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Report on the Activities of the Israel Securities Authority

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Report on the Activities of the Israel Securities Authority Report on the Activities of the Israel Securities Authority For 2011 1 Table of Contents I Functions of the ISA II The ISA and its Employees III ISA Departments IV Research, Development and Economic and Strategic Counseling Department 1. Strategic counseling 2. Economic counseling 3. Committee on Increasing Competitiveness in the Economy 4. The materiality requirement for restatements 5. Cooperation with the Milken Institute and the Koret Foundation 6. Competitive procedure for conducting research with the Department of Research, Development and Economic and Strategic Counseling 7. Research cooperation between the ISA and academic institutions 8. Supervision over the secondary market and Stock Exchange V. Corporate Finance Department A. General B. Supervision 1. Public Reporting – data and highlights (a) Prospectuses and capital raising (b) Reporting requirements (c) Financial reporting and valuations 1. Review of financial statements 2. Valuations (d) Transactions with a controlling shareholder (e) Private offerings (f) Purchase offers (g) Bond settlement agreements and bond trustees 2. Reports filed with the ISA and requests for exemptions/extensions (a) Termination of reporting requirements (b) Exemption applications (c) Extension applications 2 3. Audits and outsourcing in the Corporate Finance Department 4. Underwriter registry 5. Dual listing C. Regulation – staff position papers and special projects in 2011 1. Staff and Plenum position papers and FAQs 2. Requests for pre-ruling 3. Accounting and auditing enforcement decisions (a) Decisions on accounting issues (b) Decisions on auditing issues 4. Special projects in 2011 (a) The Reporting Improvement Project (b) Underwriting (c) Corporate Governance – Amendments 16 and 17 to the Companies Law (d) ATM (e) Revocation of Regulation 51(b) (f) Supervision over Independent Auditors (PCAOB) (g) Handling the crisis (h) Public shells D. Enforcement 1. Financial sanctions VI Investment Department 1. Mutual funds a. General b. Permits to hold means of control in fund managers and licensing of fund managers and trustees c. Prospectuses d. Reports e. Fund manager participation in general meetings f. Onsite audits of mutual fund managers g. Supervision of mutual fund trustees h. Regulation activities i. Enforcement measures concerning fund managers 2. Exchange Traded Notes (ETNs) 3 a. General b. Prospectuses c. Trustees d. Reports e. Enhancement of ongoing disclosure and development of audit mechanisms f. Audits of ETN Managers g. Regulatory model h. Pre-rulings 3. Investment advisors, investment marketing agents and investment portfolio managers a. General b. Licensing c. Supervision d. Regulation activities e. Enforcement activities concerning license holders 4. Legislation Activity Involving the Department a. Primary Legislation b. Subsidiary Legislation 5. Judicial proceedings involving the ISA VII Department of Supervision over the Secondary Market 1. The Department’s purview 2. Regulation activities VIII Legal Counsel Department 1. Legal Counsel – responsibilities 2. Key activities in 2011 3. Agenda for the coming Year 4. 2011 highlights a. Coordinating and supporting civil suits b. Funding of class and derivative actions and removal of barriers to private enforcement c. Tenders and contracts d. Public inquiries e. Report by the Freedom of Information Officer 4 f. Contact details IX Legislation Department a. General b. Special projects in 2011 c. Primary and secondary legislation published in the reporting year d. Proposed primary and secondary legislation e. Private and government bills pertaining to ISA operations f. Directives X Criminal Enforcement Department 1. Criminal indictments 2. Criminal cases pending in court 3. Criminal Verdicts in Trial Court 4. Verdicts in criminal appeals XI Investigations and Intelligence Department XII International Affairs Department 1. General 2. Participation in international forums 3. Financial Sector Assessment Program (FSAP ) 4. Bi-lateral recognition 5. Signing agreements for cooperation on information exchange 6. Study delegations 7. Cooperation on enforcement and exchange of information 8. Regulation of custodians 9. Activity as part of the Committee for Implementing the Prohibition on Investing in Corporations Dealing with Iran Law XII Information Systems Department 1. Electronic Reporting – MAGNA 2. Document archiving and automated office 3. Operational system 4. The ISA website 5. Central Information System (CIS) – AMIGO 6. Computing for the Investigations and Intelligence Department 7. Forms and payments system 8. BI irregular trading system 5 9. Knowledge management – search tools 10. Knowledge management – organizational portal 11. Human resources system 12. Integrated voting system 13. Infrastructure: servers, communications, and information security Appendixes Appendix 1: 2011 Budget Implementation Report Appendix 2: Approved Budget for 2012 Tables Table 1: No. of applications for permits to publish prospectuses vs. permits granted in 2010-2011 Table 2: Issues and offerings by way of shares, convertible securities and bonds in 2010-2011 Table 3: Shelf Prospectus Reports in 2010-2011 Table 4: Initiated review of financial statements in 2008-2011 Table 5: No. of transactions with controlling shareholders in 2010-2011 Table 6: Private offerings (substantial and exceptional) in 2010-2011 Table 7: Purchase offers in 2010-2011 Table 8: Companies which ended their reporting requirements in 2010-2011 Table 9: Exemption applications filed in 2010-2011 Table 10: Extension applications filed in 2009-2011 Table 11: Underwriter registry in 2010-2011 Table 12: Requests for pre-ruling in 2010-2011 Table 13: Financial sanctions imposed in 2010-2011 Table 14: No. of mutual funds and value of assets under their management in 2007- 2011 Table 15: Statistical data regarding mutual funds, by classification, for 2011 Table 16: Participation rate of mutual fund managers in general meetings in which they are required by law to participate and vote in 2007-2011 Table 17: Violations for which fines were imposed in 2011 and fine amounts Table 18: Total no. of licenses granted to individuals – portfolio managers, investment advisors and investment marketing agents in 2006-2011 Table 19: No. of license applicants added each year in 2006-2011 6 Table 20: Exam success rates in 2011 Table 21: Violations for which fines were imposed and fine amounts Table 22: Violations for which fines were imposed in 2011, for which notifications were sent in 2012, and fine amounts Table 23: Violations for which financial sanctions were imposed in 2011 and fine amounts Table 24: Quantitative data on primary legislation, by year Table 25: Quantitative data on secondary legislation by year Table 26: Cases forwarded to the Department of Investigations and Intelligence in the past five years, by type of violation Table 27: Administrative probes transferred to the Investigations and Intelligence Department, by type of violation Table 28: Cases where it was decided whether or not there was sufficient prima facie evidence that an offense had been committed in the past five years Table 29: Distribution of investigation cases forwarded to the District Attorney's Office in the past five years, by main type of violation Table 30: MAGNA activity data for 2011 Charts Chart 1: Funds classified according to percentage of funds’ asset value Chart 2: No. of Trust Funds in 2007-2011 Chart 3: Asset Value of trust funds in 2007-2011Chart 4: No. of ETN series in 2007- 2011 Chart 5: Value of Public Holdings of ETNs in 2007-2011 Chart 6: No. of reports filed by ETN managers in 2008-2011 Chart 7: Total value of assets under management by portfolio management companies in 2006-2011 Chart 8: Licensing examinees (by no. of exam units) in 2006-2011 Chart 9: Processing of exemption applications in 2006-2011Chart 10: Processing of internship applications in 2006-2011 Chart 11: IMF comparison between the ISA and leading regulators around the world 7 April 15, 2012 To: To: Dr. Yuval Steinitz, MK Mr. Moshe Gafni, MK Minister of Finance Chairman of the Knesset Finance Committee Ministry of Finance The Knesset Dear Sirs, Re: Report on the Activities of the Israel Securities Authority In accordance with Section 14 of the Securities Law of 1968 (hereinafter – the Law), I respectfully submit this report on the activities of the Israel Securities Authority (ISA) for 2011. 2011 emerged a year which dispelled the sense of euphoria that characterized capital markets both in Israel and abroad – following the temporary recovery from the global financial crisis which struck the markets in 2008 and the economic crisis which currently threatens Europe, the US and other countries. It seems that in 2011, investors internalized the fact that the financial crisis was still going on, and fear increased that additional publically traded companies in the Israeli capital market may be unable to meet their commitments to repay bonds they have issued to the public. In a period of crisis such as this, the Israel Securities Authority is required to exercise caution and dedicate time and human resources so as to provide maximum protection to investors. For this purpose, the ISA took actions so as to increase disclosure to investors, strengthen the position of current gatekeepers, and ensure that trust in the capital markets be preserved. The ISA's basic assumption – which is supported by international institutions such as the International Monetary Fund and economic literature – is that adequate, high- quality regulation contributes
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