exchange members (retail brokers) in order to increase competition over retail investors in Israel and facilitate the public’s access to stock exchange trading services.

Following the publication of the call and a series of meetings held by the ISA and the TASE with entities that expressed interest in operating as retail brokers, the ISA and the TASE took steps to amend TASE Rules, with emphasis on relaxing stock exchange members’ capital requirements, reducing fees, and completely digitizing trading account opening procedures, to ensure that practices are in line with the world’s most developed and advanced capital markets.

Developments in Institutional Asset Management in Israel in the Past Decade and Their Implications for the Capital Market A study published by the ISA in December 2020 examined the emerging increase in the concentration of capital and debt allocations in the economy. This trend may also have adverse effects on various aspects of Israel’s capital market.

The findings of this research show that the scope of assets managed by institutional entities doubled in the past decade, reaching NIS 2 trillion, while the size of the stock market remained unchanged. The share of institutional investors’ assets of the total free float in the local stock market increased to app. 36% (June 2020) compared to 25% a decade ago, although the number of entities that manage the public’s assets decreased over this period. Today, 11 entities control app. 90% of the public’s assets, compared to app. 15 entities one decade ago.

As a regulator, the ISA continuously studies the developments and trends in Israel’s capital market that have an impact on the market and consequently on the economy, either now or in the future, as the findings of this study indicate. As expected of a regulator that focuses on the interests of the public and the Israeli economy, as part of its forward-looking perspective and long-term planning, the ISA examines this and other topics in order to place them on the public agenda.

Distribution of asset management firms that manage at least 50%, 75%, and 90% of the public’s total managed assets, 2010-2020.

15 14 14 13 13 13 13 12 11 11 11

8 8 8 8 8 8 7 7 7 7 7

4 4 4 4 4 4 4 4 4 4 4

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 June 2020

50% 75% 90%

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The research also found that over the past decade, the value of the assets managed by Israeli pension funds more than doubled. According to figures for June 2020, total asset value of pension funds exceeds app. NIS 900 billion (app. 43% of the public’s managed assets and app. 64% of the GDP). The average annual rate of growth is app. 13%. If we add the figures of provident funds, which largely function as substitute products for pension funds, total asset value is app. NIS 1.4 trillion, and the mean annual growth rate is app. 10%.

Distribution of total managed assets by institutional investor type, 2010-2020

14% 14% 14% 15% 15% 16% 17% 17% 17% 17% 17%

31% 29% 28% 26% 25% 25% 26% 26% 25% 25% 25%

41% 41% 42% 40% 43% 43% 43% 44% 43% 41% 43%

16% 14% 15% 18% 18% 15% 14% 14% 17% 17% 15% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 June 2020 Insurance companies Provident funds Pension funds Mutual funds

The findings of this study show that institutional investors have become an increasingly dominant force in the local public capital market. Moreover, one type of institutional investors (insurance companies) are already concentrated in terms of the scope of the assets they manage in comparison to the size of the capital market. The trends identified in this study, especially the increase in institutional investors’ holdings and market share in comparison to domestic market capitalization, and the effects of these trends, may continue to grow in the coming decade. If the trends described in this research persist, institutional investors in Israel can be expected to dominate a considerable share of the equity and debt issued to households and businesses.

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Value of institutional investors’ holdings in TASE shares, 2010-2020 NIS Billions

300 30%

27% 25% 250 25% 24%

20% 200 19% 20% 52.0 19% 18% 16% 16% 150 15% 14% 36.4 39.4 14% 13% 14% 14% 13% 23.9 12% 17.4 12% 12% 13% 12% 11% 12% 100 12.0 13.4 10% 9.8 10.8 167.0 6.8 6.0 129.7 128.7 129.6 112.9 50 99.2 5% 96.9 87.3 91.0 72.0 76.6

0 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 June 2020 Value of institutional investors’ holdings in shares, excluding mutual funds Value of mutual fund holdings in shares Institutional investors’ holdings in shares as a percentage of market cap Institutional investors’ holdings in shares, as a percentage of market cap excluding mutual funds

In change these trends, the ISA proposes to study the following directions of action and efforts to: • encourage the establishment of additional institutional investors; • encourage entry of foreign international institutional investors as active investors in the Israeli capital market, in order to drive liquidity, fair asset pricing, and diversification; • give consideration to the establishment of a public committee to discuss increasing competition through the entry of major foreign institutional investors into market sectors that are controlled exclusively by domestic institutional investors such as the pension savings sector, in order to expose Israeli savers to a wider variety of investment managers, styles, and vehicles; • encourage an increase in free float in the domestic market and further reduction in controlling shareholders’ stakes in traded companies; • encourage market making by banks in Israel and by international market makers.

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Main Activities Planned in the Current Year In addition to the issues noted above on which work is in progress, the ISA will continue to promote the following main issues, in line with its goals and work plans:

• In 2021, the ISA expects to continue to adopt innovative technological systems with the aim of increasing the efficiency of the Investigations, Intelligence, and Market Surveillance Department. With the new systems, it will become possible to identify and rapidly analyze securities violations on social media and online open-access databases, improve the analysis and presentation of its inspections through visual-based analyses and data processing, and make use of automatic transcription engines.

• Inspections: The Inspections and Examinations Department conducts inspections on behalf of the various supervisory departments. In 2021, the Department is scheduled to inspect reporting corporations, mutual fund managers, portfolio managers, advisory functions in banks, and trading platforms, and will conduct AML inspections as well. In addition, the Department intends to study the from information security and cyber risks effects of the employees of ISA’s supervised entities’ transition to work at home in response to the social distancing restrictions imposed as a result of the Covid-19 crisis.

• A risk survey, which will be conducted for the ISA by outsourced service providers, will serve as the foundation for building organization- wide infrastructure for continuous ongoing risk management. In the first half of 2021, Shaldor, the firm that was awarded the tender, will conduct the risk survey and develop the agreed methodology. The Risk Management Unit of the Inspections and Examination Department will oversee the process.

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• Corporate regulation and oversight: The number of listed companies on the TASE increased in the final quarter of 2020, mainly as a result of a significant rise in the number of new companies that performed an IPO, which were primarily companies in the technology sector and included R&D partnerships. This trend continued in the first quarter of 2021. In addition, for the first time, the vast majority of issues were non- uniform offerings to institutional investors, in which issuers retain the discretion to select the buyers of the offered securities and their purchaser amounts.

These trends require that the ISA study various topics in the near future, including issues by technology companies, R&D partnerships, and non-uniform offerings, and analyze these trends and the need to regulate the professional issues that emerge as a result. Among other things, in the first quarter of 2021 the ISA intends to publish an ISA Staff position on the questions that arose from the implementation of the non-uniform offering model, and to address the special disclosure requirements that apply specifically to technology companies and R&D partnerships. In addition, following recent experience, the ISA intends to initiate modifications to and improvements in the current R&D partnership model to ensure that public investors’ interests in these partnerships are protected. In addition, in the near future, the ISA also intends to study various regulatory aspects of the SPAC model used in capital markets worldwide, and the possible implementation of this model in Israel’s capital market.

• Mutual funds reform - “Similar funds“ outline – Mutual fund investment advising in Israel is affected mainly by two key factors: the features of the funds offered to the public, and the advising methodology used by banking corporations (which is based on their mutual fund rating system). One of the needs that the ISA identified is the need to improve both these variables. ISA Staff therefore conducted discussions with mutual fund managers and banking corporations, which generated insights on the steps the ISA should take to enhance the field of mutual fund investment advising. In these discussions the ISA learned that a single fund manager may manage a large number of similar funds that belong to the same category, yet the information needed to distinguish between these funds is not available. This situation limits the capabilities of advisers, who use the banks’ rating system to select a mutual fund that is best suited to their customer.

Therefore, the ISA is working with the Association of Mutual Fund Managers to promote voluntary adoption of a program that addresses multiple similar funds managed by a fund manager (“the outline”). One of the steps in this outline was the modification of the headings used to classify mutual funds and their attributes, in order to create categories of homogeneous and comparable funds, as far as possible. This step is scheduled to proceed in a gradual fashion in the first half of 2021 and is expected to lead to the merger of various mutual funds. ISA Staff also found that concurrently with the implementation of this outline by mutual fund managers, the banking corporations will be required to make adjustments to their rating systems. The importance of these necessary adjustments becomes imperative in view of the significant changes that implementation of the outline is expected to create. The adjustments are expected to include fund performance assessments that use a longer horizon. Furthermore, since past performance has a limited predictive value for future performance, mutual fund ratings should not rely exclusively on performance data and should also be based on additional qualitative parameters.

These changes are expected to create stability in the mutual fund market and reframe mutual funds as long-term investment products.

• Examining dual-listing effects on performance, tradability, and other corporate indicators The Department of Research, Development, and Strategic Economic Consulting will study trading data of the dual-listed shares in Israel and discuss the implications of dual listings on performance, tradability, and other companies’ parameters.

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This examination will include: • the historical development of several dual-listed companies in Israel over the past 20 years; • the historical development of market shares and trading volumes of the dual-listed companies on the TASE; • the study of global evidence on the effects of dual listings; • a discussion of the benefits and shortcomings of dual listings in terms of their effect on the local market and on foreign markets.

• In-depth analysis of algorithmic and high-frequency trading (HFT) in the Israeli capital market In 2013, the Department of Research, Development, and Strategic Economic Consulting published a study on algorithmic trading and HFT, which identified an improvement in liquidity measures (bid-ask spread) that occurred concurrently with algo-traders’ entry to the market. The study also identified a decline in various measures of market quality (order-execution and order-cancellation ratios). The study also discussed various regulatory approaches to algo-trading and HFT.

In 2021, this analysis will be updated by a new study that will include: • Analysis of the effecs of HFT on the TASE between 2010 and 2020; • Analysis of liquidity effects; • Identification of algo-trading strategies, based on daily trading data, and their effects; • An expanded time frame and additional types of securities included in the database; • Identification of feedback loops in algo-trading; • A revision of the literature review on regulatory approaches to algo-trading and an assessment of these approaches on the basis of trading data and recent insights.

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• ISA budget 2020 Chapter D • ISA budget 2021 • Report of the ISA Freedom of Information Officer under Section 5(a) Budget and of the Freedom of Information Law • List of ISA brochures and guides for additional report the public published in 2020 sections • ISA databases registered in Ministry of Justice ledger of databases pursuant to the Privacy Protection Law

• ISA funds and grants

• ISA support to public institutions in 2020

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ISA 2020 Approved Budget (in NIS thousands)

Approved Updated Budget Item no. Item budget budget performance 2020 2020 2020

Total expenses 188,600 188,600 169,496 Total salary expenses 107,810 107,810 99,317 No. of employees ]233[ ]233[ ]233[ 1001 Salaries - ISA employees 85,700 85,700 80,156 Pension and severance pay 13,000 13,000 11,404 1002 contributions 1003 Overtime 5,000 5,000 4,111 Temporary employees for ad-hoc 360 360 77 1004 projects No of legal interns and students ] 34 [ ] 34 [ ]34[ 1005 Legal interns and students 2,750 2,750 2,694 1006 Salary of ISA Chair 900 900 836 1008 Reimbursements to ISA members 100 100 39 Total payroll-related expenses 9,580 9,580 8,479 2001 Training 1,020 1,020 654 2002 Vehicle maintenance 1,500 1,500 1,100 2004 Travel, per diem, and shipping in Israel 7,000 7,000 6,683 2005 Loan fund 60 60 42 Total maintenance expenses 21,540 21,540 19,666 3001 Organizational expenses 950 950 781 3002 Office supplies 510 744 744 3003 Building maintenance and repairs 19,050 18,816 17,448 3004 Post and telephone 550 550 537 3005 Equipment, machinery, and furniture 480 480 156 Total professional activities 12,760 12,760 9,963 Licensing of investment advisers and 2,150 2,150 2,004 4002 portfolio managers 4004 Legal expenses 950 950 253 4005 Professional library 440 440 339

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Approved Updated Budget Item no. Item budget budget performance 2020 2020 2020

4007 )Accounting standards (participation 1,250 1,250 1,044 4008 Inspections and enforcement 2,910 2,910 1,805 4010 Public education 580 648 648 4011 Consultants 1,070 1,070 905 4012 Seminars 290 475 473 4015 Academic research fund 100 100 - 4016 International relations 590 337 241 4017 Internal audit 350 350 316 4018 Financial statements 480 480 338 4019 District Attorney’s office 1,600 1,600 1,597 Total Information systems 18,210 17,802 16,963 5003 Computer maintenance 17,100 16,692 15,954 Acquisition of computerized 1,110 1,110 1,009 5004 information Total development budget 14,700 15,108 15,108 Information systems (software and 14,000 14,863 14,863 6001 )hardware 6003 Housing and leasehold improvements 700 245 245 Total reserve 4,000 4,000 - 7005 Reserve for salary 2,300 2,300 - 7006 Reserve for price hikes 700 700 - 7010 General reserve 1,000 1,000 - )Total revenues (estimated 188,600 188,600 187,925 9001 Prospectus fees 59,500 59,500 55,763 9002 Annual fees 114,700 114,700 114,049 9003 Financing income, net 500 500 4,179 9004 Investment adviser fees 14,900 14,900 13,934 Financing expenses in respect of )1,000( )1,000( - 9050 reserves

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ISA 2021 Approved Budget (in NIS thousands)

Item no. Item Approved budget 2020

Total expenses 188,300

Total salary expenses 107,300

No. of employees ]233[

1001 Salaries - ISA employees 85,500

1002 Pension and severance pay contributions 12,800

1003 Overtime 4,900

1004 Temporary employees for ad-hoc projects 250

No of legal interns and students ] 34 [

1005 Legal interns and students 2,850

1006 Salary of ISA Chair 900

1008 Reimbursements to ISA members 100

Total payroll-related expenses 9,430

2001 Training 950

2002 Vehicle maintenance 1,420

2004 Travel, per diem, and shipping in Israel 7,000

2005 Loan fund 60

Total maintenance expenses 21,250

3001 Organizational expenses 930

3002 Office supplies 600

3003 Building maintenance and repairs 18,750

3004 Post and telephone 520

3005 Equipment, machinery, and furniture 450

Total professional activities 11,710 Licensing of investment advisers and portfolio 4002 2,150 managers

4004 Legal expenses 950

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Item no. Item Approved budget 2020

4005 Professional library 350

4007 )Accounting standards (participation 950

4008 Inspections and enforcement 2,500

4010 Public education 580

4011 Consultants 1,000

4012 Seminars 250

4015 Academic research fund 100

4016 International relations 480

4017 Internal audit 320

4018 Financial statements 480

4019 District Attorney’s office 1,600

Total Information systems 18,910

5003 Computer maintenance 17,800

5004 Acquisition of computerized information 1,110

Total development budget 15,700

6001 )Information systems (software and hardware 15,000

6003 Housing and leasehold improvements 700

Total reserve 4,000

7005 Reserve for salary 2,300

7006 Reserve for price hikes 700

7010 General reserve 1,000

)Total revenues (estimated )188,300(

9001 Prospectus fees )59,200(

9002 Annual fees )99,000(

9003 Financing income, net -

9004 Investment adviser fees )13,100(

9050 Financing expenses in respect of reserves )17,000(

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Report of ISA Freedom of Information Officer according to Section 5(a) of the Freedom of Information Law

No. of Request status 2019 2020 Handling time % requests ISA provided all requested 2 5 Up to 15 days 14 0.52 information 16-30 days 5 0.19 Requests for information partially 9 14 granted 31-60 days 3 0.11

Requests denied 10 7 61-120 days 5 0.19

In progress 7 3 More than 120 days 0 0.00

Total 28 29 Total 27 1.00

Details of denied requests for information and To submit a question or a request under the requests partially granted Freedom of Information Law contact Ms. Keren Gihaz, Adv., the ISA Freedom of Information Officer Grounds for the decision No. of in charge in the ISA to [email protected]. Or requests Tel: 02-6556462.

Unreasonable allocation of 8 Public Inquiries resources - Section 8(1) In 2020, the ISA handled over 900 public inquiries The information is not in the ISA’s 7 from a broad range of sources and on a wide range possession - Section 8(3) of topics, compared with 750 inquiries handled in The information is in the public 13 2019. domain - Section 8(4) The ISA believes that maintaining an open channel Infringement of privacy - 1 of discussion with the public who invest in the Section 9(a)(3) capital market is extremely important. The ISA Prohibited by law - Section 9(A)(4) 1 ensures that all inquiries are carefully studied and handled, and relevant responses are provided in a Obstruction of ISA functioning - 4 rapid, efficient process. Section 9(b)(1) The public submitted inquiries on a wide range Internal work product - Section 9(b)(7) 3 of topics, including organization-wide topics Trade secret - Section 9(b)(6) 1 concerning ISA activities, the reporting corporations, the TASE and its members; the conduct of licensed Conditions for non-delivery - 0 investment advisers, marketers, and portfolio Section 9(b)(8) managers; suspected trading violations; mutual Work methods and procedures 4 funds and ETFs in general, and; requests for of an enforcement authority - information on the ISA’s activities or the activities Section 9(b)(8) of a supervised entity. In addition, the ISA receives Law not applicable - Section 14 2

**Several requests were denied or partially denied for more than one reason.

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requests for information on the capital market ISA Funds and Grants from official entities and private individuals, most of The ISA awards research grants to researchers which are addressed according to the Freedom of who study issues that have implications for capital Information Law. market policy in Israel, and specifically research This year, as the entire world confronted a global work related to the ISA’s operations and goals, such pandemic and its economic repercussions, the as capital market development and removal of ISA received and handed an increasing number economic obstacles and regulatory inefficiencies, of inquiries, mainly related to the routine financial protection of public investors, increasing investor conduct of, and effects of the crisis on, public trust, and raising public awareness of various capital companies, the TASE, and investment houses, and market issues. Grants range between NIS 5,000 and to a lesser degree inquiries concerning financial NIS 40,000 per award. fraud. Applications are evaluated and approved by an ISA Public inquiries by topic committee based on the following considerations: • The significance of the topic and the materiality of its implications; 12% 18% • The study’s potential regulatory applications; • The compatibility between the researcher’s 11% qualifications and education, and the research; • The research is expected to be concluded 8% within 24 months.

15% In 2020, the ISA approved one new research grant. 9% ISA Support to Public Institutions 13% The ISA established the Israel Accounting Standards 15% Board (IASB) in conjunction with the Institute of Certified Public Accountants in Israel. The IASB is

Civil law issues related to reporting corporations incorporated as a company with a share capital Legal aspects of ISA activities of no par value, and submits tax filings as a Regulation and supervision of trading platforms non-profit institution. The IASB operates under a TASE – trading and general issues Intelligence and information on violations balanced budget, and according to its structure, its Licensing, supervision, and regulation of investments shareholders are not entitled to surplus earnings, General – suggestions and responses rights, or accruals on its net assets. The ISA and the Others Institute of Certified Public Accountants in Israel have equal rights of ownership and equal rights to appoint directors. The Board’s budget is funded by the ISA (81%) and by the Institute of Certified Public Accountants in Israel.

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ISA Brochures and Guides for the Public Published in 2020 • Report of the Committee to Promote and Institutionalize Digital Markets in Israel (January 2020) • Collection of Economic Analyses: The Covid-19 Crisis (August 2020) • Structured Sentencing Framework for Administrative Enforcement (August 2020)

ISA Databases Registered in Ministry of Justice Ledger of Databases Pursuant to the Privacy Protection Law 5741-1981

Database Description and objectives

Operations of portfolio Information on the customers of portfolio managers and non-bank managers and non-bank exchange members, for the purpose of supervision and enforcement exchange members according to the ISA’s powers

Business intelligence (BI) Information related to trading on the stock exchange, for the purpose of supervision of trading fairness

Intelligence and Investigations Information related to trading on the stock exchange, for the purpose Department database of supervision of trading fairness

Corporations and electronic Information on senior officers appointed by the reporting corporations signatories for reporting on MAGNA — for the purpose the ongoing operations of the electronic reporting and authentication system

Licensing of investment advisers Information on licensing procedures for applicants and for the and portfolio managers purpose of supervising licensees

Interested parties Information on individuals and companies defined as interested parties, for the purpose of fulfilling the ISA’s role in protecting public capital market investors

Payments to suppliers and Information on suppliers, for the purpose of payment processing bookkeeping

Payrolls (MALAM) The ISA salary payment system

Human resources (RECORD) Information on ISA employees, for the purpose of HR management

Security cameras The ISA’s security cameras

Database of parties with voting Information on securities holdings, for the purpose of participation in rights electronic voting

Maintaining a fair capital market | Strengthening and expanding the public capital market | Promoting technological innovation in the capital market | Promoting competition in the capital market ISRAEL SECURITIES AUTHORITY Table of contents Maintaining a fair capital market Responsibility Corporate Social E Chapter

Strengthening and expanding the public capital market Annual Report 2020 Enhancing The Market to Drive theEconomy

Promoting technological innovation in the capital market website. ISA the on available is code ethical ISA’s The ISA Values ISA values. responsibility corporate reflect that activities to showcase seeks it which through entities, supervised its for model arole as position to its importance great gives it corporation, a business not is ISA the Although considerations. governance corporate and societal, to environmental, attention focus which investors, by institutional norms ESG of adoption voluntary in trend upward for support her expressed has Chairwoman ISA disposal. its at placed resources to the subject and investors public to protect is role whose corporation statutory a as obligations of its constraints the within impact, environmental and societal apositive have that to practices importance great attributes ISA The other external entities: external other the financial system, the capital market sector,and with interfaces its and work intra-organizational its inform that values ISA’s the are following The • • • • • • • promote market development. to and public of the interests the to protect partnerships and share knowledge in order collaborative to establish strive will ISA the resources. of use efficient an on based efficiently, goals advanced capital market. attractive, an to promote order in Israel, outside and in needs investors’ in changes forresponsibility due disclosure requirements. its in grounded clarity, and certainty create to order in of transparency, standards high actions. its of consequences the for of responsibility sense practices. and methods work its in improvements introducing constantly operations, of its areas all and market capital the in expertise its deepen and manner. commensurate and appropriate, equitable, abalanced, in powers its exercise will and integrity, and of fairness standards Collaboration. Effectiveness. Relevance. Transparency. Accountability. Excellence. high adopt will ISA The fairness. and Integrity The ISA will constantly examine examine constantly will ISA The The ISA will perfect its capabilities capabilities its perfect will ISA The As a part of the financial system, system, financial of the apart As The ISA will operate under under operate will ISA The The ISA will strive to achieve its its to achieve strive will ISA The The ISA will act out of an overall overall of an out act will ISA The

Promoting competition in the capital market 98

Corporate Social Responsibility ISRAEL SECURITIES AUTHORITY Table of contents Maintaining a fair capital market 3. 2. 1.

Publications on the ISA website ISA the on Publications meetings Plenum of ISA of transcripts Publication initiatives regulatory in public the Involving filed with the courts, economic research, and various administrative notices. notices. administrative various and research, economic courts, the with filed were that positions ISA law), of provisions the to (subject proceedings enforcement administrative and fines monetary on decisions enforcement issues, accounting and legal on pre-ruling for to requests responses ISA issues, accounting and legal on papers position Staff ISA directives, and guidelines ISA of versions final and legislation approved directives, ISA comments, public for legislation draft publishes ISA the things, other Among others. and Israel, outside and in regulators financial officials, government entities, supervised ISA’s investors, public including of audiences avariety target publications These interests. protected other or operations its on impact adverse no have publications such that by law, provided ISA to the applies that of confidentiality duty to the and considerations professional of its basis the on selected are which papers, position Staff and initiatives to ISA related publications uploads routinely ISA the website, its On w the on are available transcripts The topics. specific on updates and studies and matters, administrative companies, or of individuals privacy the violate may publication whose matters on discussions as such publication, for inappropriate considered are that topics include not do transcripts transcripts has changed over the years and the transcripts are now edited and summarized. The published of these format The exceptions. to certain subject meeting, of its transcripts the to publish decided has Plenum ISA the possible, as far as work ISA’s of the transparency However, the to rules. increase disclosure to public subject not generally are discussions ISA’s the that determines Law Securities of the 13 Section Plenum. ISA by the approval and deliberation for comments of public summaries of preparation and procedures, hearing public comments, public for proposals of legislative outlines publishing for directives defines procedure The necessary). (where ISA the outside procedures legislative to the promoted are they before proposals legislative and initiatives ISA’s the in involvement public’s the increase to designed is which reform, regulation for procedure internal an adopted ISA the efforts, these Within possible. as far as entities supervised on burden regulatory the reduces and regulation, transparent efficient, to more contributes involvement public’s the respects, these all In entities. supervised the burdening excessively without goals, of regulatory achievement the improve that comments to public ISA the up opens effectively and work, regulatory ISA’s of the transparency public the improves initiatives, legislative its on work ISA’s to the respect with certainty and clarity create helps manner this in public the Involving drafted. are proposals legislative before stage preliminary the in including involved, is ISA the which in procedures of legislative stages various in involvement public’s the supports ISA The responsibility. direct its under are that areas the in legislation promoting and initiating in role amajor plays ISA The Strengthening and expanding the public capital market Annual Report 2020 efforts: efforts: following the through efficiency, to organizational commitment its and obligations statutory to its subject making, decision its in public the to involve and transparency to promote strives ISA The Making Transparency Public and Engagement in Decision Enhancing The Market to Drive theEconomy

Promoting technological innovation in the capital market .

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Corporate Social Responsibility ISRAEL SECURITIES AUTHORITY Table of contents Maintaining a fair capital market • • • • • •

| ISA employees. to respect with exists equity pay gender Full board. executive of the members of the 40% app. constitute women and women, are employees of ISA’s 42% app. level, managerial At the men. 47% are and women are employees of ISA 53% that indicate 2020 for data ISA employees. all among and board, executive the and Plenum the in both rights, gender equal promote to efforts invested has ISA the years, the Over disabilities. with employees for positions additional two includes which 2020, year the for proposal ISA’sbudgetary the in reflected was policy This disabilities. with individuals for jobs specific earmarked also has ISA The workplace. the in diversity on managers and employees for workshops conducted ISA the departments, its in of diversity importance of the awareness to increase and disabilities with employees of hiring discriminatory and prejudices to reduce order in and To end, this employees. its and organization the both for important is and of opinions, aplurality and to creativity contributes workplace the in Diversity years. several for plan work ISA’s of the part been has needs special with of individuals Employment aunion. and processes, evaluation an internal portal for employees, an open-door policy, employee satisfaction surveys, feedback and including rights, their exercise and updates to receive disposal attheir channels several have employees ISA Award, which is given to employers that support and encourage their employees to serve in the Reserves. the in to serve employees their encourage and support that to employers given is which Award, Protector Reserves of Defense Ministry the awarded was ISA 2017, In the volunteers. employee its support to grants special provides ISA the duty, reserve military for to volunteer employees its To encourages events. team-building and vacations, annual terms, special on loans offices, of ISA site the on August in camp asummer camp, summer and arrangements living for subsidies advice, pension loss, and grief experiencing employees for support families, their and duty reserves military on employees for support health, including welfare of employee aspects all into thought much invests ISA The options. work at-home and hours work flexible as such measures through balance work-family aconstructive maintain employees its helps that policy welfare employee an promotes ISA The boards and on other ISA communication channels. bulletin ISA on posted also is theme this on Information harassment. sexual preventing and awareness raising aim of the with employees ISA all for sessions training frequent conducts officer harassment sexual The harassment. sexual preventing of charge in officer harassment asexual appointed ISA The Fairness and transparency vis a vis all ISA employees ISA all avis vis transparency and Fairness Military reserveMilitary duty policy welfare Advanced officer Sexual harassment Gender balance disabilities with ofEmployment individuals

Strengthening and expanding the public capital market Annual Report 2020 innovation: and creativity encourages that place work to afair, create levels service-oriented multiple on steps takes ISA The Fund. Maagalim the and newspaper, financial aleading by Calcalist, sponsored Competition Employer Social the in prize first awarded was ISA 2017, In the economy. Israeli the and market capital the to develop and investors, of public interests the in goals its to achieve ability and success ISA’s the behind key the factor are resources human High-quality Fair Work Environment

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| an active role in assisting the organizations according to the organizations’ needs. organizations’ to the according organizations the assisting in role active an play employees and organization or other anon-profit with collaboration in aproject sponsors department ISA each years, two every Once service. community on focus that days team-building holds ISA The schools. elementary on pandemic the of effects to the due March in suspended was work volunteering and 2020, TelAviv. In Jerusalem in offices ISA to the visits and ajudge; with meetings and courts the to visits witnesses; and attorneys, of judges, roles the play students the which in trial amock as such volunteers, the with experiences unique in participate afew. children to The name internet, the systems, information accounting, to law, related economics, topics on children to school talks give employees ISA volunteers, As populations. disadvantaged from schoolchildren and occupations various in citizens between bridge create a to system education the in engagement public significant encourages and education, in opportunities equal promotes Tel and Aviv. organization The Jerusalem in operates that organization Aher, anon-profit Shiur for program avolunteer in participated have employees ISA years, 15 past the For Law. Ethics Payment the with comply suppliers to its of payment terms ISA’s The conduct. own ISA’s the guide that values the to according integrity, and behavior of ethical standards to high to conform vendors its expects ISA The regulations. its Tenders and Law Mandatory to the according conducted are that procedures pricing competitive and tender in selected are vendors medium-sized and large of its majority vast The operations. ongoing its for necessary services and goods the provide that suppliers 1,300 app. with works ISA The lectures are offered to the general public or targeted groups at no cost. no at groups targeted or public general the to offered are lectures and workshops The market. capital the on talks introductory and making, decision financial informed for tools basic to teach public general the for lectures and workshops holds ISA the to time, From time organizations. non-profit to six were donated 41 chairs and 3cabinets, screen, 1computer printers, 36 laptops, 13 2020, In environment. the and society benefits work whose organizations non-profit are recipients Donation ISA. by the use in longer no are that equipment computer and furniture donates ISA The need. in families for donations as collected were also items food dry year of the end the toward and were installed, boxes donation the since months the in items of clothing kilograms dozen several donated employees ISA need. in individuals for baskets food Lev purchases Pithon proceeds, the With to factories. sold are clothing of the components various The fabric. and buttons, metal, separate needs special with employees where center recycling Lev’s to Pithon transferred are re-use for appropriate not are that items Donated bazaars. Halev Mikol and centers assistance atthe recipients aid to directly given are items appropriate and selected carefully are items donated The donations. clothing and for TelAviv Jerusalem in offices atits boxes donation Lev” “Pithon three placed ISA the 2020, August In Volunteer work in Shiur Aher Shiur in work Volunteer Interfaces vendors with Increasing public awareness of responsibleconsumption of services financial donations computer and Furniture equipment computer and furniture of Donations service Community

Strengthening and expanding the public capital market Annual Report 2020 has contributed to society in numerous ways. numerous in to society contributed has ISA the resources, of its constraints the within years, the Over culture. organizational and values ISA’s the in deeply embedded is that aprinciple is another” one for responsible are “All of Israel Responsibility Social

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Corporate Social Responsibility ISRAEL SECURITIES AUTHORITY Table of contents Maintaining a fair capital market The main activities that ISA performs regularly to promote environmental responsibility: environmental promote to regularly performs ISA that activities main The • • • • • • •

| the ISA saves several thousand of printed pages each year. each pages of printed thousand several saves ISA the aresult, As entities. supervised by the published prospectuses and reports the monitor review and digitally to computers sophisticated purchased ISA the To end, investors. this to public reports and disclosures Personal printers were donated to three non-profit organizations. security. information improves and hours, maintenance reduces printers, existing for parts spare and toners of of arange purchase the reduces funds, public saves It to paper: addition in savings, additional creates network new The chip. apersonal with themselves by identifying to print employees allow that devices installed ISA the and service, from were removed printers departmental and 41 personal time, same At the printing. by duplicate caused waste to reduce software control and management printing to purchase plans also year. ISA The each pages printed thousand several additional of an to savings contribute will which planned, is agreements of suppliers’ year, digitization coming the In pages. of printed of thousands tens atseveral estimated savings generates interface to adigital migration The suppliers. its involving records other and invoices, orders, purchase for interfaces online uses now ISA The well. as vouchers payment to electronic prospectuses corporate for of fees payment migrating currently is ISA The online. vouchers fee annual their pay now corporations regulated example, For payments. voucher to electronic migrated been gradually have payments fee entities’ year, supervised past the In entities. supervised its for reporting to digital transitioned ISA the 2003, in Already activities. online to paperless entities supervised its with work of its majority the migrated ISA The quantity of paper purchases. bottles and cans are collected for recycling. for collected are cans and bottles envelopes; of internal re-use multiple recycling of paper and newspaper; Migration of all work processes and interfaces with supervised entities to an online environment environment online an to entities supervised with interfaces and processes work all of Migration of activities oversight its in consumption paper to amove reduce led had year, ISA the past the In In late 2020, the ISA purchased and installed printer management software with the aim of reducing the the reducing of aim the with software management printer installed and purchased ISA the 2020, late In environment online an to suppliers external to, payments and with, interfaces work of Migration

Strengthening and expanding the public capital market Annual Report 2020 Digital tracking and oversight instead of the use of printed materials materials of printed use of the instead oversight and tracking Digital promoted ISA the followingthe initiatives: year, This consumption. paper its to reduce efforts invested has ISA the years, several past the For • Commitment to Environmental Responsibility Reducing paper consumption Enhancing The Market to Drive theEconomy

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Corporate Social Responsibility ISRAEL SECURITIES AUTHORITY Table of contents Maintaining a fair capital market In 2020, recylced paper accounted for 67% of all paper purchased by the ISA. by the purchased paper 67% for of all accounted paper recylced 2020, In friendly of paper Use environmentally recycling. for were transferred of batteries kgs 31.5 app. and cans and bottles 2,500 app. 2020, In batteries. used for boxes and recycling, for cans and bottles collect to offices its in buckets places ISA The waste electronic and cans, bottles, Recycling potential measures. savings energy check to firm external an uses also ISA The to energy. save employees its to remind reminders email sends and portal organizational the on reminders posts ISA The offices. ISA in installed are bulbs LED Energy-saving efficiency Energy vehicles. were 2019, hybrid 35% in employees its for ISA by the leased cars 25 the Of friendly. environmentally more are which vehicles, of hybrid use the encourages and employees its for cars leases ISA The vehicles Service Reducing environmental pollution topics. of these awareness employees’ to increase portal organizational the on responsibility environmental and sustainability on articles published year, ISA the the Throughout Raising awareness examined and all identified leaks were repaired. were tanks toilet All necessary. as installed were fixtures water-saving and were examined, faucets the All Water month. every pages newspaper of printed thousands ISA the saving subscriptions, to digital transitioned have to newspapers subscribe who of employees majority vast The Newspapers kashrut. of laws the follow who to employees provided were also cups and Utensils areas. preparation food the in by employees use for utensils and cutlery of multi-use arange and kinds of various glassware purchased ISA The utensils and cutlery Multi-use minimum. necessary to the were reduced orders utensil disposable crisis, Covid-19 to the due but entirely, utensils of disposable purchase the to discontinue planned ISA The Reduction of utensils single-use goals: of its several achieved ISA the crisis, Covid-19 by the were disrupted plans several Although organization. friendly environmentally amore ISA the to make designed activities intra-organizational two, and entities; supervised the with regulator market a capital as work its in one, levels: two on focused theme annual the Work on of operation. areas its all in environment the on impact ISA’s and responsibility environmental was 2020 for year. of the theme The course over the projects various in work employees’ ISA accompanies that theme annual an promotes Unit HR the years, previous in As offices its in responsibility of environmental year the marks ISA The

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Corporate Social Responsibility ISRAEL SECURITIES AUTHORITY Table of contents Maintaining a fair capital market year to prepare employees for various emergency scenarios. emergency various for employees to prepare year each conducted are drills safety emergency and safety, work on sessions training periodic attend employees ISA environment disability-inclusive a create to adapted were offices ISA emergency. event of an the in activities responder first of charge in are and departments ISA the of representatives are who offices, its of floor each on victim of a security incident with consequences. significant a been not To has ISA the date, afew measures. to name access, system monitors and controls, and procedures work uses ISA the and training; employee conducts ISA the access; to unauthorized prevent used are tools of technological acombination holders; to password restricted is access databases: its to protect of measures aseries implements it therefore Law, and Protection Privacy to the subject are that databases maintains ISA The attempts. these thwarted that systems sophisticated to its thanks failed, that cyber-attacks to many subject was year, ISA This the Institute. Standards Israel the by certified been has ISA the to which ISO027001, standard security information international the and Law Protection Privacy the on based is policy cyber-defense and policy privacy information ISA’s The activities. irregular other and information, sensitive to access attempts report that rules use also systems The to licenses. changes including environment, user the monitor and activities suspicious to track used are systems These activities. and patterns network irregular to identify learning machine use that

Strengthening and expanding the public capital market Annual Report 2020 ISA also conducts first-aid workshops and refresher training courses for the emergency officers officers emergency the for courses training refresher and workshops first-aid conducts also ISA The hazards. and issues safety current handling in officer external the assist they and Hygiene and Safety Occupational for Institute Israel atthe training underwent Two coordinators safety year.the throughout safety and hygiene workplace promotes who officer external an has ISA The Hygiene andSafety in the Workplace systems smart are software, anti-virus and firewalls its as such systems, Existing systems. unique new, assesses continuously and system, legacy its including systems, of its versions recent most ISA’s maintains a sophisticated, multi-layered security system. The ISA carefully maintains the the system, ISA’s the target that attacks unknown) and (known numerous to the prevent order In Privacy Policy andCyber-Attack Prevention Enhancing The Market to Drive theEconomy

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