ISRAEL SECURITIES AUTHORITY Annual Report

Israel Securities Authority Annual Report 2015

Submitted to the Minister of Finance And to the Knesset's Finance Committee

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

ר ש ו ת נ י י ר ו ת ע ר ך ISRAEL SECURITIES AUTHORITY

יושב ראש CHAIRMAN

29th June 2016 23rd Sivan, 5776

To:

MK Moshe Kahlon MK Koshe Gafni Minister of Finance Chairman of the Finance Committee Ministry of Finance The Knesset

Dear Minister, Dear Chairman,

Re: Report on the Israel Securities Authority’s Activities

In accordance with Section 14 of the Securities Law, 5728-1968 (hereinafter: the “Law”), I respectfully submit to you this report on the Israel Securities Authority’s (hereinafter: the “ISA”) activities in the course of 2015.

The capital market and stock exchange are important growth engines for the economy, employment, increased competition, as well as in contributing to lowering costs of capital and cost of living. Over the past three years, following a period of decline, trading volumes have risen, and total market capitalisation of listed companies has increased by about 50%, approximately reaching 850 billion NIS.

Nevertheless, the capital market and the stock exchange have not, in recent years, been fulfilling their potential - as a meeting place for investors and entrepreneurs –for financing economic activity and diversifying investments and savings channels for the public.

On the one hand, fewer entrepreneurs wish to raise capital from the public, inter alia, due to exacting regulatory demands imposed on listed companies. New regulation imposed in response to the 2008 financial crisis have, inter alia, hampered small and medium sized companies, which cannot afford the costs of regulation. Onerous regulation and the global economic crisis caused a discernible decline in the number of IPOs on the Tel Aviv Stock Exchange, as well as in trading volumes. This phenomenon is not unique to Israel, and is shared by capital markets all over the western world and the developed nations.

These factors, together with the regulatory uncertainty, which was caused by frequent regulation changes, exacerbating companies’ difficulties to plan ahead. Moreover, the anti- business sentiment directed at Israeli businessmen, saps entrepreneurs’ desire to join the public arena, causing them to shun the capital market. Another factor in this regard is a discernible desire to avoid public exposure. Although the stock exchange offers clear and unique advantages such as liquidity and the ability to raise low-cost capital, and prestige enjoyed by listed companies, today's exposure to the public is considered a disadvantage,

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יושב ראש CHAIRMAN even leading listed companies to contemplate delisting and transforming into private companies, far from the ‘public eye’.

On the other hand, an increasing share of investors' funds, and in particular the investors who manage the public's short and long term savings, are channelled into local off-exchange investments, or overseas. This is due to the accumulation of huge sums in the hands of leading institutional investors, which makes the local market too small for them to consider and they prefer to invest in foreign financial giants rather than in Israeli companies. This comes at the expense of economic and employment growth in Israel.

These two phenomena – a decline in the number of IPOs on the stock exchange, and declining levels of investor interest in the local market – feed on one another. On one hand, a lack of sufficient supply of quality investment channels reduces institutional investors’ appetite for the local market. On the other hand, diverting institutional investors’ investments overseas at the expense of the local market, hampers companies’ ability to issue securities in Israel at optimal prices.

We do not want to accept this reality. Having competitive, healthy and prosperous stock exchange and capital market, are the two keys to successfully competing on capital sources, reducing prices, and contributing to employment and growth. A strong capital market serves as an alternative to bank credit in financing the business sector. This is why it is very important to reposition the stock exchange as the Israeli market’s growth engine, a function which is often underappreciated.

In light of the above, we face two principal challenges. The first, is restoring quality manufacturing companies’ interest in financing economic activities through the capital market and the Tel Aviv Stock Exchange. Such interest will only be achieved when the advantages of raising capital from the public exceed, in the eyes of any company considering an issue, the costs of its becoming a reporting corporation. The second challenge is increasing Israeli investors' interest in investing on the local market, inter alia, through developing the market and increasing the supply and quality of the products available to them.

Concurrently, we should highly consider the possible negative influence associated with regulatory instability and the anti-business sentiment. These factors contribute to an undesirable atmosphere in the capital market, and our challenge is to generate a positive sentiment, emphasising a regulatory environment attractive to companies in general, and technology companies in particular, so that they may prefer raising capital on the Tel Aviv Stock Exchange, rather than overseas.

Inter alia, I believe that it is time to initiate, even as a temporary provision and for a limited term, a tax relief regime that will encourage investing on the local market. For instance, there is room to contemplate fostering the capital market (for investor benefit, and to cool down the real estate market) by repealing tax biases that encourage the public to invest in

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יושב ראש CHAIRMAN real estate rather than in the capital market. Currently, a considerable share of the public tends to act at the real estate market at the expense of the capital market. One of the main reasons is the income tax regime, which establishes a structural preference to investing in the housing market over the capital market. We therefore propose to deal with this tax bias, and to encourage investing in the capital market.

From the General to the Particular – What Has Been Done in the Course of 2015 and the First Half of 2016:

In the course of 2015 and the first half of 2016, the ISA completed a long list of measures designed to achieve both abovementioned goals. These measures include, aside from work on completing regulation (where lacking), two central components: de-regulation and market development. This stems from a belief that alongside the basic duty to protect the interests of the investing public in the capital market, the ISA is dedicated to ensuring that the Israeli capital market fulfils its main designation as a channel for development and financing the Israeli economy.

The measures taken by the ISA touch on each of three circles comprising the capital market: The circle of investors, the circle of companies, and in between investors and the business sector – the circle of the stock exchange. Most of the measures have only been approved recently, so it is still early to evaluate their impact.

The circle of the stock exchange: The ISA’s working assumption in this arena is that the stock exchange is at the heart of the capital market: It connects investors to companies; thus, it is the nexus between capital and industry.

 Demutualizing the Tel Aviv Stock Exchange – The ISA and the Ministry of Finance published a Legislative Memorandum, under which the Stock Exchange’s ownership structure will be changed, in line with the structural changes that all developed nation stock exchanges have been subjected to. The change will create an incentive model for the Stock Exchange forcing it to act in a competitive and effective manner – reducing costs for investors joining new members, competing with the banking system as a source of alternative credit, and collaborating with foreign stock exchanges. Early signs of the spectacular opportunities that will open up for the stock exchange, can already been detected in the agreement of principles entered between the Stock Exchange and NASDAQ.

 Cross listing – The ISA is promoting legislation that would enable investors in Israel to trade securities of foreign giant companies listed on the main stock exchanges in the U.S., at low transaction costs, convenient trading hours and in local currency.

 Finality of clearing and settlement system – The ISA is promoting legislation that would regulate the finality of clearing and settlement on the Stock Exchange’s clearing houses. This move will strengthen the Stock Exchange’s clearing houses’

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יושב ראש CHAIRMAN stability, minimise risks involved in their operations, and generate legal certainty as to the operation and finality of clearing and settlement actions which takes place in their systems. The amendment removes a barrier blocking the Stock Exchange’s clearing houses from providing services directly to European financial intermediaries and foreign investors.

The ISA has completed the following steps for investors:

 An electronic voting system – The ISA has advanced the legal infrastructure for establishing and operating an electronic voting system, which it has created, and which was launched in June 2015. This system enables a person who owns securities to exercise its voting rights over the internet at meetings in which she is entitled to vote. The electronic voting system makes access to information and exercising the right to vote easy and cost free, thereby contributing to increasing the rate of the public’s participation at general meetings.

 Foreign mutual funds – The ISA has completed the legislative process opening up the Israeli capital market to foreign mutual funds. This legislation is designed to increase competition in the funds market, and to diversify the investment options available to the public in Israel.

 Trading platforms – After years during which the trading platforms arena was open to all, and lacked any regulation or supervision, the Knesset has approved legislation designed to ensure that operating and marketing trading platforms will be conducted in accordance with principles of commercial fairness, while protecting client funds. The ISA is in the midst of licensing trading platforms process, at the conclusion of which, supervision of this important field will begin. The licensing process is expected to be completed during the Q3 of 2016.

 Supervising credit rating agencies – The legislative process for regulating the credit rating industry and supervising credit rating agencies has been completed. This legislation is designed to contribute to protecting investors, who rely on ratings, and to ensure that the credit rating process, and the rating themselves, are reliable, independent and high quality, similarly to all western capital markets. The legislation became effective in April 2016.

 Reform of the exchange traded notes industry – The ISA has published a proposed legislative draft for public comment, under which, the legal structure of Exchange Traded Notes (ETNs) will transform from a bond into a mutual fund, abolishing the undertaking by the ETN to achieve the yields of its underlying assets. Abolishing this commitment, will neutralise the stability risk to which a company issuing ETNs is currently exposed to. Following this measure, ETNs will more closely resemble

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יושב ראש CHAIRMAN Exchange Traded Funds (ETFs), which is a customary and successful financial instrument used all over the world. The new structure for the exchange traded notes will enable a significant reduction of the capital requirements apply to exchange traded notes’ managers; a significant reduction in the existing and planned regulatory framework applicable to the industry, and reducing barriers to entry of new managers into the marketplace. This will promote competition in the exchange traded notes industry, which currently includes four issuers.

 Improving reports for investors – The ISA has published an outline for public comment, pursuant to which, periodic reports and prospectuses will be changed, so that they are made simpler, clearer and more useful. This aims at improving disclosure to investors, and making it easier for them to take educated investment decisions.

 REIT Funds – The legislation extending the model of Real Estate Investment Funds (REIT) to investments in rental housing projects has been completed, removing barriers that delayed establishment of additional REIT Funds in the commercial yield bearing real estate industry.

 Easing transition of retail customers from the banking system to investment houses – Customers will be able to open a securities account with an investment house, and execute actions without the need to go through the banks for fulfilling the identification requirement. This relief will increase competition in the banking sector, and contribute to a reduction of transaction costs, for investors’ benefit.

The ISA has completed, together with the relevant government ministries, the following reforms for the companies:

 Relief in Initial Public Offerings on the Stock Exchange (IPOs) – Amendments of the law and regulations granting companies issuing IPOs on the Stock Exchange a “Welcoming Package”, have been approved. The “Welcoming Package” will be valid for a period of five years starting from the issue date; in the course of which, these companies will enjoy significant regulatory relief, which will ease their process of adapting to becoming reporting corporations. A similar move that was implemented in the U.S., which contained less significant relief than those approved in Israel, and was a sterling success, contributing to a wave of IPOs on local stock exchanges.

 Encouraging IPOs of R&D companies – It is important for Israel to transform from a start-up nation, to a nation that can retain its high-tech companies, fostering an environment for them to grow in, and become international corporations, whose home base remains in Israel. One of the central keys to implementing this change, runs through the Stock Exchange. To achieve this target, significant regulatory reliefs were approved in 2015 and 2016, designed to transform the local stock exchange

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יושב ראש CHAIRMAN into an efficient and viable alternative for Israeli high-tech companies to raise capital. These allowances, include relief in disclosure and corporate governance requirements for high-tech companies, taxation incentives both for the entrepreneurs of companies that elect to issue on the Stock Exchange, and for investors who invest in such companies in the course of the issue, and encouraging publication of independent analysis of the companies, financed by the Ministry of Finance, the Chief Scientists Office, and the Stock Exchange.

 Lateral relief for issues – A list of measures designed to ease public companies’ issue process and to refine methods of offering securities to the public, has been approved, that. In brief, these reliefs seek to adapt the issue methods in Israel, to the method under which issues are carried out in the U.S..

 The ATM Mechanism – Another mechanism for offering securities to the public has been added, by giving a short selling order.

 Relief in the field of immediate reporting – Relief has been granted regarding reporting times, reports relating to interested parties’ holders, and reports relating negotiations and delaying the publication thereof. Additionally, reports regarding to which there is a parallel disclosure, have been abolished.

 Relief in approving officers compensation – Reliefs have been finalized aiming at increasing managerial flexibility afforded to boards of directors and compensation committees when granting a varying, discretionary bonus to officers who are CEO subordinates.

 Relief in ending the reporting duties for reporting corporations – regulation have been approved to ease ending the reporting duties of reporting corporations when there is no public interest in continuing such reporting, of corporations that got into financial difficulties.

 Relief in the field of dual listing corporations – Reliefs have been approved regarding corporations whose securities are listed both on the Tel Aviv Stock Exchange and on other stock exchanges which is recognized for the purpose of the dual listing regime.

 Relief for mutual funds – Including reducing money funds’ fees and changing the prospectus model, which dramatically reduced the number and scope of prospectuses filed with the ISA.

 Relief for exchange traded notes – Including keeping the financial reporting at manager level, to avoid preparing separate financial statements for each note, changing the method of exchange traded notes’ reporting to a more simplified,

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יושב ראש CHAIRMAN abridged method, as well as relief in the field of advertisement and marketing of exchange traded notes.

 Relief for investment advisers and portfolio managers – Including amending the provisions for exploring client's needs, with the aim of creating a short and efficient exploring process; moreover, the duty to immediately provide documentation of exploring the client's needs process has been abolished as well as the duty to update them on a yearly basis.

 Enforcement relief – Including a significant reduction in the levels of financial sanctions which the ISA is entitled to impose on all supervised entities, and implementing a safe-harbour protection with regard to inside information.

The “Ten-Step” Plan for 2016-2017

Alongside the many measures which the ISA has already implemented, and beyond the capital market income taxation issues which I have already addressed in my opening, I believe that in order to achieve the goals we have set for ourselves, and to transform the negative sentiment existing in the capital market, other important measures are also necessary, which must be implemented swiftly. These measures are necessary in each one of the three circles which the ISA’s plan encompasses, and the following are the highlights of my perspective on those measures.

The Tel Aviv Stock Exchange:

1. Changing the Stock Exchange’s ownership structure – The ISA and the Ministry of Finance have published a legislative memorandum to demutualize the Tel Aviv Stock Exchange, and That is expected to be completed by the end of this year. At the heart of this move, the Stock Exchange will cease from operating as a not-for-profit corporation, homogeneously owned, where the controlling shareholders are the brokers, members of the Stock Exchange, most of whom are members of the banking system. In place of this arrangement, the Stock Exchange will convert into a for-profit corporation, the ownership of which is disconnected from its membership, while minimizing the structured conflict of interests inherent in its current operation and the diverse interests of those operating within the stock exchange. The structural changes will reduce the banks’ dominance in the Stock Exchange’s management, and will contribute to encouraging competition for capital sources in general, and credit provision in particular, increasing the supply of investment instruments available to the public. Increasing the number of stock Exchange members, including international entities, will expand the investor base, increase competition for brokerage and deposit services, currently provided almost exclusively by the banks, and reduce the commissions paid by the public. Additionally, the structural change will lay down a solid infrastructure for future strategic cooperation with foreign stock exchanges, such as NASDAQ, and strategic

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יושב ראש CHAIRMAN investors, including by means of ownership ties. This structural change will also support the operation of additional stock exchanges in Israel, and serve as fertile ground for the Stock Exchange itself to raise capital and further develop.

Investors:

2. Reducing investors’ transaction costs – The Israeli securities trade and deposit industry is characterized by low levels of competition. The Stock Exchange and clearing house charge members commissions for trading, clearing and settlement and deposit services. Members of the stock exchange directly charge their customers commissions for those actions. There is a huge gap of hundreds of percents between the commissions charged by members of the Stock Exchange from investors, and those paid by members of the Stock Exchange and clearing houses which are ISA-supervised. This gap is especially wide for retail investors, and is a product of the low levels of competition in the banking industry and amongst members of the Stock Exchange – mainly in light of their low numbers, and the balance of power between the banking system and the non-bank members of the Stock Exchange. It is the ISA’s intention to increase competition to reduce investor transaction costs, and for these purposes, inter alia, the following measures will be implemented: Increasing the number of entities providing trading services to investors, as a product of the change to the Stock Exchange’s ownership structure; relief will be granted in the qualifying conditions to becoming members of the Stock Exchange, especially for foreign stock exchanges members, to increase the number of active members on the Stock Exchange; increasing the public’s awareness of its bargaining power vis-à-vis the banks with regard to trading commissions; applying additional measures that will make it easier for the public to obtain trading services from non-bank entities.

3. Opening the gate to online financial services in the investment world – A large share of the public consumes a variety of services through smartphones and computers. These media make services accessible, save the public the need to attend meetings and visits to business premises during working hours, and are considered efficient, time-servers and reduce inequality between investors. The ISA intends to enable the investment advice and portfolio management industries to integrate into this virtual world, without the need of face-to-face meetings between service providers and recipients. As a product of this measure, even persons investing relatively small sums will have access to investment advice and portfolio management services, which are currently only afforded to large scale investments. In addition, the ISA will regulate other financial services which utilize technological media, such as signalling services and social trading.

4. Handling internet based ventures that offer unlawful investments to the public – One of the principal challenges facing the ISA in 2016, is handling internet based ventures

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יושב ראש CHAIRMAN that offer unlawful investments to the public, to protect the public from the risks inherent in them. Recently, there was an increase in the number of ventures that advertised to the public, the subject matter of which are offers of yield-bearing investments. Some of these offers are made over the internet and electronic communication channels, and some of them utilize other marketing mediums. It appears that this phenomenon has expanded due to the low interest environment, which forced investors to seek out more attractive investment channels, and in light of the public’s unfiltered access to the internet and the information it disseminates. It is the ISA’s intention to meet this phenomenon on several plains, which include: Vigorous enforcement action vis-à-vis lawbreaking entities, including closing down operations and indicting the operators, as well as investing resources in investor financial education, such that they acknowledge the risks involved in unsupervised investments.

5. Increasing the supply of investment instruments available to investors – To increase investor's interest in the local capital market, we must create attractive investment channels that would be appealing. To do so, the ISA intends to create the regulatory infrastructure for such new and diverse instruments, which include: venture capital funds traded under the mutual fund model, specializing in investment in private Israeli high-tech companies and public companies; traded funds to finance small and medium sized businesses – which funds, together with creating a new investment channel for investors, will increase the supply of credit sources for small and medium sized businesses, which in turn will encourage competition with other credit providers in the marketplace, which will ultimately lead to improve the terms and conditions in such businesses; traded funds to finance infrastructure – these funds will open up investment channels that will expose the public, for the first time, to investments in the infrastructure industry. Moreover, introduction of such funds will increase the sources of capital available for these projects, reduce their credit and capital costs, and contribute to the State’s ability to execute these, nationally significant, projects.

6. Creating a supervisory board for accountancy firms that audit public corporations – Over the course of the last decade, the role auditors serve as the guardians of the capital market has increased markedly. In 2002, the U.S. established an independent supervisory board for accountants who audit public corporations (PCAOB), and ever since, the leading markets of the world have followed suit. Similar entities have even been established in nations with less sophisticated capital markets. However, the Israeli capital market has been significantly lagging in this respect. It is the ISA’s intention to create an independent body, whose main purpose will be ongoing supervision of accountants who audit public corporations, which will be in charge of the audit process they perform, and will prescribe audit standards as well as rules on quality assurance and independence, to continuously improve the audit process. The establishment of such an entity is necessary also to achieve higher quality reporting standards, and to meet international standards.

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יושב ראש CHAIRMAN

Companies:

7. Deepening the regulatory relief for the benefit of small and medium sized public companies – The regulatory regime that small reporting corporations in the Israeli capital market are subject to is very burdensome, at times needlessly so, hampering the ongoing activities of those corporations. To increase the ability of officers in small corporations to divert the majority of their time inputs and financial resources to developing the corporation’s business, the ISA seeks to minimize the scope of those companies’ dealings with regulation. This includes, cancelling the requirement (in the setting of ISOX) to publish a report concerning the internal audit and the auditor’s opinion of the internal audit, small companies’ requirement to attach appraisals has been limited significantly, and the duty to attach the financial statements of investee companies, in the setting of quarterly reports, has also been eased. It is the ISA’s intention to significantly expand the relief given to small corporations, inter alia, by abolishing the quarterly reporting requirements of the first and third quarters.

8. Administrative enforcement – effective deterrence – not over deterrence – In the first years of operating the administrative enforcement array, the ISA was cautious and proportional in exercising such measures. Inter alia, the ISA focused on cases of patent negligence, and on narrowing the circle of those responsible for administrative violations to the principal players. The ISA has shortened proceedings, and made them more efficient, by executing enforcement arrangements. However, it appears that fear of administrative enforcement sanctions still hovers above the heads of the public companies' executives. This fear could result in over-reaction, cautiousness and conservatism, even to the point that a company’s best interests, and those of its shareholders, could actually be harmed in certain cases. It is the ISA’s intention to examine various methods to alleviate this fear, including by adjustment of its enforcement policy.

9. Extending financial flexibility and corporations’ access to raising capital through the Stock Exchange – In recent years, the ISA has promoted several regulatory initiatives to deepen corporations’ access to raising capital on the capital market (such as, giving companies the option of offering securities to the public in the course of trading on the Stock Exchange via the ATM Model, extending the term of raising capital by means of a shelf prospectus to three years, as well as granting banks permission to issue COCO debt instruments to meet the Basel Accords). These initiatives emphasize the structured advantage available for listed companies, to raise capital at reduced costs and in short time periods. It is the ISA’s intention to act to further extend financial flexibility for listed companies, and in the setting of this, to permit issuing new financial instruments which can improve companies’ budgetary management manoeuvring abilities. Amongst the considered options: Issuing commercial paper, with the option of “rolling over” the

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יושב ראש CHAIRMAN maturity date for a period of several years (contrary to current legal arrangements, which permit issuing commercial paper for a period not exceeding one year); issuing bonds which enable investors to reap the benefits of added interest, in the event that shares in the issuing company rise in value; issuing bonds which bestow on the issuer the right to settle principal and interest by providing shares in lieu of a cash payment.

10. Crowdfunding (capital and debt) – With the desire to encourage growth and development of start-up companies and small businesses in mind, and in the background of the acknowledgment that the stock exchange financing channel is not relevant for these companies in light of the costs incidental to offering to the public, it is the ISA’s intention to adopt a prospectus-free model to raise capital or debt, for the benefit of "young" start-up companies and small businesses. Under the proposed model, "young" start-up companies and other small businesses will be able to raise funds from the public, subject to several limitations (which will be determined inter alia in accordance with the levels of the cash that is raised), this, we believe, will reduce investor risk, but will not entail costs that would make the crowdfunding model ineffective.

I believe that there is no single magic solution. Only methodical, original and integrated solutions will help us reach our goals. Completing all parts of our plan – will significantly enable the Israeli capital market in becoming more competitive which is "hungry" to support new business opportunities, and in providing novel regulatory framework that would support new companies and investors opportunities, at low transaction costs – will lead to achieving the overall-goal we have set for ourselves: Transforming the capital market into the growth engine of the Israeli economy.

Respectfully,

Prof. Huaser. The Israel Securities Authority – An Overview of 2015

16th February saw the publication of an accounting enforcement decision regarding revaluation of investment property. The decision states that appraisal-based revaluation of investment property, proximately after the property was purchased, is permissible only when the purchase transaction is an ordinary transaction, and the purchase price reflected the property’s fair value.

On 17th February the ISA presented its position regarding the Glatten company to the courts. The position stated that an arrangement which is not a company recovery plan does not warrant a waiver of the interests protected under Section 15A(a)(3) of the Securities Law, including the lock-up provisions.

On 1st March, the ISA published a legal position paper regarding the necessary details in the articles of association of a company with a trading platform’s license. Under the Securities Law, one of the conditions to obtain a license to manage a trading platform, is for the company to have ISA approved articles of association to manage trading platforms. The staff’s position concerns the information which a company is required to include in the setting of the articles it presents to the ISA for approval.

10th March saw the publication of a directive for investment advice and/or marketer license holders, who refer their clients to portfolio management services. The directive forbids an investment adviser or investment marketer from referring a client to receive portfolio management services, until after exercising his judgement on the matter, and finding that doing so is in the client’s best interests; it further prohibits a person employing an investment adviser or marketer from limiting their discretion in making the abovementioned referral; prohibits remunerating an adviser for making such a referral; and prohibits dissuading a client who seeks to engage a portfolio management company, from doing so.

On 10th March the ISA’s plenum approved an amendment regarding a new prospectus model for mutual funds in the setting of the deregulation plan. Prospectuses and current reports are designed to provide the public with necessary details so that they may take educated investment decisions, as well as provide them with tools that facilitate comparing alternative investments. The ISA has concluded, that receiving the information on a fixed date may serve this purpose better. Under the new prospectus model, the quantitative information, which was heretofore contained in Part A of the Prospectus, will be contained in an annual report to be filed by each fund on one of four dates, according to the relevant classification and the ISA’s decision. Concurrently, details regarding the offer of units and relevant information regarding the fund manager, will be gathered into a single document (the fund manager’s principal prospectus). This document will be filed once per annum, and be thoroughly reviewed, after which, the permits for the offer of units in all the fund manager’s funds, will be issued.

31st March saw the completion of development of a simulator to identify trader positions in the MAOF market.

On 1st April the law to regulate the activities of credit rating agencies, and the regulations promulgated thereunder, became effective. The law is designed to regulate the operation of credit rating agencies in Israel, in line with international norms, to protect investors, and ensure that the credit rating process, and the rating itself, are reliable, of high quality, and independent. On 19th April the ISA’s plenum approved regulation drafts, imposing limitations on changes to fund manager compensation and the material characteristics of a fund. The draft was designed to impart certainty for unit owners regarding the characteristics of the investments carried out on their behalf. The draft proposes to prohibit investment policy changes and changes to a fund’s principal characteristics. Moreover, it proposes to limit the frequency of raising fund manager compensation to once per annum, thus preventing frequent changes to management fees. The phenomenon of frequent changes to fund managers’ compensation, which characterises some managers in the industry, complicates life for investment advisers, who are required to closely monitor these changes, and increases uncertainty amongst unit holders, who, in the setting of their investment decision, also take into account the level of management fees any particular fund charges.

On 11th May the ISA’s plenum approved changes to the planned regulatory framework for exchange traded notes (ETNs). According to the proposal, ETNs would no longer be an asset with an undertaking, and would transform into ETFs (“Exchange Traded Funds”), having a with the option of setting a limited “safety zone” against “tracking” errors. The changes were effected after extended discussions with ETN issuers, and a thorough review of the current operating regime’s difficulties.

On 26th May, Amendment 42 of the Securities Law became effective. In the setting of the amendment, Chapter G3 was inserted into the Law, to regulate the trading platforms to own account industry. Since, the ISA has started to review license applications filed for its consideration. Following the enactment, only trading platforms which filed a license application on time will be permitted to operate, while the decision in the matter of their license is pending.

15th June saw the publication of the report of the Audit Unit in the Corporate Finance Department. The report contained findings on dividend distribution and share buy-back. In the setting of the audits, the dividend distribution decision making process was reviewed, as well as the approval process of buy-back plans and the manner of executing them.

On 17th June, the electronic voting system was launched. The voting system enables shareholders, holders of option warrants and participation units, to vote over the internet, at meetings in which they are entitled to vote; the system is designed to augment existing voting methods. The system obviates the need to obtain ownership certificates, and eases procedure for corporations when convening meetings; the system’s ease of use and accessibility are unique.

On 21st June, the ISA’s website first published extensive information regarding all active ETNs issued to the public, together with extensive information on indices and underlying assets in the ETN industry. Information was also published regarding the value of assets under management (AUM) in the ETN industry, to a point in time.

8th July saw the publication of a report concerning the audit findings relating to appraisal of yield bearing commercial real estate in Beer Sheva, at public companies. The audit found low income per square meter, as compared with other shopping malls, and that surplus commercial space and competition in Beer Sheva were not fully taken into account in the properties’ appraisals. The findings were conveyed to the relevant companies for implementation in the setting of the properties’ appraisals, in anticipation of preparation and publication of the 2014 financial statements. In practice, the values of those properties were reduced in the setting of the 2014 financial statements.

On 22nd July a legal position paper was published relating to disclosure of appraiser independence, and disclosure relating to an appraiser whose appraisals are highly material to a given corporation.

On 4th August regulations drafts relating to an elite technology fund were published for public comment; the regulations are designed to regulate investment, disclosure, etc. These regulations constitute part of the implementation of the R&D Committee Report, and are designed to add another investment vehicle in R&D companies.

On 9th August regulations relating to relief in the field of immediate reports were published – relief regarding reporting times, regarding reports concerning changes to the holdings of interested parties, and regarding negotiations and delay of publication. Furthermore, the requirement to report matters concerning which there is parallel disclosure, was cancelled.

On 11th August the report of the Audit Unit in the Corporate Finance Department was published. The report contained findings regarding public companies’ operating segments. The audit reviewed segments’ measurement, disclosure and presentation methods in financial statements, and found that in three companies, of the six audited, different segments from those reported in the financial statements, should have been presented. It further found, that one of the companies changed the policy for allocating expenses amongst its segments, without providing suitable disclosure of that fact. Other findings were also detailed in the report. In light of the audit’s findings, three companies restated their financial statements.

On 23rd August the ISA published, for public comment, a legislative draft concerning regulatory hierarchy, the subject matter of which was exploring the possibility that small corporations’ requirement to publish Q1 and Q3 financial statements be abolished. At the heart of the proposal are development of the capital market, the desire to lessen the regulatory burden, and acknowledgement of the advantages and utility gained from enabling small corporations to divert additional significant resources to business development.

On 23rd August the ISA published, for public comment, an updated version of the legislation draft concerning the establishment of a public corporations’ accountancy oversight board. The aim of the proposed amendment, is to create an independent, not-for-profit, statutory body for ongoing supervision of accountancy firms which audit reporting corporations. The corporation will be trusted with the audit process, will formulate audit standards and rules in the field of quality assurance and independence, and will focus on constant improvement of the audit process.

On 31st August the MAGNA distribution site (the site which displays the reports issued by supervised entities) was adapted for surfing via smartphones.

7th September saw the publication of an audit report reviewing goodwill depreciation at public companies operating in the home appliance industry. The audit found that companies’ appraisals did not contain sufficiently grounded income forecasts, assuming a significant increase in future sales. Justifying forecasts constitutes an important aspect of such evaluations, in particular in light of the fact that in previous appraisals in the industry, actual income was consistently lower than the forecasts.

20th September saw the publication of an outline for a series of proposed reliefs, including relief in the field of corporate governance. The purpose of the outline was to encourage companies to issue IPOs on the Israeli stock exchange.

On 11th October a new investigation management system was launched, replacing the outdated system which had been serving the Investigations Department. The new system was developed with up-to-date technologies, and enables investigation file management as well as monitoring all activities the files.

12th October saw the publication of an updated directive for authorised corporations, regarding the requirement to prepare working procedures for their internal workings and management. In the update, relief was prescribed for amending such procedures, as well as guidelines on how to approve them.

On 12th October the ISA published a legal position paper regarding disclosure of boundary agreements between listed corporations and their controlling shareholders.

On 13th October the ISA’s position regarding the purchase offer Mylan made for Perrigo’s shares, was presented to the courts. The ISA’s position related to concurrent listings in the presence of a poison pill, and the existence of an alternative public purchase offer at a dual listed company, offered by a foreign corporation. On 28th October, the District Court pronounced its decision in the matter, adopting the ISA’s position.

14th October saw the publication of circulars clarifying the duties incumbent on portfolio managers and non-bank members of the stock exchange with regard to prevention of money laundering and financing of terrorism, pursuant to international standards.

On 2nd November amendments of the regulations were published granting relief concerning the requirement that fund managers participate at general meetings.

On 9th November the ISA published a circular concerning a new full disclosure report for fund managers. To create an extensive, updated information basis for investors and their advisors within the banking system regarding mutual funds, the ISA acted jointly with the Fund Managers Association to formulate the new full disclosure report. The new report contains detailed information regarding the funds’ assets, and other relevant data. Beginning in April 2016, the report is now publicly filed on a designated form on the MAGNA System, as an immediate report. The banks must incorporate the abovementioned report in their advisory divisions over the course of 2016, and are expected to complete their preparations by the year’s end.

On 26th November a directive was published for non-bank members of the stock exchange, under Section 8(h)(4) of the Prohibition of Money Laundering Order. The directive concerns methods to verify the details necessary to operate in a closed system.

On 4th November the ISA was accepted as a full member of IOSCO’s (International Organisation of Securities Commissions) Committee 8 which deals with setting the organisation’s financial education policy.

On 15th December the ISA approved rules concerning the need for a permit to make an offer of ETNs to the public. Following the rules’ approval, the requirement to include details of the offered securities, as well as their characteristics, in a shelf prospectus was abolished, and an abridged process was approved to obtain a permit to publish a shelf prospectus for new ETNs. Furthermore, the rules permit publication of a shelf prospectus to extend an existing ETN series, without having to obtain an additional permit.

On 8th December the ISA published a legal position paper relating to a company’s duty to review and consequently classify shareholders who have a personal interest in a given transaction.

On 15th December the ISA approved a directive to ensure the proper running of the Stock Exchange’s Clearing Houses, under Section 50C(b) of the Securities Law.

On 15th December the Audit Unit in the Corporate Finance Department published its report. The audit reviewed the process of classifying transactions with controlling shareholders at four public companies, into ordinary or unordinary transactions; the transaction approval process pursuant to the relevant classification; and the disclosure made regarding them in the setting of periodic and/or immediate reports. The audit’s findings pointed, inter alia, to failures to duly approve and classify transactions between public companies and their controlling shareholders, groundless attribution of market terms and conditions by companies, and a lack of criteria to review market terms in outline transactions.

On 27th December the Corporate Finance Department published a legal position paper containing clarifications regarding holding companies’ necessary disclosure.

On 31st December the ISA’s website was adapted for surfing via smartphones.

On 31st December the Law to Promote Investment in Companies Operating in the Field of Elite Technology (High-Tech), 5776-2015, was published in the Official Gazette. The aim of the Law, is to encourage investment in public R&D companies, as well as to strengthen the Stock Exchange, so that it may become an additional investment channel in R&D companies. Consequently, R&D companies will be able to develop operations in Israel, and reduce reliance on foreign markets.

On 31st December an amendment of the Securities Law was published, permitting equity and/or debt crowdfunding. With the desire to encourage growth and development of young start-up companies and small businesses in mind, as well as a recognition that financing through the Stock Exchange is not relevant for these companies – in light of the costs attendant on offering to the public – the ISA intends to adopt a model for young start-up companies and small businesses to raise debt or equity, fully exempt from the requirement to publish a prospectus. Under the proposed model, young R&D companies and small businesses will be able to raise funds from the public subject to several limitations (inter alia, regarding the extent of funds to be raised), which would reduce investor risk without involving costs that would make the crowdfunding model ineffective. The enabling legislation will be completed with the enactment of the regulations to regulate its details.

Events in the First Half of 2016

On 18th January a legislative Bill to amend the Fourth Schedule of the Securities Law (Section 39A of the Law) was published in the Official Gazette. The Bill applied a list of provisions from the Companies Law to companies incorporated outside of Israel, which offer bonds in Israel, and other provisions to apply to foreign companies offering shares in Israel. These provisions are designed to meet, inter alia, the challenges of multiple bonds’ issues on behalf of foreign real estate companies, and to subject them also duties which are not imposed on them in the jurisdictions of their incorporation.

On 9th February the reform to encourage competition in the mutual fund industry was completed with the approval of the regulations by the Finance Committee. The measure is designed to increase competition in the fund market by permitting overseas funds to compete with local ones, as well as diversifying the Israeli public’s investment options.

On 15th February the Finance Committee approved relief for companies listing on the Stock Exchange for the first time. Inter alia, the approved regulations grant such companies a “Welcoming Package” valid for five years from the date of the issue, in the course of which they will enjoy significant regulatory relief that will assist them in adapting to the process of becoming reporting corporations.

22nd February saw the publication of a Securities Law legislative memorandum concerning changes to the structure of the Stock Exchange. The structural changes will incentivise the Stock Exchange to become more competitive, and inter alia, to add new brokers, which will reduce transaction costs for investors; to compete with the banking system as an alternative source of credit; and to cooperate with foreign stock exchanges.

On 29th February the Knesset’s Finance Committee approved regulations completing the disclosure and reporting relief for R&D companies. This legislation is designed to create attractive conditions for high-tech companies to remain in Israel and list on the local stock exchange. The relief includes, inter alia, the option for elite technology companies to report in English, and to prepare their financial statements according to US accounting rules. In addition, the regulations include relief related to comparative details in the setting of financial statements. Such companies are also given the option of implementing reliefs granted to small companies, for a term of five years from the date of the IPO, even if they do not meet the criteria to be defined a small corporation, such as exemption from the ISOX requirements.

On 9th March the Finance Committee approved regulations that permit a company listed on the Stock Exchange to offer securities to the public in the course of trading (ATM).

On 16th March, legislation extending the REIT fund model to investment in rental housing was completed, and barriers were removed which obstructed the establishment of other REIT funds in the field of yield bearing commercial real estate.

On 22nd March, the ISA decided not to approve binary option trading on trading platforms, owing to their characteristics. This decision was taken in light of binary options’ complexity, difficulties in pricing them, and owing to a lack of multi-party trading that enables market price making. The ISA believes that the service is in essence a form of gambling, and the continued existence of binary options on supervised platforms could harm, not only the platforms’ customers, but the reputation of the market in general.

On 1st April the ISA began supervising credit rating agencies. The supervision is designed to enhance protection of investors who rely on the rating, and is designed to ensure that the rating process, and the rating itself, are reliable, of high quality, and independent, similarly to the norms adopted by all western capital markets. 3rd April saw the publication of regulations to ease approval of executive compensation, under the Companies Law. This relief is designed to increase the managerial flexibility afforded to boards of directors and compensation committees, when granting discretionary bonuses for officers subject to the authority of the CEO.

On 4th April the ISA announced that all Israeli fund managers adopted the ISA’s outline limiting the frequency of raising management fees. To date, raising management fees is possible only on January 1st each year. Frequent changes to fund managers’ compensation creates uncertainty amongst the public and the investment advisers advising them, who in the course of their investment decisions, also consider the level of management fees charged by any given fund.

On 11th April the ISA announced that it was promoting an initiative to amend the Prohibition of Money Laundering Order. The initiative will contain significant relief in the field of portfolio management, regarding the requirement to identify and verify the client. In the setting of removing barriers to provision of online portfolio management services, the ISA is acting to abolish the requirement that the customer be physically present when an account is opened.

17th April saw the publication of regulations granting relief in the field of dual listed corporations. This relief is aimed at Israeli companies whose securities are listed both on the Tel Aviv Stock Exchange and either the NYSE or NASDAQ (as well as for Israeli companies that are listed only on the NYSE or NASDAQ).

On 19th April the ISA announced that it would start publishing the investment advice and portfolio management licensing exams. Beginning with the Summer 2016 exam sitting, the ISA will publish the licensing exams’ questionnaires and the correct answers to all multi- choice questions on its website.

On 19th April the ISA published, for the first time, a position paper regarding transaction permits for bond investments, referring to the option of contracting by way of a particular transaction permit [Hebrew – Heiter Iska], with the aim of enabling religiously observant bond investors to invest without fear of committing the transgression of usury.

On 20th April the ISA published for public comment a draft directive for relief in the field of investment advice and portfolio management services utilising digital media. The directive is designed to remove barriers and ease the customer identification process, and to facilitate online service consumption. Licensees will be able to use technological media in some, or all, of the processes.

On 4th May the ISA published a final draft of a legislative Bill, containing relief for small and medium sized businesses. The purpose of the amendment is to save costs and ease requirements for small and medium sized businesses. Small corporations, except those which issued bonds to the public, will not be required to publish financial statements in the first and third quarters. However, a corporation will be able to continue its current reporting regime, subject to a decision by its board. Corporations which elect to report bi-annually, will be transferred to a separate reporting list, so that every investor is able to easily learn how they report.

Enforcement

On 4th January, an indictment was served against Yitzhak Cohen, a share manager at “Amitim – The Veteran Pension Funds”, for an offence of fraudulent influence under Section 54(a)(2) of the Securities Law.

On 15th January, an indictment was served against Ilan Morgan, attributing him a list of offences, including fraudulent motivating, aggravated obtaining by deception, and money laundering.

On 28th January the District Court rejected an administrative petition filed against the Administrative Enforcement Committee’s decision in the matter of Africa Israel Industries Ltd. (“AFI”), Abraham Novogrodski, Abraham Motola and Alon Harpaz. The defendants were found to have committed offences of using inside information, including misleading details in purchase offer specifications, and misleading the ISA. The court partially accepted the petition with regard to the severity of the punitive measures imposed on AFI, and ordered that the sum of the financial sanction imposed on the company be reduced.

On 4th February an indictment was served against Guy Maman, for offences of giving and taking bribes, joint commission of offences of fraudulent influence, obtaining by deception, breach of trust in a corporation, and money laundering.

On 1st March the court sentenced David Oron, after being convicted on his own confession – in the setting of a plea bargain – with one count of aggravated obtaining by deception, one count of fraud and breach of trust in a corporation, and one reporting offence.

On 16th March, the defendant Ilan Ophir’s appeal was heard by the Supreme Court. Ophir was convicted by the District Court in the course of his trial, following his confession in the setting of a plea bargain, with offences of obtaining by deception, fraud and breach of trust in a corporation, and offences of reporting with intent to mislead. The court dismissed his appeal.

On 16th March, the Supreme Court dismissed an appeal lodged by Amnon Barzilai. The appellant was convicted by the District Court with several offences, in the setting of a plea bargain struck in the course of the trial: An offence of obtaining by deception, an offence of fraud and breach of trust in a corporation, and five counts of reporting offences. The appellant was sentenced to six months’ community service and a fine of 1.8 million NIS. the Supreme Court dismissed the appellants appeal regarding the level of the fine, but reduced the incarceration time in lieu of the fine from two years to one.

On 1st April, the Tel Aviv Magistrate’s Court passed sentence on Omer Levavi, who was convicted for theft by a manager, managers’ offences, aggravated obtaining by deception, fraud and breach of trust in a corporation, registering false entries in a corporation’s books, and reporting offences under the Securities Law. The court sentenced Levavi to 17 months’ incarceration, a suspended 10 months’ sentence, and a 700,000 NIS fine or a year in lieu thereof.

9th April saw publication of the decision of the Administrative Enforcement Committee in the matter of officers in Extra Plastic Ltd. The decision stated that they committed two violations of including misleading details in two financial statements filed by the company. The panel imposed on the controlling shareholder chairman of the board, and the CFO, financial sanctions worth 200,000 NIS and 150,000 NIS, respectively. Both were also barred from serving as senior officers in a supervised entity for a term of six months. The CEO was barred from serving as a senior officer in a supervised entity for a term of one year. The company and its external accountant entered into enforcement arrangements in 2014.

On 26th April the ISA imposed financial sanctions under the Companies Law on P.C.B. Technologies Ltd., and Adri-El Israel Properties Ltd. The fines, worth a total of 144,532 NIS, were imposed due to the fact that the companies lacked two external directors on the board, for a term exceeding 90 days. The ISA further imposed financial sanctions under the Advice Law, on Meitav Dash Portfolio Management Ltd. and Tamir Fishman Investment Management Ltd. The sanctions, totalling 116,296 NIS, were imposed on account of presenting yields of managed portfolios to persons who were not the owner of the managed portfolio, and publishing the yields.

On 30th April the court rejected an administrative petition lodged against the ISA’s decision to impose a financial sanction on Israel Petrochemical Industries Ltd., owing to disclosure failures regarding forecast cash-flow in the board’s report for Q1 of 2013. The court partially accepted the petition with regard to the level of the fine, and ordered that the sum imposed be reduced by 30%, taking into account the fact that the fine on account of this violation was precedential, and in light of the fact that the violation was rectified by the company.

On 7th June the District Court convicted Shimon Yamin on his own confession, for dozens of counts of aggravated obtaining by deception, and offences of receiving prohibited incentives in connection with portfolio management under the Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law. The court sentenced Yamin to 22 months’ incarceration, a fine of 75 thousand NIS, and 500 thousand NIS worth of compensation to be paid to the injured parties. The court further sentenced three private companies owned by Yamin, which were also convicted for obtaining by deception and offences of receiving prohibited incentives in connection with portfolio management, to pay fines worth 75 thousand NIS in total.

On 9th June the Tel Aviv Magistrate’s Court convicted the portfolio manager Michael Gavish with a long list of offences of theft by an authorised person, fraud, deception, false reporting, and forgery.

On 29th June the Supreme Court handed down its decision on the appeals of Zvi Rabin and Guy Penn. The District Court convicted Zvi Rabin, a public relations professional and the owner of Quan Communications, and his friend Adv. Guy Penn, with dozens of counts of extensive use of inside information, and sentenced them to incarceration and fines. The appeals relating to the sentence were partially accepted: The incarceration time imposed on Rabin was changed to 22 months, and the incarceration time imposed on Penn was changed to 12 months. At the same time, the fines imposed – 600,000 NIS on Rabin and 1,500,000 NIS on Guy Penn, were not changed.

On 5th July a panel of the Administrative Enforcement Committee approved the enforcement arrangement between the ISA and Yoash Trokman, a day trader. Trokman admitted to trade manipulation offences in the form of 555 wash trades. In the setting of the arrangement, he was ordered to pay a financial sanction worth 200,000 NIS. On 6th July the Magistrate’s Court convicted the portfolio manager Alon Wagner for offences of using inside information originating from an insider. Wagner was also convicted for offences under the Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law.

On 29th July the ISA imposed financial sanctions under the Securities Law and Companies Law totalling 84,060 NIS: On Proteologics Ltd. for lacking an appointed chairman for its board of directors for a term exceeding 60 days; and on Widemed Ltd. and W.T.P. Israel (Product Waste) Ltd. for delays in filing financial statements. The ISA further imposed financial sanctions under the Advice Law: On Israel Leumi Bank Ltd. a fine worth 750,000 NIS for violations relating to documenting advice actions, exploring client needs, and client instructions; Harry Sapir Investment Management was ordered to pay a financial sanction worth 36,196 NIS on account of failing to draft a written agreement, failing to conduct a process of exploring client needs, and shortcomings in reporting to clients.

3rd August saw the publication of the decision of the Administrative Enforcement Committee against Barak Rosen, Assaf Tuchmeir and Guy Kenda. The decision, by majority of votes, stated that Rosen and Kenda were responsible for including a misleading detail in an immediate report, but that no liability should be imputed to Tuchmeir. The panel imposed a financial sanction of 250,000 NIS on Rosen, and barred him from serving as a senior officer in a supervised entity for a period of nine months. Kenda was subjected to a financial sanction of 150,000 NIS, and a suspended punishment of being barred from serving as a senior officer in a supervised entity for a period of four months. They were also subjected to suspended financial sanctions. Rosen and Kenda filed an administrative petition against the panel’s decision which is still pending.

On 9th August a conditional arrangement to end proceedings was signed by the District Attorney’s Office and Hillel (Ilik) Rozinski and Delek Real Estate Ltd. In the setting of the arrangement, the parties agreed that the District Attorney’s Office would not serve an indictment in the matters of Rozinski and Delek. Rozinski pledged to pay a sum of 720,000 NIS, and undertook not to serve as a senior officer in a supervised entity for a term of eight months. Delek Real Estate pledged to pay a sum of 1,080,000 NIS.

On 19th August the District Court rejected an administrative petition filed against the severity of the enforcement measures imposed on Gil Gruer by decision of the Administrative Enforcement Committee in the matter of Extra Plastic Ltd. et al. The court clarified previous judgements, according to which it would restrain itself when interfering with findings of fact made by the Committee, and that it would not interfere with the punitive measures imposed by the Committee so long as they did not exceed the boundaries of reasonableness. It further emphasised the significance of the CFO position in public companies.

On 6th September the Magistrate’s Court convicted Ronen Chrystal, on his own confession in the setting of a plea bargain, with offences of theft by a manager, aggravated obtaining by deception, two counts of fraud and breach of trust in a corporation, two counts of managers’ offences in a corporation, and four counts of false reporting.

On 8th September Guy Maman was convicted on his own confession in the setting of a plea bargain, with offences of taking bribes, multiple securities’ fraud offences, multiple offences of aggravated obtaining by deception, and money laundering offences. On 16th September the court sentenced Gavish to five years’ incarceration, a suspended sentence, and a fine of 150,000 NIS.

16th September saw the publication of the decision of the Administrative Enforcement Committee in the matter of Orian Atiyas. The panel held that Atiyas committed four violations of selling securities to the public without prospectus, by way of selling shares subject to lock-up, in the course of trading on the stock exchange. This case was the first enforcement action for such a violation. The Committee imposed a financial sanction of 36,000 NIS on Atiyas, and a suspended financial sanction for the same amount. The Committee made important determinations regarding the nature and purpose of the lock-up rules in its decision, and pointed to the regulatory failings concerning this issue.

On 1st October the Magistrate’s Court convicted Amitay Mazliach, on his own confession in the setting of a plea bargain, on an amended indictment. He was convicted of theft by a licensee, aggravated obtaining by deception, and offences of fraud and breach of trust in a corporation.

12th October saw the publication of the decision of the Administrative Enforcement Committee in the matters of Moti Menashe and Upswing Capital Ltd. In the decision, the panel held that Menashe and Upswing were responsible for commission of certain violations of selling securities to the public without prospectus, by way of selling 16 million NIS worth of shares subject to lock-up, in the course of trading on the Stock Exchange. The Committee imposed a financial sanction worth 100,000 NIS on Menashe, and a sum of 150,000 NIS on Upswing, and suspended financial sanctions for the same amounts. Menashe and Upswing have lodged administrative petitions against that decision. Those petitions are still pending.

On 8th November the District Court passed sentence on Jacky Ben Zaken and Eitan Eldar, having convicted them on seven counts of fraudulently influencing the price of securities, an offence of conspiracy to commit a crime, and aggravated obtaining by deception. The defendants Eldar and Ben Zaken were each sentenced to 36 months’ incarceration and a fine of 250,000 NIS. The court further imposed a fine of 250,000 NIS on each of Manofim Finances and Arena Capital.

On 17th November the ISA imposed 74,976 NIS worth of financial sanctions under the Securities Law and the Companies Law, on the following companies: Natural Resource Holdings Ltd. owing to the controlling shareholder serving as both CEO and chairman of the board; E.L.D. Advanced Logistics Developments Ltd., because the board lacked serving external directors for a period exceeding 90 days; Jobokit Holdings Ltd. for a small corporation’s failure to attach a very significant evaluation; and Hanan Mor Holdings Group Ltd. for failure to attach a forecast cash flow to financial statements. In addition, the ISA imposed a financial sanction of 52,668 NIS under the Funds Law on Menora Mutual Funds Ltd. for late reporting.

17th November 2015 saw the publication of the decision of the Administrative Enforcement Committee in the matter of Jerusalem Technology Investments Ltd., Shmuel HaCohen, and Zvika Ben Porat. In the decision, the panel held that the defendants included a misleading detail in an immediate report published by the company. The panel held that the Respondents were not liability for an earlier reporting violation attributed to them. The panel imposed a financial sanction of 400,000 NIS on the company. HaCohen and Ben Porat received financial sanctions of 150,000 NIS and 100,000 NIS, respectively, and suspended financial sanctions. In addition, HaCohen and Ben Porat received suspended punishments of being barred from serving as senior officers in a supervised entity for a period of one year and nine months, respectively. The company undertook to formulate an internal enforcement plan within a year.

On 26th November the Administrative Enforcement Committee approved an enforcement arrangement between the ISA and Eliyahu Kirstein, a capital market player, who confessed to violations of selling securities to the public without a prospectus by way of sale of shares subject to lock-up in the course of trading. In the setting of the arrangement, he agreed to pay a financial sanction worth 45,000 NIS.

On 1st December the District Court partially accepted Alon Naor’s appeal. Naor was convicted by the Magistrate’s Court for offences of securities fraud, obtaining by deception, and theft by an authorised person, on account of fraudulent activities he perpetrated with accounts belonging to investors who gave him permission to act on their behalf. At the recommendation of the District Court, Naor withdrew his appeal against the verdict. The court accepted the appeal from sentence, and reduced the 52 months’ incarceration imposed on him, to 42 months’ incarceration, which included a suspended sentence which was activated by the Magistrate’s Court.

On 2nd December the Magistrate’s Court convicted Michael Barzel on his confession – in the setting of a plea bargain struck in the midst of trial – for two offences under the Securities Law: Failing to file an immediate report with the intention of deceiving a reasonable investor, and an offence of including a misleading detail in a financial statement with the intention of deceiving a reasonable investor.

On 21st December the Magistrate’s Court passed sentence on Eli Uzan. Uzan was convicted upon his own confession, in the course of a lengthy trial, for offences of theft by a manager, aggravated obtaining by deception, offences of fraud and breach of trust in a corporation, offences of entering false entries in a corporation’s books, offences of failure to comply with the provisions of the Controlling Shareholder Regulations, and offences of false reporting. The court sentenced Uzan to 23 months’ incarceration, a 10 month suspended sentence, and a fine of 550,000 NIS or 20 months’ incarceration in lieu thereof.

On 28th December the District Court convicted Yaakov Bolus with theft of 10 million NIS, and offences of entering a false entry in a corporation’s books, and using a forged document designed to conceal the theft.

On 31st December indictments were served against Ido Nisentzvaig and Yaakov Barzilai, former order executors at Excellence’s trading room, attributing to them many hundreds of offences of theft by a licensee, many hundreds of offences of influencing securities’ prices by deception, offences of registering a false entry in the books of a corporation, fraud and breach of trust in a corporation, and money laundering. Nir Sharabi and Gal Ehrlichman were charged together with Nisentzvaig and Barzilai with offences of registering a false entry in the books of a corporation, fraud and breach of trust in a corporation, and money laundering.

Table of Contents

1. Definitions 31

2. The ISA’s structure 32

3. Senior officers, departmental managers and employees 33

4. The ISA’s purview 38

5. The ISA’s contact details 39 6. A review of the ISA’s activities in 2015 and the main activities planned for 2016 as 40 relating to the work plan 6.1 The Corporate Finance Department 40

A. General 40

1. The Corporate Finance Department’s Purview 40

2. Highlights of activities in 2015 40

3. Highlights of the actions planned for 2016 41

B. Supervision 41

1. Prospectus, raising capital and debt 41

2. Data regarding fund raising and issues in the course of 2014-2015 43

3. Current reporting 44

4. Supervision of appraisals 54

5. Audits of reporting corporations conducted by the Audit Unit 56

6. Underwriter register 57

7. Dual listing 58

8. Credit rating agencies 59

C. Regulation 60

1. Projects handled in 2015 60

2. Pre-rulings 71 3. Q & As, the staff’s position and enforcement decisions relating to 72 accountancy and audits 4. Plenary and staff positions on legal issues 72

6.2 The Investment Department 78

A. General 78

1. The Investment Department’s purview 78

2. Highlights of activities in 2015 78

3. Principal activities planned for 2016 79

4. Regulatory tools used by the department’s staff 79 B. Mutual Funds 80

1. General 80 2. Permits to own controlling shares in fund managers, and licensing 83 fund managers and trustees 3. Prospectuses 83

4. Reports 84

5. Fund manager participation in general meetings 84

6. Auditing mutual fund managers 86

7. Supervising mutual fund trustees 86

8. Regulatory activity 86

C. Exchange Traded Notes 90

1. General 90

2. Prospectuses 91

3. Reports 91

4. Regulatory activity 93

5. Website development 95

6. Audits 96

D. Investment advisers, investment marketers and portfolio managers 96

1. General 96

2. Licensing 98

3. Supervision 100

4. Regulation 102

E. Lateral issues 103

1. Corporate governance 103

2. Review of emergency preparedness 103

3. Prohibition of money laundering and financing of terrorism 104

F. Staff position papers and interpretation 104

1. Staff position circulars 104

2. Pre-rulings 105

3. FAQs 105

G. Enforcement – Financial sanctions and administrative enforcement 105

H. Legislative activity 105

1. Primary legislation published in 2015 105 2. Secondary legislation and complementary regulation published in 106 2015 3. Proposed primary and secondary legislation 106

I. Investment Department related legal proceedings 106

6.3 The Department of Research, Development and Strategic Economic Consulting 108

A. General 108

1. Economic advice 108

2. Strategic advice 108

3. Economic research 108

B. Highlights of the department’s activities 109

C. Principal activities planned for 2016 112

6.4 Investigations, Intelligence and Market Surveillance Department‎ 113

A. General 113

B. Highlights of activities in 2015 113

6.5 Department‎ ‎for ‎Supervision ‎over ‎the ‎Stock ‎Exchange ‎and ‎Trading‎Platforms 116

A. General 116 The purview of the Department for Supervision over the Stock 1. 116 Exchange and Trading Platforms 2. Highlights of the activities planned for 2016 118

B. The department’s activities 121

1. Supervision of the stock exchange and clearing houses 121

2. Trading platforms 123 3. Supervising Compliance of Non-Bank Members of the Stock Exchange 126 with the Money Laundering and Terror Financing Duties 6.6 Legal Counsel 128

A. General 128

1. The Legal Counsel’s purview and functions 128

2. Highlights of activities in 2015 129

3. Principal activities planned for 2016 129

B. The department’s activities 130

1. Main subjects handled by the Legal Counsel in 2015 130

2. Legislation 132 3. Coordinating and advising on civil and administrative legal 155 proceedings 4. Financing class actions and derivative actions 183 5. Tenders and contracts 187

6. Public inquiries 187

6.7 The International Affairs Department 189

A. General 189

B. Highlights of activities in 2015 189

1. Participating in international forums 189

2. Cooperating in enforcement actions and exchanges of information 192

3. Signing cooperation agreements 193

4. Changing the structure of the Tel Aviv Stock Exchange 193

5. Amending Chapter I2 of the Securities Law 194

6. Mutual recognition 194

7. Learning delegations 195

8. Strengthening ties with foreign commissions and foreign entities 195

9. The International Monetary Fund (IMF) 195

10. International trade agreements 195

11. The English language website 196

12. XBRL 196

6.8 The Information Systems Department 197

A. General 197

B. Highlights of activities in 2015 197

1. Electronic filing – MAGNA 197

2. Archiving System and computerised office 200

3. Operational computerised system 201

4. Informative Website 202

5. Central Intelligence System – AMIGO 202

6. System for Investigations Department 202

7. Forms and payments system 203

8. BI System for detection of trading irregularities 203

9. Knowledge management – Search tools 204

10. Knowledge management – Internal Portal 204

11. Human Resources Systems 204

12. Integrated Voting System 204 13. Information System to supervise trading platforms to own account 205

14. Interface to incorporate overseas trading data 205

15. Book-keeping system 205 16. Infrastructures – servers, communications, end user stations and 206 information security 6.9 Administrative Enforcement 208

A. General 208

1. The purview of the Administrative Enforcement Department 208

2. Highlights of activities in 2015 209

3. Highlights of actions planned for 2016 210

B. The department’s activities in 2015 210

1. Administrative enforcement 210

2. Financial sanctions 225

6.10 Criminal Enforcement 229

A. General 229 1. The purview of the Securities Department at the District Attorney’s 229 Office 2. Highlights of activities in 2015 229

3. Highlights of activities planned for 2016 231

B. The department’s activities 231

1. Indictments 231

2. Files closed in the course of 2015 233

3. Criminal cases pending before the courts 234

4. First instance judgements 234

5. Criminal appeal judgements 241

7. The ISA’s Budget for 2015 246

8. The ISA’s Budget for 2016 248 9. A list of pamphlets and information leaflets for the public published by the ISA in the 250 course of 2015 10. Times and places in which the written administrative guidelines under which the ISA 250 operates may be perused 11. The ISA’s databases, registered under the Privacy Protection Law, 5741-1981, in the 250 Ministry of Justice’s database register 12. Grants and scholarships funded by the ISA 252 13. Support the ISA gave public authorities over the course of 2015, details of their names 253 and the extent of support each one received 14. The Report of the ISA' Freedom of Information Commissioner under Section 5(a) of 254 the Freedom of Information Law

List of Tables Table 1: Number of prospectus publishing requests and permissions granted, 2013- 42 2015 Table 2: Capital raising and allocations of shares, convertible securities and 43 bonds in 2014-2015 (millions NIS) Table 3: ISA initiated review of financial statements 2013-2015 45 Table 4: Controlling shareholder transactions 2013-2015 47 Table 5: Private offerings (material and unordinary) 2013-2015 49 Table 6: Share purchase offers, 2013-2015 50 Table 7: Debt restructuring arrangements, 2013-2015 53 Table 8: Corporations whose reporting duties ended by law, 2013-2015 54 Table 9: Data from the underwriter register 57 Table 10: Pre-rulings, 2013-2015 71 Table 11: Statistical data re mutual funds, per classification, 31st December 2015 81 Table 12: Ratios of fund manager participation at general meetings in which they were obligated to participate in, and vote at, according to the law, 85 2011-2015 Table 13: Total licenses awarded to individuals – portfolio managers, investment 96 advisers and investment marketers, 2011-2015 Table 14: Grant, conversion and revocation of company licenses, 2015 96 Table 15: Value of managed assets - non institutional investors, 31st December 97 2015 Table 16: Exam pass rate, 2015 98 Table 17: Distribution of investigation files the Investigation Unit began handling 113 in 2011-2015, per offence type (exclusively criminal) Table 18: The Investigations, Intelligence & Market Surveillance Department 113 assisting foreign authorities (legal inquests) in 2011-2015 Table 19: Files in which a determination was made regarding prima facie 113 evidence that an offence was committed in 2011-2015 Table 20: Distribution of investigation files passed on to the District Attorney’s 114 Office in the last five years, per principal offence type, 2011-2015 Table 21: Distribution of investigation files passed on to the Investigation Unit, 114 per offence type in 2011-2015 Table 22: Distribution of administrative inquiry files passed on to the chairman, 114 per principal offence type, 2012-2015 Table 23: Files the Investigation Unit began handling in 2011-2015 (excluding 115 legal inquests) Table 24: Distribution of administrative files opened in 2015 210 Table 25: Financial sanctions imposed under the Securities Law and/or the 225 Companies Law Table 26: Financial sanctions imposed under the Advice Law 226 Table 27: Financial sanctions imposed under the Funds Law 227 Table 28: Distribution of investigation files transferred to the District Attorney’s 244 Office in 2015, per type of offence Table 29: Distribution of indictments in 2015, per type of offence 245 Table 30: Number of investigation files at the District Attorney’s Office at the end of 2015 in which no decision has yet been taken whether or not to 245 indict, per year transferred Table 31: Number of investigation files at the District Attorney’s Office at the end of 2014 in which no decision has yet been taken whether or not to 245 indict, per type of offence

List of Diagrams Diagram 1: Number of mutual funds, 2011-2015 80 Diagram 2: Value of mutual fund assets on 31st December, 2011-2015 (billions 80 of NIS) Diagram 3: Diminishing management fee trend at funds, 2008-2015 (simple 83 average) Diagram 4: Number of exchange traded notes, 2011-2015 90 Diagram 5: Value of public holdings in exchange traded notes, 2011-2015 90 Diagram 6: Value of assets under management - portfolio management 96 companies, 2011-2015 (Billions NIS)

1. Definitions

The "Stock Exchange"–‎ The Tel‎ Aviv‎ Stock‎ Exchange‎ Ltd.;‎ ‎

The "ISA" – The Israel Securities Authority;

The "Prohibition of Money Laundering Law" – The Prohibition of Money Laundering Law 5760-2000;

The "Administrative Enforcement Law" – The Streamlining of Enforcement Procedures at the Israel Securities Authority (Legislative Amendments) Law 5771-2011;

The "Credit Rating Law" – The Law for Regulating the Activity of Credit Rating Agencies, 5774-2014;

The "Reliefs Law" – The Law for Granting Reliefs in the Capital Market and Encouraging the Activity in it (Legislative Amendments) 5774-2014;

The "Companies Law"–‎ the Companies‎ Law‎ of‎ 5759‎ -1999; ‎

The "Advice Law" - The Regulation‎ of‎ Investment‎ Advice‎ and‎ Investment‎ Portfolio‎ Management‎ Law‎ 5755‎ - 1995; ‎

The "Penal Law" – The Penal Law, 5737-1977;

The "Joint Investments Trust Law" – The Joint Investments Trust‎ Law‎ 5754‎ -1994; ‎‎

The "Freedom of Information Law” – The Freedom of Information Law, 5758-1998;

The "Law of Centralization" – The Law on Minimizing Market Centralization and Promoting Economic Competition 5774-2013

The "Securities Law" – The Securities Law‎ 5728‎ -1968; ‎

The "Road Map" – The strategic plan published by the ISA in October 2012;

The "Prohibition of Money Laundering Order" – Prohibition of Money Laundering Order (Identification, Reporting and Keeping Records Requirements by Stock Exchange Members for the Purpose of Preventing Money Laundering and Financing of Terrorism) 5770-2010;

The‎ "Controlling Shareholder Regulations" – The Securities‎ Regulations (Transaction between a Company and its Controlling Shareholder)‎‎‎5761-2001; ‎‎

The‎ "Periodic and Immediate Reports Regulations" – The‎ Securities‎ Regulations ‎ (Periodic and‎ Immediate‎ Reports)‎‎‎5730-1970; ‎

The‎ "Private Offering Regulations" – The Securities Regulations (Private Offering of Securities ‎in ‎a ‎Listed‎Company)‎5760-2000;‎

The "Purchase Offer Regulations" – The Securities‎ Regulations‎ (Purchase‎ Offer)‎ 5760‎ - 2000; ‎

The "Trading Platform Regulations" – The Securities Regulations (Trading Platforms to Own Account) 5774-2014. ‎

2. The ISA’s Structure

Chairman

Plenum Prof. Shmuel Hauser

Legal Counsel Chairman’s The Secretary Office General

The Department Investigations, Corporate Investments Administration, of International Intelligence & Finance Department Finance & Affairs Market Department Human Surveillance Resources Department

Stock Information Securities Administrative The Exchange & Systems Department at Enforcement Department of Trading Department the Tel Aviv Department Research, Platforms District Development Supervision Attorney’s & Strategic Department Office Economic Consulting

3. Senior officers, departmental managers and employees

In 2015,‎ ‎the members‎ of‎ the‎ ISA‎ plenum‎ were‎ :

Prof.‎ ‎Shmuel‎Hauser, Chairman;‎ ‎

Mr.‎ Hani Haj Ihie,‎ ‎CPA,‎Adv.;

Dr. Keren‎ Bar‎ Hava,‎ ‎CPA (Tenure ended on 3rd May 2015);

Prof.‎ Orly‎ Sade‎ ‎(Tenure ended on 13th May 2015);

Mr.‎ ‎Miki‎Kahn; ‎

Dr.‎ Shai‎ Pilpel‎ ‎(Tenure ended on 13th May 2015);

Adv.‎Pnina Guy‎ ‎(Tenure ended on 15th July 2015);

Adv.‎Mickey‎Schneider (Tenure ended on 11th September 2015);

Adv. Shelly‎Edwin‎Aharoni; ‎

Prof. Eti Einhorn, CPA;

Adv. Shulamit Barnea Fargo;

Adv. Neta Dorfman Raviv (Tenure ended on 26th March 2015).

The ISA’s plenum usually convenes once per month. The plenum acts through committees which deal with the following subjects: applications for permission to publish a prospectus; granting exemptions and extensions; stock exchange related matters; the ISA’s funds and budget; the independence of the auditors auditing companies which are subject to the Securities Law; licensing investment advisers, investment marketers and investment portfolio managers; civil fines imposed on mutual fund managers; other topics as needed.

In 2015, two additional areas were added to the activities of the plenum and its committees: matters relating to supervision of trading platforms, including grating and revoking trading platform licenses; granting licenses and permits under the Credit Rating Law.

The Conventions of the Plenum and its Committees throughout 2015:

The ISA’s plenum – 13 meetings;

The‎ Disclosure and Reporting Committee – 56 meetings; ‎

The‎ Secondary Market Committee – 5 meetings; ‎

The‎ Fines and Sanctions Committee – 54 meetings,‎as follows:‎ ‎

Class‎ actions – 5 meetings; ‎

Financial‎ sanctions under the Securities Law – 3 meetings; ‎

Supervision and Regulation Committee – 7 meetings ‎relating to ‎provision of ‎licenses ‎and ‎ permits ‎under ‎the‎Joint‎Investment‎Law and‎ the Advice‎ Law;‎ ‎ Finance‎ Committee – 4 meetings; ‎

Audit‎ Committee – 3 meetings.‎

Current to the‎ end‎ o‎ f December‎ 2015‎ (Tevet 5776),‎ the Israel‎ Securities‎ ISA’s‎ senior‎ officers‎ were‎ as‎ follows‎ : ‎

Adv. Amir ‎Wasserman – Legal Counsel;

Adv. Meir Levine* – Senior adviser and director of the International Affairs Department; ‎

Adv.‎ Eli Levy ‎– Investigations, Intelligence and Market Surveillance Department Director;

Adv. Ilana Modai – Director of the Administrative Enforcement Department;

Adv.‎ ‎Oded Spirer‎ – Secretary‎General;

Adv. Orly Doron ‎ – Director of the Securities Department at the‎ Tel‎ Aviv‎ District‎ Attorney’s‎ Office‎ (Taxation and Economy);

Dr.‎Gitit Gur‎ -Gershgoren – Director of the Department of Research, Development and Strategic Economic Consulting;

Mr.‎Natan Hershkovitz‎ – Director of the Information Systems Department;

Adv. Moty Yamin ‎– Director‎ of Corporation Finance Department; ‎

Mr.‎Dudu‎Lavi – Investment Department Director;

Ms. ‎Sharona ‎Mazalian‎Levi - ISA Spokesperson;

Mr.‎Itzik Shurki,‎ CPA‎ – Director of the Stock Exchange and Trading Platforms Supervision Department. ‎

Under‎ ‎the ‎Securities ‎Law, ‎the ‎Chairman ‎of ‎the ‎ISA ‎and ‎the member of its plenum‎are ‎ appointed ‎ by ‎ the‎ Minister ‎ of ‎ Finance. ‎ Some‎ ‎ of ‎ the ‎ members ‎ are ‎ appointed ‎ from ‎ amongst ‎ the ‎ public, ‎ others ‎ are ‎ civil‎ servants;‎ one is‎‎ an‎ employee‎ of‎ ‎ the ‎ Bank ‎ of Israel.‎ ‎The‎‎ ISA‎ employs‎ accountants,‎ lawyers,‎ ‎economists and‎ administrative‎ staff.‎ ‎ Current‎ to the end‎ ‎of ‎December ‎2015, ‎a ‎total ‎of ‎262 positions ‎were ‎staffed ‎at ‎the ‎ISA, ‎ including ‎interns and‎student postings.‎

Current to the‎ end‎ of‎ December‎ 2015,‎ ‎ approximately 250‎ positions were‎ manned at‎ the‎ ISA,‎ as‎ follows: ‎

Chairman’s‎Office – 4.25 positions;

Legal‎Counsel – 10 positions;

The International‎‎ Affairs‎ Department‎ ‎– 3.5 positions;

Corporate‎ Department‎ ‎– 51 positions;

Investment‎ Department‎ ‎– 43.8 positions;

The Securities Department at the‎ Tel‎ Aviv‎ District‎ Attorney's‎ Office‎ – 15 positions;

* On 16th July 2015, Adv. Meir Levine was appointed to the position of Senior Adviser to the Chairman and head of the International Affairs Department, in place of Adv. Ornit Kravitz.

Administrative‎ Enforcement‎ Department‎ ‎– 6 positions;

Investigations, Intelligence‎ and‎ Market‎ Surveillance Department‎ – 40.67 positions;

Research,‎ Development & Economic and Strategic ‎Counselling ‎Department ‎– 8 positions;

Information Systems Department – 8 positions;

Supervision ‎of the Stock Exchange ‎and ‎Trading ‎Platforms ‎Department – 9 positions;

Administration, Finance‎and‎Human‎Resources – 19.67 positions;

Interns – 18 positions;

Students – 13 positions;

The ratio of men to women at the ISA in December 2015 was: 53% men, 47% women.

Academics comprised 93% of the ISA’s staff; most of whom were lawyers, accountants and economists.

The Secretary General

The Secretary General is responsible for the ISA’s ongoing operations, monitoring implementation of the policies set by the Chairman across the ISA’s various areas of activity, as well as coordinating and integrating the ISA’s various departments.

The ISA’s Secretary General also heads the Administration, Finance & Human Resources department. His main areas of responsibility are: management of finance and accounting at the ISA, including the ISA’s financial reporting, managing its funds, managing fee collection, proposing annual budgets, handling the process of budget approval vis-à-vis the Ministry of Finance and the Knesset’s Finance Committee, and supervising its implementation; managing the ISA’s human resources, including manpower positions and their manning, salaries, employment contracts and terms and conditions of employment, employee promotion tracks, professional development and employee welfare; managing acquisitions and professional and operational contracts and preparing the ISA’s tenders; managing material resources (construction, economy, vehicle fleet) and safety and security.

4. The ISA’s Purview

The ISA was established under the Securities Law, and its function is to protect the interests of the public who invest in securities. In the setting of its duties, the ISA, inter alia, handles the following:

1. Grants permission to publish prospectuses in which corporations offer securities to the public, and prospectuses in which mutual funds offer their units to the public;

2. Reviewing the reports filed by reporting entities, as follows:

a. Immediate reports, and quarterly and periodic financial statements;

b. Reports of transactions between a company and its controlling shareholder;

c. Reports of private allocations in companies;

d. Purchase offer specifications;

e. Mutual fund current reports;

3. Regulation and supervision of the mutual funds industry;

4. Licensing portfolio managers, investment advisers and investment marketers, regulating their activity and supervising them;

5. Supervising compliance by portfolio managers and non-bank members of the stock exchange with the Prohibition of Money Laundering Law;

6. Supervising the Stock Exchange’s proper and fair management;

7. Licensing trading platforms to own account and supervising them;

8. Licensing credit rating agencies and supervising them;

9. Investigating offences under the Securities Law, offences under the Joint Investments Trust‎ Law,‎ the Advice Law and other laws related to breaking these laws;

10. Conducting administrative enforcement proceedings – from investigations of administrative infringements under the Securities Law, the Joint Investments Trust‎ Law,‎ and the Advice Law, and through to instituting administrative proceedings before the Administrative Enforcement Committee at the direction of the ISA’s chairman;

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

The ISA’s budget is generated from the fees collected from the entities it supervises. The ISA’s budget is approved by the Minister of Finance and the Knesset’s Finance Committee.

5. Contacting the ISA

5.1. Contacting the ISA and the Ombudsman:

Postal address: The Israel Securities Authority, 22 Kanfei Nesharim St., Jerusalem, Zip 9546434

Email: [email protected]

Fax: 02-6513646, 03-5601041

Tel: 02-6556555

5.2. Contacting the ISA’s freedom of information officer:

To file an application under the Freedom of Information Law, and for related questions, contact the officer in charge of implementation of the law at the ISA:

Adv. Offir Eyal. Tel: 03-7109811

Fax: 03-5136841, email: [email protected]

5.3. Contacting other units providing services to the public:

Contacting other units at the ISA which provide services to the public (direct line for providing information, data on advisers, licensing information) is possible through the ISA’s website at: www.isa.gov.il

6. Review of the ISA’s activity over the course of 2015, and highlights of the actions planned for 2016, with reference to the working plans

6.1. Corporate Finance Department

A. General

1. The Corporate Finance Department’s Purview

The Corporate Finance Department supervises all the corporations which have issued securities to the public, whether as debt or as equity. There are 532 reporting listed corporations, of which 406 are publicly traded companies listed only in Israel, 69 bond issuing companies, 2 structured bond companies and 55 dual listed companies1. In addition, the department supervises several dozens of delisted companies which are still lawfully required to issues reports.

The department employs accountants, lawyers and economists, most of whom are contact officers for the reporting corporations and the majority of whom have professional areas of responsibility – either legal or accounting. Aspects relating to each and every reporting corporation’s reporting duties under the Securities Law, are handled by a designated staff member.

As one of the executive arms of the Israel Securities Authority, and as a part of the ISA’s duty to protect the interests of the investing public, the Corporate Finance Department’s main function is to increase corporate transparency at the companies that report to capital market investors. For the purpose of performing its duties, the department operates on three spheres: supervision, regulation and enforcement.

In the supervision sphere, the department acts to ensure that the reporting corporations comply with their reporting duties. In the regulation sphere, the department acts to formulate disclosure requirements and adapts these to developments in the capital market, so that the disclosure serve investors in the best possible way, reflecting material and relevant information, and increase and improve the use of reports in making investment decisions. In the enforcement sphere, the department examines legal compliance by reporting corporations or their interested parties, and transfers cases in which the Securities Law has been broken for enforcement action.

2. Highlights of activity in 2015

A. Encouraging IPOs – In the course of 2015, the ISA published a proposed outline for a series of reliefs, the purpose of which are to encourage companies to issue securities for trading on the Israeli stock exchange. The proposed outline includes corporate governance reliefs, reliefs relating to the issuing process, and disclosure provisions.

B. Regulation hierarchy – In the course of 2015, the Israel Securities Authority has initiated a project of establishing regulatory tiers, designed to explore the possibility of granting reliefs to small reporting corporations related to publication of quarterly financial statements, and in other areas. The purpose of

1 Current to 10th January 2016. the proposal is to develop the capital market by lessening the regulatory burden, acknowledging the advantages that will ensure for small corporations from the possibility of redirecting additional material resources to developing their business.

C. Promoting legislation designed to encourage raising equity on the stock exchange for the purpose of financing R&D companies.

D. Implementing the recommendations of the Committee Examining Procedure for Debt Settlement Implementation in Israel – the Andorn Committee – the committee’s goal was to formulate recommendations in the field of debt restructuring in Israel, so as to minimise the negative impact attendant on instances in which a company finds itself in difficulties and repayment of the debt it has assumed is at risk. In the course of 2015, the department’s staff dealt with implementing the committee’s recommendations in relevant aspects of securities law, by formulating proposals to amend the Securities Law.

E. Market development – An initiative to examine alternative finance options on the capital market, to be used in fields with vast cash needs (such as small and medium sized businesses and infrastructure projects), which are currently funded mainly by the banking system and private loans from institutional investors.

3. Highlights of the Actions Planned for 2016

The Corporate Finance Department’s 2016 working plan includes continued promotion of the projects which began in 2015, emphasising IPO and regulatory reliefs. Moreover, the department’s staff intends to complete projects in the legislative process stage, which would improve reporting and provide reporting reliefs, including prescribing industry disclosure rules. Additionally, staff are preparing to supervise credit rating agencies and crowd financing.

B. Supervision

1. Prospectuses and raising capital and debt

In the setting of the department’s ongoing activity, management and other resources are devoted to reviewing prospectuses presented by reporting corporations. These prospectuses are examined in various review tracks (full / partial / abridged), inter alia, on the basis of risk management policy, as well as priority definition in examining prospectuses with reference to the working plan for review of periodic and quarterly reports. Handling a request to publish a prospectus, to which a full review procedure is being devoted, is undertaken by staff which include both accountants and lawyers.

In the course of 2015, 78 requests to publish a prospectus were reviewed under either a full or a partial review procedure, and 53 applications were reviewed under the abridged procedure2.

2 Beginning with the prospectuses filed on the basis of the 2014 periodic reports and through to the prospectuses filed on the basis of reports for Q1 2015.

Table 1: Number of requests to publish a prospectus and permissions granted, 2013-20153 Prospectuses Shelf Prospectuses Year No. of No. of IPO permits Shelf prospectus No. of corporations Total shelf filings permits (ratio of all permits (ratio of which offered prospectus permits) all permits) securities per a shelf reports prospectus 2013 137 121 5 (4%) 98 (81%) 133 240 2014 121 111 15 (13%) 78 (70%) 130 176 2015 131 112 21 (18%) 79 (70%) 112 171

Rules Under Section 23a(g) of the Securities Law

A "shelf prospectus" is a prospectus that enables a corporation to offer securities to the public from time to time, by means of publishing a shelf prospectus report in the course of the period during which the prospectus is defined as being “Open” (two to three years).

The legal construct for a shelf prospectus and shelf prospectus reports is based, inter alia, on the assumption that the disclosure reflected in the shelf prospectus and the shelf prospectus report, together, is full and sufficient disclosure for the purposes of offering securities to the public, and there is no need for the ISA to grant an advance permit for each and every offer affected on the basis of the shelf prospectus.

However, there are cases in which this assumption does not hold true – where the offers on the basis of the shelf prospectus are complex and require special disclosure. Therefore, aside from the relief, in the setting of which it is possible, as a general rule, to offer securities by means of publishing a shelf prospectus report without having to go through all the process of obtaining a permit to issue securities, the ISA is empowered under Section 23a(g) of the Securities Law to prescribe by rules, instances in which publication of a shelf prospectus report will require a permit from the ISA, as well as terms and conditions for the grant of said permit. The proposed rules enable the ISA’s staff to examine, in complex offerings, the manner and propriety of the disclosure made to the investing public prior to taking an investment decision. These rules include the following cases:

1. Initial offerings of shares by a reporting corporation whose bonds are registered for trading;

2. An offer of securities in the setting of an "alternative purchase offer" (except for an alternative purchase offer of bonds in a corporation, not attendant on “financial difficulties”);

3. An offer of a series of security backed bonds / bonds backed by a lien (except for a negative pledge and/or extending a traded series without adding additional guarantees or changing same);

3 Data relates to prospectuses filed or approved from 1st February in the stated year and through to 21st January of the following year. 4. An offer of securities which are complex or innovative in the manner of their offering and their terms and conditions and/or the type and terms and conditions of the security. In this regard, an offering of the types of securities listed hereinafter will not be deemed complex:

 Ordinary corporate securities;

 Non-convertible bonds (if they do not contain unique terms and conditions);

 Bonds convertible to shares in a corporation at the discretion of the holder and pursuant to a fixed conversion rate (if they do not contain unique terms and conditions);

 Option warrants exercisable as ordinary shares in a corporation or non- convertible bonds or bonds convertible to shares in a corporation at the discretion of the holder and pursuant to a fixed conversion rate;

 Commercial paper.

2. Data Regarding Fund Raising and Issues in the course of 2014-20154

In the course of 2015, the business sector raised approximately 33,072 million NIS by issuing shares, option warrants and convertible bonds to the public, of which 3,422 million NIS were on the local market and 29,650 million NIS were on overseas markets5. This compares with approximately 4,448 million NIS in the previous year, of which 3,742 million NIS were on the local market. In 2015 the business sector raised a sum of approximately 50,882 million NIS by means of bonds (except for convertible bonds) as compared with 32,564 million NIS in the previous year. Moreover, the business sector raised approximately 338 million NIS through exercising option warrants6, as compared with 1,078 million NIS in the previous year.

Table 2: Capital raising and allocations of shares, convertible securities and bonds in 2014-20157 (millions NIS) 2014 2015 Shares, Option Warrants, and Convertible Bonds A. Issues to the public Shares and option warrants on the local market 3,166 3,186 Bonds on the local market 576 236 Overseas issues 706 29,650 B. Private issues Shares and option warrants on the local market 3,479 1,808

4 Source: The Stock Exchange website. 5 Overseas fund raising include shares in Teva Pharmaceuticals amounting to 28,861 million NIS; approximately half of which was raised through preference shares. 6 Including through exercise of option warrants by subsidiaries. 7 Excluding index products. Bonds on the local market 0 0 Overseas fundraising (by dual listed companies) 428 3,675 C. Option Warrant exercise Share options 391 337 Participating unit options 1 1 Convertible bonds option 0 0 Total Shares, Option Warrants, and Convertible 8,746 38,893 Bonds Bonds A. Issues to the public Corporate bonds 32,564 50,882 B. Private Issues Corporate bonds 3,419 3,787 Tactical institutional bonds 20,109 971 Bonds of unlisted companies 976 1,444 C. Realising option warrants into bonds 686 0 Total bonds 57,754 57,084 Total public capital raising and private issues 66,501 95,977

3. Current Reporting

A corporation whose securities have been offered to the public owes various reporting duties by force of the Securities Law and regulations promulgated thereunder for as long as its securities are held by the public. These duties include filing immediate reports, periodic reports and quarterly reports.

In the setting of the ISA’s ongoing monitoring, staff examine the financial statements (annual or quarterly) filed by reporting corporations to ensure the fullness of disclosure and compliance with the Securities Law, regulations promulgated thereunder, guidelines issued under it, and the GAAP, the purpose of which is to suitably realise the principle of full disclosure. Additionally, also a corporation’s current reports are reviewed, and if the need arises, these corporations are ordered to amend or complete the reports.

A. Financial Statement Review

In 2015, the department reviewed financial statements of reporting corporations, at its own initiative. The corporations were selected pursuant to the internal risk model which takes in account, inter alia, the length of time which has passed since the last time the corporation was reviewed, as well as its financial condition.

In the year reported, the ISA’s staff focused on the following elements: the propriety of implementation of International Financial Reporting Standards (IFRS), various legal issues, meeting the industry disclosure standard, value appraisals attached to the reports, shortening the length of reports and improving disclosure. Table 3: ISA initiated review of financial statements 2013-2015 Number of financial statements Year reviewed 2013 31 2014 25 2015 47

The following are the principal issue handled by staff:

1) In the field of accounting:

Legend: IFRS – International Financial Reporting Standard; IAS – International Accounting Standard.

A) The existence of control (IFRS 10), the existence of joint control (IFRS 11) and the manner of classification of joint arrangements, the accounting treatment of transactions of business combination under common control, the existence of "significant influence" (IAS 28), the propriety of the accounting treatment when transferring from one measurement base to another while examining whether any material change befell the nature of the holding (for instance, transition from control to significant influence), the manner of attribution of rights to the reporting corporation;

B) Business Combinations (IFRS 3), discretion in determining whether dealing with a purchase of a “business” or an “asset”, propriety of recognising profit from a bargain purchase, examining the implications of purchasing assets which are not a business;

C) The reasonableness of evaluating investment property (IAS 40), in particular close in time to the purchase date, and examining the propriety of disclosure in attached value appraisals and the reasonableness of the assumptions they are based on;

D) Examining the manner and timing of revenue recognition, including the income reporting basis (gross / net) (IAS 18 + IAS 11);

E) The propriety of classification of real estate assets and property in the financial statements (inventory, investment property, fixed assets);

F) The adequacy of disclosure regarding the assessment of the going concern assumption underlying the preparation of the financial statements (IAS 1) and the opinion of the auditing accountant on the matter;

G) Examination of the operating segments presented in the reports and adjusting the presentation in the financial statements to the information which the main operational decision maker has in front of him (IFRS 8) (CODM);

H) Depreciation in the value of assets, tangible and intangible (IAS 36), depreciation in the value of financial instruments and in particular depreciation in the value of financial instruments available for sale (IAS 39); I) Identification of cash generating units for the purpose of examining any decrease to the value of goodwill (IAS 36);

J) Classification of financial instruments as a financial obligation or an equity instrument (IAS 32);

K) Auditor independence;

L) Adequacy of disclosure regarding a company’s preparedness to meet exposures related to cyber threats, such as: identifying and evaluating potential risks, having procedures in place and supervising their implementation, performing tests to evaluate the strength of information security systems (risk survey), the existence of frequent testing of the suitability of the procedures and mechanisms which take into account the changes occurring in a company’s environment.

2) In the legal sphere:

A) Issues relating to the identity of a corporation’s controlling shareholder;

B) Approving transactions with controlling shareholders or in which the controlling shareholders have a personal interest; for additional details see Clause 3(b) hereinafter “Transactions with Controlling Shareholders”;

C) Approving officer remuneration in corporations following Amendment 20 of the Companies Law;

D) Dividend distribution;

E) Officer conflicts of interests, and boundaries of activity.

B. Transactions with Controlling Shareholders

Transactions by publicly listed companies in which the controlling shareholders have a personal interest, demonstrate in the clearest possible way the principal agent problem (Agency Problem) that exists in companies with concentrated control, which characterises the Israeli capital market, and which could adversely affect the public trust in capital markets. For this reason, the Companies Law limits the possibility for a company to enter into such transactions, to transactions that are in its interests, and which have been approved by a mechanism that includes a special majority of shareholders who do not have any personal interest in approving the transaction.

The transactions deemed tainted by a controlling shareholder’s personal interest, and which require the special approval procedures, are listed in Section 270(4) of the Companies Law. These transactions include extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, which include private offerings in which the controlling shareholder has a personal interest, and approving the terms and conditions of employment and tenure for a controlling shareholder or someone close to him.

In light of the implications of such transactions, securities law treats them in a special way: The Securities‎Regulations (Transaction between a Company and its Controlling Shareholder)‎ 5761-2001, prescribe the disclosure requirements applicable to a public company regarding the special proceedings to approve such transactions. When a transaction with a controlling shareholder is not extraordinary, and therefore does not require the special approval of a shareholder meeting, the company is required to make disclosure on its account, in the setting of the periodic report, by virtue of the Periodic and Immediate Reports Regulations. The duty of immediate reporting of any non-extraordinary transactions with a controlling shareholder, has been abolished in the setting of the Securities Regulations (Periodic and Immediate Reports) (Amendment No. 3) 5776-2015, which became effective on 17th January 2106.

Together with the examination of the disclosure regarding the transaction itself, the staff at the Corporate Finance Department also review various issues related to transactions with controlling shareholders and their compliance with the provisions of the Companies Law, such as examination of the identity of the controlling shareholders in a corporation; defining transactions between the company and another as a transaction in which the controlling shareholder has a personal interest; defining those holding shares in a company as having a personal interest in approving transactions; a material examination of the asset or activity which is the subject matter of the transaction; examination of the manner in which the transaction was approved by the company’s various organs; examination of the competence of the external directors; examination of the workings of the audit committee, including with regard to classification of transactions as extraordinary or not8.

Similarly, the ISA reviews reports of the outcomes of voting at general meetings.

Table 4: Controlling shareholder transactions 2013-2015 Year Total immediate reports re transactions between a company and a controlling shareholder No. of reports9 No. of transactions reported10 2013 432 679 2014 408 727 2015 374 625

C. Executive Compensation

Since the enactment of Amendment No. 20 of the Companies Act, at the end of 2012, the department has published both disclosure directives on the matter and staff decisions (Staff Position Paper 101-16), reflecting its stand on issues

8 On 11th December 2013 the Law on Minimizing Market Centralization and Promoting Economic Competition 5774-2013 was published in the official gazette (hereinafter: the “Centralization Law”). The department’s staff are required, inter alia, to refer to issues pertaining to transactions with controlling shareholders in relation to implementation of the Centralization Law. 9 Data relate to the number of reports convening a meeting to approve transactions with a controlling shareholder published over the course of the year. 10 Data include 380 transactions in 2013, 306 in 2016 and 162 in 2015 reported under the classification of “Other”. It is possible that there are amongst these, transactions not conducted with a controlling shareholder. relating to implementing the Amendment. Moreover, in the course of 2014, the ISA has published the draft of a disclosure guideline pertaining to approving compensation policy and senior officer salaries. This guidance has migrated into a legislative outline, and was incorporated into the Bill to Amend the Securities Regulations, as part of the report improvement project.

Over the year, the department has published clarifications regarding the requisite disclosure necessary in relation to certain details in the Schedule, which include the duty to disclose the ratio between the executive compensation and the average and median salaries of a company's employees; a duty to disclose the ratio between the base salary and the incentive pay, and more. Moreover, the ISA published, at the beginning of 2014, a clarification relating to implementing Regulation 10(b)(4) of the Reporting Regulations in light of the adoption of compensation policy by companies. Over the course of the year, the ISA's staff has worked on providing answers and support for many companies regarding implementation of Amendment No. 20, which includes amending compensation policies and executive compensation approval process. Thus, the distinction was drawn between compensation which will constitute a component in executive compensation plans and compensation which will not be deemed as such. The ISA’s stand was also clarified with regard to the duty to repay bonuses given to officers in the event of a restatement of the financial statements, and regarding the discretion afforded to the board of directors to set goals for officers at the beginning of each year.

Near the end of 2015, a memorandum of amendment of the Companies Law was published, setting out several changes in relation to the existing legal outline. Thus, contrary to the rule which existed thus far, a compensation committee and the board of directors will be able to grant an officer (who is not the CEO or a director) bonuses, irrespective of meeting annual incentive targets and without any regulatory demand to obtain the approval of the meeting. Similarly, the customary practice enabling a board of directors to grant the CEO a bonus, of up to three salaries, that is not based on meeting annual incentive targets, will be anchored in law. Additionally, a series of reliefs pertaining to approval of policy and salaries in companies issuing new securities, is expected to be prescribed by regulation.

Over the course of 2016, companies are expected to reapprove compensation policy after the passage of three years from the previous approval. The ISA will continue to publish its positions and provide support for companies with regard to the manner of implementing the provisions of the law.

D. Private Placements

Private placements at public companies in Israel, are regulated by two sources: The Companies Law and the Securities Regulations (Private Placements of Securities ‎in ‎a ‎Listed‎ Company)‎ 5760-2000 (hereinafter – “Private Placement Regulations”). The Companies Law prescribes the requisite mechanisms of approval for the purpose of affecting a private placement, and the regulations regulate the measure of disclosure and details necessary in every type of private placement – according to the rate of capital issued, the consideration paid (cash, securities or other) and the characterisation of the allocation’s offeree. According to the Companies Law, the approval of the general meeting is required for every “material” private placement and every private placement in which the controlling shareholder has a personal interest.

The Private Placement Regulations stipulate three levels of disclosure: An extraordinary placement, for which the widest measure of disclosure is given, a material placement and a non-material placement, all as defined in those regulations. The private placement reports are reviewed by the ISA’s staff as part and parcel of the review of the company’s current reports. According to the prescriptions of the Private Placement Regulations, the ISA is empowered to ask for explanations, details, information and documents, and if needs be, also to order the amendment of an immediate report or the postponement of a shareholder meeting, until the passage of no less than three and no more than 21 days from the date amended report is published.

Table 5: Private offerings (material and unordinary) 2013-2015 Year Total reports of private offerings 2013 136 2014 211 2015 234

E. Purchase offers

The Securities‎ Regulations‎ (Tender Offer)‎ 5760‎ -2000 (hereinafter - The “Purchase offer Regulations”, prescribe the duty to present specifications of a purchase offer in three instances:

1) An ordinary purchase offer, that is to say an action by the offeror designed to persuade a class of shareholders, or those holding convertible securities in a company, to sell the securities to the offeror;

2) A full purchase offer, as defined in Section 336 of the Companies Law, that is to say – an offer designed to enable the offeror to purchase all the shares in a company, and to turn it into a private company;

3) A special purchase offer, as defined in Section 328 of the Companies Law, that is to say – an offer designed to enable the offeror to purchase, for the first time, a controlling block of (or full control in), a company.

Under the provisions of the Purchase offer Regulations, the ISA is authorised to demand explanations, details, information and documents pertaining to the details included in a purchase offer’s specifications, or regarding any other matter which the ISA believes should be included in the specifications, pursuant to the Regulations, and even order the amendment of the specifications.

Under this power, offerors have been required to complete various details in their specifications, and including: The method of calculating the minimal rate of response necessary to accept a full purchase offer under Section 337 of the Companies Law; discounting shares of the company which are held by a subsidiary; disclosure of agreements the offeror has with another; any personal interest the offerees may have, and more.

Table 6: Share Purchase offers, 2013-2015 Ordinary Full Purchase Special Total specs. for Year Purchase offers offers Purchase offers Purchase offers 2013 6 22 2 30 2014 2 21 3 26 2015 1 16 1 18

In addition to offers filed under the Purchase offer Regulations, over the course of the year, 27 purchase offers were published to acquire (non-convertible) bonds of companies in liquidation proceedings, which were not listed for trading. Owing to the fact that these purchase offers are not subject to the disclosure provisions and the rules prescribed in the Regulations, it was decided to prohibit the offerors from publishing the offers directly to investors by means of the MAGNA website, but only by means of the liquidator who is in a position to ensure that the specifications, and all in the information it contains, meets all necessary conditions.

F. Debt Restructuring and Protection of Bondholders

Over the course of the last decade, extensive activity to raise debt on the capital markets by means of issuing bonds to the public has taken place. Some of the corporations which raised debt became embroiled in financial difficulties, which adversely affected their ability to meet all their obligations to the bondholders, and consequently, debt restructuring and/or liquidation proceedings were instigated.

1. Ongoing Handling of Debt Restructurings

In the setting of ongoing treatment of the restructuring arrangements, inter alia, the following details are examined: the disclosure made by the companies; the disclosure made by the controlling shareholder in instances in which the arrangements include an undertaking by the controlling shareholder to pay the debt or give the holders any guarantee; the need to execute the debt restructuring under the auspices of the court, by appointing an expert in light of Amendment No. 18 of the Companies Law, including the timing of appealing to the court to appoint said expert; the feasibility of issuing the securities offered in the arrangements and registration for trading in accordance with the provisions of law, and more.

In the setting of debt restructuring arrangements conducted under the auspices of the court under Section 350 of the Companies Law, the ISA is, for the most part, required to file its position on the matter of the method of convening the class meeting; the disclosure made to the holders of the corporation’s securities before a decision on approving the arrangement is made; and the need to appoint an expert to examine the proposed arrangements. Moreover, at times the ISA has attended at court under its powers under Section 35O(b) of the Law, and presented its position on the matters which it views as important, by virtue of its function, to protect the interests of the public who invest in securities.

2. Debt Restructuring Related Legislative Amendments

A. Supervision and Regulation of the Subject of Bondholders’ Trustees

In the setting of Amendments 50 & 51 of the Law, the Minister of Finance was authorised to enact regulations on various matters pertaining to regulating the activities of trustees for bonds. Most of the sections of the amendments to the Law took effect on 8th November 2012, and the remaining ones when the regulations on the matter were approved (the “Trustee Regulations”).

In the course of 2015, regulations were enacted that regulate the use of the electronic voting system for the purpose of voting at bondholders’ meetings, and regulations to regulate supervision of the bonds’ trustees have been published for public comment, as follows:

1) Use of the electronic voting system by bondholders:

In November 2015, the Securities Regulations (Written Ballots, Position Papers and Proof of Ownership of Bonds for the Purpose of Voting at a Bondholder Meeting) 5775-2015, took effect. The Regulations regulate the manner of convening a meeting of bondholders (by the company issuing them or by the trustee for the bonds) and permit electronic voting at said meetings. As of the date the Regulations took effect, trustees for bonds will begin to report the relevant matters to the bondholders’ meetings via the MAGNA system. For additional details regarding the regulations and the electronic voting system see chapter 6.6 and chapter 6.8 (respectively).

2) Highlights of the Regulations Pertaining to Regulating Trustee Supervision:

Once the regulations are approved, a new regulatory environment will take force, which will permit implementation of the arrangements contained in them, which are: threshold and qualification conditions required of a trustee, for the purpose of registering him in the statutory register of trustees, that will be kept by the ISA; the trustee’s reports to the bondholding public; duties relating to reports from the issuer to the trustee; depositing a deposit by the issuer that will be used for special expenses incurred by the bondholders; changes to the wording of the decision detailed in the notice convening the meeting of bondholder; the date of record for payment of principal and interest to the bondholders. B. Implementing the Recommendations of the Committee to Examine Debt Restructuring Arrangements in Israel11:

In November 2014 the Committee Examining Procedure for Debt Settlement Implementation in Israel (the Andorn Committee) presented its recommendations to the Minister of Finance and the Governor of the Bank of Israel.

The Committee was established in light of the proliferation of debt restructuring arrangements over the course of recent years, and the fact that large companies in the market belonging to big business groups, were involved in them. The Committee’s purpose was to review the subject of debt restructuring in Israel, and to formulate recommendations which would lead to a reduction in the negative implications attendant on cases in which a company gets embroiled in difficulties, and there is a real risk to the repayment of the debt it assumed.

The heart of the measures proposed by the Committee, is constructing a two stage process. The process refers to the possibility of a company entering into a debt restructuring arrangement from the date there is a possibility of a financial problem and until the date on which a solution is found for said problem, whether by way of a debt restructure or some other way (hereinafter – the “Stages Outline”). Aside from the Stages Outline, the Committee recommended prescribing rules for additional aspects pertaining to the process of giving and pricing credit, as well as rules relating to the process of credit management, and management of the process of a debt restructure.

The law’s memorandum, distributed in June 2015, was designed to implement the lion’s share of the Committee’s recommendations. The following are the amendments relating to the Securities Law, in the law’s memorandum:

o Limiting the causes for disqualifying a bondholder’s vote, on the basis of a claim to a conflict of interests;

o Appointment of a “Leading Trustee”, to represent all the series of bonds which the company issues, and who will be responsible for representing the bondholders’ position at the various proceedings of managing the credit, until such a time as the company begins to negotiate for the purpose of formulating a debt restructuring plan;

o The duty of the trustee to convene a meeting in the event that any terms and conditions of the deed of trust have been breached, which give cause for immediate resettlement of the debt.

11 For the Committee’s final report visit the Ministry of Finance website at: http://mof.gov.il/Committes/DebtRegularizationCommittee/DebtRegularizationCommittee_Makanot _Report.pdf Additionally, in October 2015, a proposal to amend the Securities Regulations was published, also arising from the Committee’s recommendations. The heart of the amendments relate to disclosure of past conduct of the controlling shareholders in companies that enter into financial difficulties; disclosure relating to any debts the corporation’s controlling shareholder may have, assumed for the purpose of financing purchase of the controlling shares in the corporation, or by pledging those shares; and disclosure regarding a corporation coming close to the credit limit in the market for a group of borrowers, as the Committee’s recommendations prescribed.

Table 7: Debt restructuring arrangements, 2013-2015 Year No. of Adjusted par value of Total adjusted par The debt Companies12 the debt entering the value of the entering as a restructure13 (millions negotiable debt14 percentage of of NIS) (millions of NIS) the negotiable debt 2013 10 5,814 263,631 2.21% 2014 9 3,337 256,630 1.30% 2015 7 2,056 267,821 0.77%

G. End of Reporting Duties

In 2014, an amendment to the Periodic and Immediate Report Regulations was published in the official gazette, adding alternatives to ending the reporting duties of a corporation which had previously issued securities to the public. The amendment has set conditions to ending the reporting duties of a corporation in which the number of persons holding securities is no more than 35 or 200, as applicable. Moreover, an outline was added to end the reporting duties of a corporation in liquidation proceedings or receivership proceedings in which all their assets are involved. In addition, the ISA’s power to end the reporting duties of a corporation of its own initiative, under conditions and circumstances detailed in the regulations, was also anchored.

Under this power, the ISA published a notice of its intention to end the reporting duties of the corporations listed in its notice. The notice stated that in light of the fact that the ISA’s power was being exercised for the first time, it was decided that the list would only include corporations for whom at least five years have elapsed from the date their securities were delisted from trade on the stock exchange and the date of their last report. It further mentioned, that

12A company may appear several times in the table if it was a party to several debt restructuring proceedings with holders of different series of bonds it issued, or if it was a party to a second or third debt restructuring proceedings, if the previous arrangements failed. It is clarified that the total par value of the debt which the holders waive in the setting of the arrangements is lower than this figure. 13 Current to the date the company enters into the debt restructuring proceedings. 14 Companies’ bonds and convertible bonds (current to years’ end). within 90 days from publication of the notice, a corporation whose name was published on the list, any officer in such or a holder of securities in it, could petition the court on the matter, or file an opposition with the ISA. If no such notice is filed, the corporation’s reporting duties would end. After the passage of the time noted, the ISA gave notice of termination of the reporting duties of the 29 corporations listed in its notice.

Table 8: Corporations whose reporting duties lawfully ended, 2013-2015 Year Total Corporations 2013 26 2014 38 2015 2815

4. Supervision of Appraisals

The Chief Economist’s unit in the department is responsible, inter alia, for ongoing advice and professional response regarding various economic issues which arise with regard to the department’s work, and mainly with regard to reviewing appraisals (incidentally to reviewing prospectuses, periodic reports, immediate reports, applications to fund class actions and more). The unit is further responsible to instigate and accompany regulatory actions connected with appraisals. The appraisal reviewed include, inter alia, appraisals for the purposes of preparing financial statements, and for the purpose of transactions with interested parties. Appraisals for the purpose of financial statements mainly serve to measure the fair value of items such as investment property or financial investments, for the purpose of examining depreciation in value, actuarial estimates and more.

The following is a brief review of the main developments in the course of the year reported on this matter:

A. Disclosing non-independence of the appraiser – Reporting corporations are not usually obligated to use an independent appraiser for the purpose of performing an appraisal. However, when a corporation is required to attach an appraisal to its reports, and the appraiser is not independent, the corporation must disclose the nature of the affiliation. Such disclosure is significant, since the more the appraiser is dependent on the company, the more the suspicion may increase that his work could be biased. In practice, most reporting corporations will choose to perform the appraisal with apparently independent appraisers. This, inter alia, so as to attribute objectivity to the appraisal, to establish and strengthen the reliability of the appraisal, or since other parties (such as accompanying parties or the courts) demand an independent appraiser.

In any event, the fact that an appraiser has some dependency on the reporting corporation could affect the level of reliance on the appraisal report by those using it. Since the circumstances which adversely affect the independence of the

15 This datum is in a separate category from the 29 corporations in relation to which the ISA terminated their reporting duties of its own initiative. appraiser are not always clear, the department published in the course of 2015 a Staff’s Legal Bulletin (SLB), clarifying common circumstances creating dependence. This position paper was published after an extensive process which included meeting various entities and publishing a public draft for comments. The position stipulated, inter alia, that circumstances such as conducting transactions between the appraiser and the company, the appraiser furnishing advice to purchase the appraised activity, conditioning the appraiser’s remuneration on the outcomes of the appraisal, the appraiser holding a significant number of shares in the company, and giving an unlimited indemnity – all prejudice the appraiser’s independence.

B. Appraisal Database – Over the course of the period, an internal database was prepared and expanded, which includes information regarding all the material and highly material appraisals that served as a basis for determining the value of data in the periodic report and other reports, for appraisals relating to the reports for 2012 and thereafter. The parameters in the database regarding each appraisal are many and include, inter alia, the date of the paper; the corporation’s name; the name of the person preparing the paper; the type of paper; the methodology; the field of the appraised activity; the name of the appraised activity; principal assumptions, including the rate of capitalisation, what it was comprised of and the characteristics of the forecast; the value determined, and many other parameters. The database enables filtering or searching in many cross-sections, so that it enables one to locate customary / comparative data regarding corporations, appraisers or industries – which facilitates reviews for various purposes.

C. Identifying Material and Highly Material Appraisals – Over the course of the period, an updating of the questions and answers relating to the Staff’s Legal Bulletin No. 105-23, was performed. This position, dated 16th July 2014, deals with parameters to determine the materiality of an appraisal, the update also related to several other issues.

D. Updating the Website – Over the course of the period, the ISA’s website was updated, and all the relevant publications were gathered and published on it. The update included, for the first time, references to the staff’s position regarding appraisals which were contained in the reports of specific corporations in recent years.

E. Ongoing Activity – Over the course of the past year, the unit conducted in depth reviews of the principal assumptions of dozens of appraisals, in the setting of reviewing prospectuses, reviewing periodic and immediate reports and reviewing conflicts of interests reports (reports regarding transactions between a corporation and its controlling shareholder). Some of the reviews led to additional disclosure. In six appraisals, the review led to additional actions, such as a material change in the appraisal’s assumptions, a change in methodology, amending the financial statements, etc. Additionally, the unit participated in audits related to real estate appraisals, actuarial reports, and evaluation activities (described in Clause 5 hereinafter), and also provided advice to the ISA’s Legal Counsel Department with regard to financing class actions relating to appraisals.

5. Auditing Reporting Corporations by the Audit Unit

The Audit Unit is one of the Corporate Finance Department’s supervisory organs. The Audit Unit’s function is to audit various issues, to ensure reporting corporations’ compliance with the law and the behavioural norms expected of them.

The audits are conducted both as horizontal audits which look into a particular topic, legal or accounting, in several reporting corporations, and as individual audits, which review a certain issue in, most usually, one reporting corporation.

The audits are performed, for the most part, by employees of the Audit Unit, together with additional resources in the Corporate Finance Department, and at times also with the assistance of an outsourced examiner, under Section 56F of the Securities Act.

The ISA discloses the audits’ findings to the public by publishing reports concentrating the findings of horizontal audits and reports of audits on some of the other topics examined, on the ISA’s website. In suitable instances, the reporting corporations are required to publish the relevant highlights of the findings of an audit, or the full audit report.

In 2015, audits were conducted on the following topics:

1. Horizontal Audits

The Audit Unit performed horizontal audits on two topics, in the setting of which 11 reporting corporations were examined, as follows:

1.1. Disclosure regarding remuneration of interested parties and senior officers (Regulation 21 of the Periodic and Immediate Reports Regulations) – The Audit Unit examined the identity of the senior officers, or those with an interest in the corporation, whose remuneration is reported according to the Regulation, the completeness and correlation of all the remuneration recorded in the corporation’s books on account of those officers, reportable under Regulation 21, and the correlation of the remuneration given to officers in their employment contracts and/or salary approved by the company’s relevant organs. As part of this audit, the unit examined whether the remuneration met the remuneration policy approved by the company’s shareholder meeting.

1.2. Inventory (IAS 2) – The audit unit reviewed the adequacy of recognition, measurement and disclosure of inventory in the financial statements of the reporting corporations examined. The focus of the audit was placed on the method of measuring inventory in the financial statements and the manner of treating “Slow Moving Inventory” and “Dead Stock”, if such were included in the financial statements under examination.

2. Audits Performed with the Assistance of Outsourcing

The unit performed audits on the following subjects, at five reporting corporations: 2.1. Real Estate

The unit reviewed the reasonableness of the value of investment property in the financial statements of two public companies. In one of them, an asset with a mixed use (offices and commercial) was examined, and in the other, a review was conducted of the value of a commercial asset (a shopping mall).

2.2. Value Depreciation (IAS 36)

The unit reviewed the reasonableness of the principal assumptions which two public companies, and the appraisers on their behalf, used when appraising the value of three activities previously purchased by those public companies. The unit further reviewed the value appraisals use to measure the recoverable amounts in their 2014 financial statements, including a review of the need to record an impairment of the intangible assets in the financial statements for 31st December 2014 related to the past purchase of those activities.

2.3. Actuarial Science

The unit reviewed the reasonableness of the assumptions underlying the value of the actuarial work conducted by a public company in relation to IAS 19 on the subject of employee benefits. 6. Underwriter’s Register

The Underwriting Unit in the Corporate Finance Department is in charge of supervision and regulation of the field of underwriting. Furthermore, it deals with certain components of administrative enforcement in the field of underwriting, and thus with the activity of the players in it. The underwriting unit conducts ongoing examination of underwriters meeting the qualification conditions under the Securities Act and the regulations promulgated thereunder, reviewing immediate and annual reports presented to the ISA by the underwriters, and ongoing audit and examination of the implementation of the mechanisms existing at law for underwriters and distributors offering securities to the public.

Table 9: Data from the underwriter register Year Active Underwriters Foreign Underwriters Inactive Underwriters 2013 21 3 28 2014 20 3 25 2015 20 3 10

7. Dual Listing Under the dual listing arrangements, corporations traded on the NASDAQ, NYSE or the LSE (Main Market, High Growth Segment16 or Primary Listing) are entitled to list their securities, which are traded on the stated exchanges, for trade on the stock exchange in Israel, in reliance on the identity of their reports to the reports they file overseas, and all in accordance with the provisions of Chapter E3 of the Securities Law.

In 2015 eight dual listed companies registered for trade on the stock exchange in Israel, as compared with only one company in the course of 2014. Moreover, four public companies which were subject to the reporting duties under the Securities Law transferred in the course of the year to reporting under the dual listing outline. This as compared with 2014, during which one company transferred to reporting under the dual listing framework.

At the end of 2015, 55 companies were registered as dual listed. In 2015, no dual listed company became a reporting corporation, compared with one company in 2014. One dually listed corporation was delisted from trading on the stock exchange, as compared with four in the course of 2014.

Dually listed corporations report according to the foreign laws applicable to them. In reviewing these reports, the ISA takes into account the fact that these companies are already under the supervision of the American SEC or the British FAS supervising authorities, the levels of whose supervision are amongst the highest in the world. As is well known, these circumstances constituted a cornerstone in the decision to permit granting relief under Chapter E3.

In April 2015, Mylan published that it intended to make a purchase offer for Perrigo, in the setting of which, Mylan would offer to purchase all Perrigo’s issued share capital in consideration for cash and ordinary shares in Mylan. While examining the purchase offer, two main issues arose: the first, the need to publish a prospectus in Israel incidental to the purchase offer, the second, Mylan’s compliance with the provisions of Section 46b of the Securities Law. Regarding the first issue, the ISA determined that Mylan’s offer should be viewed as an “Offer to the Public” in Israel, and therefore required to publish a prospectus, noting, inter alia, the fact that Perrigo was registered for trading in Israel and that approximately 10% of its shares were held by Israeli shareholders. Regarding the second issue, the ISA determined that Section 46b of the Securities Law does not prevent Mylan from registering for trade on the stock exchange, also in light of the defence mechanisms it has in place against hostile takeovers. The ISA opined that Section 46b should be interpreted purposively, distinguishing dual listed companies from others, so that regarding the dual listed companies a narrower interpretation regarding the ability to include defence mechanisms against a hostile takeover should be applied. The main reasons for the distinction was the dual companies’ ability to be delisted from trade in Israel, and their reliance on the supervision over them in foreign law, which does not prohibit such mechanisms. In September 2015, the District Court in Tel Aviv (Economic Division) heard a petition for an injunction filed by Perrigo against

16 The High Growth Segment list was defined as a recognised stock exchange for the purposes of the dual listing in 2015, following an amendment to the Third Schedule of the Law. For extended reading see Plenary Decision No. 2015-1. performance of the purchase offer, in the setting of which the ISA presented its foregoing position. The court accepted the ISA’s position, and held that there was nothing in Section 46b to prevent Mylan from registering for trade on the Tel Aviv Stock Exchange, and that there was no scope for interfering with the decisions of the ISA and the Stock Exchange, to register Mylan for trade.

8. Credit Rating Agencies

The Law for Regulating the Activity of Credit Rating Agencies, 5774-2014 (hereinafter in this clause the "Credit Rating Law" or the “Law”), as well as the regulations promulgated thereunder, regulate the activity of credit rating agencies operating in Israel and subject them to the supervision of the Israel Securities Authority. This, to protect the public using the ratings and to ensure that the rating and the rating process are reliable, of high quality and independent.

The Law prescribed what rating is, and that rating may only be performed by a company registered under the Law. In addition, the terms and conditions of competence for credit rating agencies were prescribed, which are: Organisational and operational requirements, the reliability of the controlling shareholders and management – demands ensuring the credit rating agency’s ability to rate reliably – and supervision of the agency’s compliance with its legal duties. The Law further stipulates provisions the purpose of which is, inter alia, to reduce the conflicts of interests in the workings of the credit rating agencies, regulating the manner in which conflicts of interest are handled when they arise, ensuring the independence of the rating process and increasing the rating’s transparency. The ISA was also granted supervision and enforcement powers overseeing the credit ratings agencies’ activities, including administrative enforcement measures, applied for violation of the provisions prescribed in the Law.

The Regulations Regulating the Activity of Credit Rating Agencies, 5774-2014, constitutes regulation which complements the Credit Rating Law, and includes, inter alia, provisions regarding registration and documentation of rating processes, publication of the ratings and the methods of evaluation, safekeeping of documents, and provisions regarding appropriate disclosure and reporting to clients, the ISA and the public at large.

The Credit Rating Law took effect on 1st April 2015 – when the regulations promulgated thereunder took effect – and it grants existing credit rating agencies a year to adapt (companies that received approval from the Commissioner for Capital Markets in the Ministry of Finance): Maalot, S&P and Midroog Ltd. (hereinafter – the “Existing Credit Rating Agencies”). Therefore, the provisions of the Law will apply to them commencing on 1st April 2016.

In the course of 2015, the department examined the scope of the Law’s applicability, including its applicability to the activities of certain entities, if the ISA became aware of activity that could fall within the definition of rating in the Law. Aside from this, the staff at the department prepared for registration of the Existing Credit Rating Agencies, while providing a legal and procedural response to questions related to the commencement of the supervision over them, and to implementation of the provisions of the Law and the Regulations.

C. Regulation

The department performs extensive regulatory activity, designed to protect the interests of the investors, which include actions to attain the ISA’s targets for the coming years. These actions span three plains: regulation, de-regulation, and capital market development. On the plain of regulation, the department aims to shape disclosure requirements that will serve investors in the best possible way, will reflect material and relevant information, and to strengthen the use of reports in making investment decisions. On the de-regulation plain, the department acts to locate disclosure requirements that create a regulatory burden, which could be eased without adversely affecting the interests of the investors. On the plain of capital market development, the department is involved in promoting a long list of projects designed to ease public companies’ access to the capital market, diversifying the investment instruments available to investors, and developing financing models which would provide a financial solution via the capital market, in various fields which, to date, have not served as investment targets on the Israeli capital market.

1. Projects Handled in 2015

A. Market Development

The Corporate Finance Department’s working plan includes an initiated examination of alternatives for developing the capital market. In this, the department acts to remove barriers and develop capital market alternative financing models, for cash- rich fields, which are currently being financed mainly by the banking system or private loans from institutional investors. These projects necessitate a complex and creative regulatory infrastructure, which includes, inter alia, tax incentives and government support. The department operates in conjunction with the relevant government ministries to formulate an overall outline with a high degree of implementation feasibility. In this setting, the following projects are included:

1) R&D Companies

A representative of the ISA and a representative of the Stock Exchange headed an inter-ministerial committee appointed by the chairman of the ISA, which formulated ways to finance high-tech firms through the Tel Aviv Stock Exchange (hereinafter – the “R&D Committee”). Amongst the recommendations: Encouraging IPOs of relatively large high-tech companies and encouraging creation of traded venture capital funds. At the beginning of 2014, the Committee published its final recommendations. Over the last two years, the ISA has promoted legislative processes pursuant to the R&D Committee’s recommendations. In December 2015, the Law to Promote Investment in Companies Operating in the Elite Technology (High-Tech) Industry (Legislative Amendments), 5776-2015, was published. The Law deals, inter alia, with creating traded venture capital funds, using a closed- end mutual fund framework, and encouraging high-tech companies to register its securities on the stock exchange by granting reliefs and adaptations in the prospectus’s disclosure requirements and the requirements of current reporting. Currently, the ISA is promoting enacting regulations under the Law.

2) Real Estate Investment Funds

A representative of the ISA headed an inter-ministerial committee looking into the regulatory barriers concerning the activity of property investment funds (REIT) in financing, establishing and operating rent housing projects, while examining other barriers to the activities of REITs in general. The team formulated a legislative memorandum which contains solutions to these barriers, to encourage issuing new REITs on the stock exchange. This memorandum also expands existing legal provisions, so that these funds may become a significant source of finance for rent housing in the setting of the National Housing Project. The legislative memorandum was published for public comments in March 2015, and in July 2015 was approved by the Ministerial Committee for Legislation.

In January 2016 a Bill was published and passed its first reading in the Knesset.

Financing Infrastructure Projects

A representative of the ISA and a representative of the Ministry of Finance Accountant General’s Office, headed an inter-ministerial committee looking into a model that enables creating traded funds to invest in infrastructure in conjunction with the private sector in Israel. The entry of new investors into the market for financing such projects is expected to reduce their financing and capital costs, and as a result – to reduce the costs borne by the state in their construction.

3) Crowdfunding

Regulating a crowdfunding model which would enable to raise limited finance from the public by means of designated internet-based platforms. Adopting a crowdfunding model in Israel has been proposed in the setting of the R&D Committee’s recommendations with regard to R&D companies. Over the course of 2015, the proposed regulation was adapted also in relation to funding small and medium sized businesses. The internet-based platforms, as opposed to the fund raising companies using the platform, will be subject to the ISA’s supervision by agency of the Corporate Finance Department.

B. The De-Regulation Project

In the setting of the ISA’s role to make the local capital market more sophisticated and increase trading on the stock exchange, the staff continued to promote a legislative process relating to a mechanism to make an offer to the public while trading on the stock exchange known as “At the Market Offering” (ATM). This mechanism, would afford greater flexibility to corporations seeking to issue equity or debt as well as a significant additional shortcut in “time to market”, would simplify existing issue procedures, and would reduce the costs of issuing for corporations. However, according to the proposal, using the ATM mechanism will only be available on certain conditions, which would prevent its abuse and ensure that trading continues in an orderly manner. An amendment to the Securities Law, enacted in December 2015, enabled the mechanism, the details having been left to future secondary legislation. The ISA is currently promoting such secondary legislation.

C. Encouraging Initial Public Offerings (IPO)

In the course of 2015 the ISA published a proposed outline for a series of reliefs, the purpose of which is to encourage companies to list their securities for trade on the Israeli stock exchange. The proposed outline includes relief in the field of corporate governance, formulated in conjunction with the Ministry of Justice, and which are designed to enable new companies a longer transitional period to implement the full range of corporate governance rules. In the meantime, a proposal was made to permit new companies to approve a remuneration policy, terms and conditions of tenure and employment for a controlling shareholder, and dual tenure as chairman of the board of directors and as CEO only after five years have passed from the date of the IPO. It was further proposed to give the companies an exemption from the duty to establish a Balance Committee, subject to certain conditions. In addition, the series of reliefs also suggests updated proposals that would simplify the issuing procedures and make them easier, which includes giving the option of publishing a shelf prospectus at the time of the IPO; giving the option of negotiating with sophisticated investors prior to the date of the offer; extending the period of time to file invitations, and more. Additional relief is in the fields of disclosure and reporting, and include, inter alia, an exemption from attaching the auditor’s opinion regarding the internal audit efficacy report.

D. Regulatory Hierarchy

In the course of 2015, the ISA started a Regulatory Hierarchy Project, designed to examine the possibility of easing the regulatory burden on small reporting corporations when publishing quarterly financial statements and in other spheres. At the heart of the proposal, is the overriding purpose of developing the capital market, and the de-regulating trend, acknowledging the advantages and efficiencies gained by small corporations from the possibility of diverting additional material resources to the development of their business.

The project included a structured process of examining the reliefs and their implications for the companies and the investing public. This examination relied, inter alia, on comments conveyed by the reporting corporations and various entities in the local capital market, and consequently final recommendations for the hierarchy were formulated. The proposed hierarchy is based on distinguishing criteria, mainly relying on the size of the corporation. In the course of 2015, the ISA published a document, analysing the pros and cons of creating a regulatory hierarchy amongst corporations, for public comment.

At the heart of the recommendation is the insight that has formed and grown in the last few years, that regulatory demands applicable to small reporting corporations in the Israeli capital market are onerous, and affect their ongoing operations, strengthen the gamut of incentives to delist public companies from being traded on the stock exchange17, and constitute a possible barrier to entry for new companies to be listed.

The main recommendations included in the project:

1. – Repealing the requirement to produce financial statements in the first, second and third quarters, for small corporations. Instead of this requirement, the small corporations will publish a limited quarterly report, in the form of a quarterly highlights report, containing a review of the operational activity in the reported term;

2. Creating a separate trading list for small corporations that adopt the reliefs: Small corporations which adopt the reliefs would be listed on the general list, whereas remaining corporations would continue to be on the primary list, the name of which would be changed to the elite list. Different disclosure regimes would apply to each list;

3. Additional incentives and reliefs would be granted according to a list-based classification (for instance, entitlement to an advance three-year shelf prospectus for a company whose shares are included on the elite list).

E. Establishing a Public Company Accountancy Oversight Board (PCAOB)

Financial statements are a significant component in the complete disclosure investors receive, and the purpose of the accounting industry is to independently audit the information provided in these reports. Failures detected in the activities of auditing accountants, as well as the fact that they receive their payment from the audited entities, led most developed markets to the conclusion that an independent body to oversee the work of accountant in their capacity as auditors of corporations reporting to the public, had to be established.

In the course of 2015, the ISA published, for public comment, an updated, proposed draft legislative Bill to establish a Public Company Accountancy Oversight Board.

F. The Partnership Ordinance

Following joint work by the Ministry of Justice and the department, in February 2015 the Knesset approved amendments to the Partnership Ordinance, designed to extend and update the mechanisms of corporate governance in traded partnerships, and to secure better protection of the public investing in them. The amendment was designed to adapt, as far as possible, corporate governance rules applicable to partnerships listed on the stock exchange, similar to the rules applicable to public companies under the Companies Law, with the necessary adjustments to the unique characteristics of a partnership. The department’s staff is expected to deal with enforcing the amendment amongst existing partnerships over the coming year, as well as constantly reviewing the possibility of expanding capital market activity areas by means of traded partnerships.

17 At the end of 2010, 613 companies that issued shares were registered on the stock exchange. By the end of 2015, the number of such companies was merely 461, of which 55 companies were dually listed (a drop of approximately 25%). G. Improving Reports

One of the central projects promoted by the department, involves improving the disclosure requirements applicable to reporting corporations. The purpose of which is to improve the relevance of reporting, and to transform it into a more useful tool for making investment decisions by the investing public. In 2015, the ISA published an updated proposal for amendments to the Securities Regulations in this regard, and it has been conveyed to the relevant government ministries and the Knesset for enacting the disclosure provisions in legislation.

The principles of the project include, inter alia, adapting the structure of the reports and reconstructing the requirements of disclosure, so that every chapter focuses on disclosure requirements with an identical or similar purpose; prescribing industry- wide disclosure rules; clarifying the principles of materiality and reporting from the corporation’s management's point of view; and setting unique disclosure provisions for aspects of corporate governance.

 Separate Financial Information – Solo Report

In March 2014, the ISA published a proposal for amendments to the disclosure provisions regarding separate financial information. In the setting of the proposal, a model was presented, according to which reporting corporations will be required to publish separate financial information in the finance and liquidity chapter, on the basis of GAAP regarding separate financial statements, but with certain adaptations.

In February 2015, after receiving the public comments and once the examination was completed, the ISA published an updated proposal for legislation. The updated proposal suggests that it would be right to require separate financial information in a form that corresponds to IFRS without interfering with the measurement rules. In addition, the ISA wished to receive the public’s comments to certain questions: the manner of measuring investment in investee companies; the need for an audit / accountant review relating to the separate financial information; the need to enable reporting extended separate financial information; the need to distinguish between a company that offer the public shares from those offering bonds.

The ISA examined the need to adapt the legislative proposal on the basis of the public’s comments, and pursuant to an analysis of the components in which a common denominator was found amongst those responding to the proposed legislation. The necessity to make changes to the proposed model in light of material reservations expressed, was also examined.

After taking account of the totality of issues, the ISA formulated, in October 2015, an updated model for separate financial information, the highlights of which are:

A. The separate financial information will be included in the finance and liquidity chapter;

B. The separate financial information will be prepared according to IFRS, without any adjustments;

C. No full separate financial statements will be required, but rather separate information which includes a statement of financial position, a statement of profit or loss and other comprehensive income for the period, as well as a statement of cash flows, without full notes;

D. Investments in investee companies will be handled exclusively according to the equity method;

E. A corporation that only offered shares, will publish the separate financial information once per annum in the annual financial statements, and a corporation that offered bonds (exclusively, or additionally to shares) will publish them quarterly;

F. A corporation will be entitled to include separate financial information on an “Extended Solo” basis, only in addition to the separate financial information prepared according to the IFRS standards;

G. An exemption provision will be enacted in the Regulations, according to which the test of “Materiality” will be used for non-inclusion of separate financial information (instead of the “negligibility” test currently being used);

H. Transitional provisions – in the first year of transition to reporting under the proposed model, a corporation will be entitled to not present comparative figures to previous periods;

I. Additional disclosure: disclosure will be made regarding sums of dividends, management fees, interest and repayment of loans the corporation received from its investee companies, listed separately per each investee corporation, and information is also to be included regarding contracts between the corporation and its investee corporations.

The proposal was approved by the ISA’s plenum in October 2015, and is currently awaiting legislative approval.

H. Industry-wide Disclosure

The chapter on “Description of the Corporation’s Businesses” is prepared according to an outline proposed by the Barnea Committee and was enacted in the First Schedule of the Prospectus Details Regulations. Despite the original format having been adapted mainly for industrial corporations, the model is currently valid for all reporting corporations. However, one of the Barnea Committee’s recommendations was, developing designated disclosure requirements pursuant to the various industries. And indeed, in recent years, the Corporate Finance Department's staff are working to formulate designated disclosure requirements for operating industries. Further to which, specific disclosure proposals have been published for the real estate industry (entrepreneurial and investment), oil and gas explorations, life sciences and holding companies. The ISA staff is promoting designated disclosure for other industries, in conjunction with representatives of companies and analysts and while reviewing foreign law.

Beyond which, also the organisational structure of the Corporate Finance Department is constructed according to designated teams that specialise in the various industries, with the aim of creating the highest level of correlation between disclosure requirements, and to implement them in a uniform manner in a corporation’s reports.

In the setting of the examination and learning process, the ISA has focused on use of customary nomenclature in the relevant industry, while balancing data significant to the investor and data which is sensitive as far as the corporation is concerned.

1) Hotel Industry

In the Israeli capital market, there are currently approximately ten reporting corporations in the hotel industry. An examination conducted by the ISA regarding the extent and quality of disclosure made by the reporting corporations in this field, showed material shortcomings as well as a lack of consistency between the various companies. This state of affairs makes analysing the performance of each company, and comparing companies in an educated and relevant manner, harder.

Therefore, an understanding has emerged that a model must be created that would improve the disclosure offered by the hotel companies, and improve the ability to compare, as well as the relevance and certainty of disclosure in this industry. After discussions the ISA staff held with the relevant entities in the market, it formulated an (interim) model which includes, so is its position, information which is important to a reasonable investor when making an investment decision in companies operating in the hotel industry.

The disclosure model relates to four main levels – disclosure according to geographical areas, disclosure relating to similar hotels which have been operating continuously for the two years preceding the date of the report (Same Hotels), aggregate disclosure per hotel groups according to the level of materiality, and disclosure relating to rent or managing agreements relating to companies who manage hotels that do not belong to them.

In the course of 2015, the ISA acted vis-à-vis the hotel companies to implement and assimilate the disclosure model in the setting of the periodic reports and prospectuses they presented to the investing public. By the end of 2015, most of the companies operating in the industry had implemented the disclosure model in their reports – a model that will continue to serve as a basis for their reports in the future.

2) Holding Companies

In December 2015 the ISA published Legal Position 105-31 clarifying the disclosure required by holding companies. The Legal Position was published after receiving the public’s comments.

The Position determines that holding companies are guided to give details of information in the setting of the Board Report regarding the following components: (1) The flow of resources within the group – a disclosure table to analyse the movements of financial debt and liquidity amongst members of the group, emphasising the limitations to freely moving the resources amongst the group members; (2) segmenting the results of the group’s activities – separating the following three types of results: the results of the material investee companies, results of staff activities and results of special events related to investment in investee companies; (3) strategy – holding companies are required to reflect their strategy as holding companies, including their policy regarding new investments, leverage and financing policy.

The position paper points to the main characteristics common to holding companies, so that these may serve as guidelines for a corporation’s decision whether the company is a “Holding Company”: (1) The corporation has no significant business activity, except those related to holding companies in which the measure of influence it has over them is, in the least – material influence; (2) there is no particular sector in which the company operates, which separately constitutes the group’s main activity. This test is passed if there is no single operating sector in which the value of the corporation’s activity is more than two thirds of the cumulative amount of the value of the corporation’s activities.

Legislative Proposal Regarding Disclosure on Investee Companies

In June 2015, a legislation proposal was published for public comment, regarding disclosure on investee companies. The legislative proposal relates to the following amendments: (1) Disclosing, in the chapter describing the corporation’s businesses, investments in investee companies – full disclosure, according to the details in the First Schedule, will also be made regarding an investment in a financial asset that constitutes a field of activity and also regarding a very substantial investment treated according to the equity method, which is not a field of activity, but is included in a field of activity. Moreover, it was clarified that disclosure of material investments made under Section 25 of the First Schedule requires a brief description of the activity, and not detailed disclosure according to the full list in the First Schedule. Section 25 will apply also in relation to subsidiaries which are not described in the report as part of a field of activity; (2) Including information by way of reference – it is proposed that corporations be permitted to refer to the description of the corporation’s businesses, and to reports of reporting corporations whose activities are an entire field of activity for the company (as compared with the current arrangements in which a corporation is entitled to include by way of reference, solely reports published by the corporation); (3) a requirement to attach the financial statements of a corporation in which the reporting corporation’s investment is recorded as a financial asset (if this investment is very substantial).

Some of the public’s comments were adopted, and the proposed regulations will be transferred to the Knesset.

3) Retail –

In a study performed by the ISA regarding the scope and quality of disclosure made by reporting corporations in this field of activity, material shortcomings were discovered in disclosure for the purpose of understanding the field, as well as a lack of consistency amongst different companies. This state of affairs makes analysing the performance of each company, and comparing companies in an educated and relevant manner, harder.

Therefore, an understanding has emerged that a model must be created that would improve the disclosure offered by retail companies and improve the ability to compare, as well as the relevance and certainty of disclosure in this industry. After discussions the ISA held with the relevant entities in the market, the ISA formulated a model which includes, so is its position, information which is important to a reasonable investor when making an investment decision in companies operating in the retail industry. The disclosure includes the following components:

A. General reference to the activity, which includes: strategy and goals, growth engines, specific legislation and standards, developments, strengths and weaknesses, unique arrangements with suppliers and franchisees, inventory policy and expansion plans;

B. Analysing the results, which includes: information regarding the number of branches and changes which occurred to them, commercial areas, income, human capital, cost of sales, salary expenses, advertising and sales expenses, gross profit, operational working capital, income per square metre, the rate of income variance from sales in identical stores (SSS), customer clubs;

C. Segmenting income and product groups and the rate of gross profits arising from each group;

D. Description of the various formats and their contribution to income, as well as additional characteristics of each format;

E. Reference to online activities;

F. Information regarding highly significant branches and the logistics centre.

I. Other Projects

1) Contingent Convertible Bonds (COCO)

In 2015, the department conducted a study regarding the possibility of permitting banks to issue COCO bonds to the public, which are convertible into shares at the order of the Bank Supervisor, per a predefined conversion ratio, which embodies the bondholders “taking a loss”. The study began following an inquiry by the Bank of Israel and noting that the Bank for International Settlement (BIS) published a document according to which only “loss absorbing” instruments would be recognised for capital adequacy purposes. Following the study, it was decided to permit the issuance of such bonds by the banks, subject to their being offered to investors in units with a high par value.

2) The IFRS – XBRL Taxonomy The XBRL reporting format was applied to reporting corporations in Israel from the financial statements for Q1 in 2008, the date on which the IFRS was first applied in Israel in a mandatory fashion.

The ISA chose to adopt the XBRL-IFRS taxonomy with regard to some of the financial statements, including selected notes. Moreover, adopting the structure of the reports and notes, as well as the names of the fields and the presentation manner, was done in accordance with the IFRS Taxonomy as is.

Over the course of 2015 an updated version of the XBRL taxonomy for electronic reporting was published. Further to which, and after the staff at the ISA studied the matter, it was decided that in light of the many changes which occurred in the IFRS, it was important to update the reporting form and adapt it to the 2015 updated version. Completing preparation of the reporting format, and approving the Israeli taxonomy, updated by the XBRL international consortium, is expected in 2016.

3) Public Company Shells

Over the course of the year, the ISA cooperated with the Stock Exchange to regulate the field of public company shells. Further to which, the Stock Exchange published, in June 2015, an outline for the public’s comments, which included designated preservation rules for a corporation defined as a “public company skeleton”, and rules that would enable its return to being traded on the primary list after real activity was transferred to it. After the stock exchange received the public’s comments, discussions continued in anticipation of completing the process of regulation in the field.

4) Non-voluntary Listing of Shares in Companies Traded on Overseas Stock Exchanges

Over the course of 2014-2015, the ISA examined, together with the Tel Aviv Stock Exchange (hereinafter: the “Stock Exchange”), the possibility of adopting in Israel a mechanism that would enable listing for trade on the Stock Exchange shares in companies that are listed on overseas stock exchanges. This, without requiring the consent or involvement of the relevant companies, and without the disclosure requirements in the Securities Law and the regulations promulgated thereunder applying to those companies, and with no ISA supervision in their matter (hereinafter: the “Mechanism”).

The purpose of the Mechanism is to increase liquidity on the Stock Exchange and make the local capital markets more sophisticated, inter alia, by diversifying the traded assets, increasing trading volumes and reducing foreign securities’ transaction costs. However, various difficulties accompany this proposal, arising mainly from the regulatory waiver in the move, and the fear that the Mechanism will make the dual listing arrangement redundant – an arrangement which, despite the relief it provides to foreign companies listed for trading under it, also contains several protections for the Israeli investing public, and the fear that the arrangement will adversely affect the structure of the market, and push aside local companies seeking to list on the Stock Exchange and be traded on it.

Correspondingly, the ISA formulated a legislative proposal to adopt the Mechanism in Israel, in an outline that, on the one hand, is forecast to facilitate utilisation of the advantages embodied in it, and on the other, contains conditions and limitations designed to reduce the difficulties accompanying its implementation in Israel. Inter alia, the proposal suggests limiting the Mechanism to shares of companies listed on the two largest stock exchanges in the US: the NYSE and the Global Select Segment in NASDAQ; to companies with a very high market value exceeding 100 billion USD; and to companies that have no affiliation to Israel (according to tests prescribed for this question). The legislative proposal was approved by the ISA’s plenum (after a process of publishing it for public comments), and is tabled for discussion and approval by the Knesset.

5) Applicability of Corporate Governance Provisions to Companies Incorporated Outside of Israel

A decree promoted by the ISA to amend the Forth Schedule of the Securities Law took effect in February 2016. The Fourth Schedule prescribes sections in the Companies Law that apply to companies outside of Israel, which listed securities in Israel, amongst them provisions regarding the appointment of external directors, approval of transactions with interested parties and more. The Schedule’s amendment comprised of two parts – adding sections from the Companies Law that will apply to companies incorporated outside of Israel but which issued bonds in Israel, and adding a number of additional sections applicable to all companies incorporated outside of Israel which issued securities in Israel, including provisions for performance of settlements and arrangements, provisions regarding insurance, indemnity and exemption for company directors, and more.

6) Amending the Profit Test for Dividend Distribution

The Companies Law prescribes a double test when a corporation distributes profits – the profit test and the solvency test. For the purpose of defining retained earnings which is at the heart of the profit test, the Companies Law refers to acceptable accounting rules (GAAP). The changes which occurred in GAAP and which apply to reporting corporations, and in particular adoption of the International Accounting Standards, have raised difficulties relating to the profit test and the measure of its current suitability to its purpose. In particular, the transition to accounting based on measurements of fair value, which changes relatively frequently, has raised difficulties regarding the propriety of the profit test.

With these difficulties in mind, the ISA's staff has re-examined in recent years the provisions of the distribution tests in the Companies Law. For which purpose the ISA’s staff held discussions with representatives of the Ministry of Justice and various stakeholders in the market. In light of which, the ISA published, in March 2014, its proposal to amend the profit test prescribed by the Companies Law, which includes a new model for the profit test. The proposal was discussed in the ISA’s plenum and has been transferred for the inspection of the Ministry of Justice.

The proposal includes the necessary adaptations, in the ISA staff’s opinion, so that the profit test will continue to fulfil the principles used in calculating the distributable profits before adoption of International Accounting Standards. The profit test will continue to be based on the consolidated financial statements, and changes to profits that are not deemed “realised profits” will be neutralised. Amongst which, profits from revaluation of investment property, changes to the fair value of certain financial instruments, revaluation profits as a result of the transfer approach in control situations, joint control and material influence as well as equity profits from implementation of the equity method.

In the course of 2015, the ISA’s staff held discussions with representatives of the Ministry of Justice to formulate an agreed outline to amend the profit test.

2. Pre-rulings

In the setting of the pre-ruling procedure, companies can ask the ISA’s staff questions on legal or accounting issues, before executing a certain action, to explore the proper manner of treating it. A pre-ruling is, for the most part, a complex question with innovative or lateral aspects, the answer to which is not obvious. The ISA exercises discretion as to the urgency and necessity of answering such questions. In light of these characteristics, pre-rulings are divided into three main categories:

 A request for the ISA’s guidance regarding the performance by the questioner of some future action or transaction;

 A request for the ISA’s guidance regarding the manner of accounting treatment of a transaction the questioner executed / is a party to;

 A request for a No-Action Letter – that is to say the ISA’s confirmation that it will not take future enforcement action in the circumstances the company is describing in the question.

Handling pre-rulings is done pursuant to the procedure on the issue published on the ISA’s website. Over the course of 2015, the Corporate Finance Department received 78 pre-ruling requests, as compared with 85 in 2014.

Table 10: Pre-rulings, 2013-2015 Year No. of accounting No. of legal Total questions questions questions 2013 50 45 95 2014 37 48 85 2015 36 42 36

Pre-ruling requests in the field of accounting related to many issues, and inter alia, to the following subjects: business combinations, the existence of material influence and the accounting treatment of investments over which material influence exists, pro-forma financial information, fair value measurement, auditor independence, revenue recognition, concession arrangements.

Pre-ruling questions in the legal field related to many issues, and inter alia, to the following subjects: public offerings, the duty to publish a prospectus, external director affiliations, the possibility of including information by way of reference after a conviction, joint holding, personal interests, conflicts of interest, and legal opinion in a prospectus. 3. Question and Answers, the Staff’s Position and Enforcement Decisions Relating to Accountancy and Audits

A) Questions and Answers

The ISA has been publishing on its website, since the first time the IFRS standards were adopted, FAQs on different topics relating to reporting under GAAP, the manner of implementing it, and additional disclosure necessary under the Securities Regulations and the guidelines issued by virtue of the law. The website houses the accounting and legal decisions issued by the ISA’s staff which have principled significance for the investing public and to reporting corporation. In this way, the ISA seeks to contribute to increasing transparency and decreasing uncertainty amongst reporting corporations.

B) Staff Position Papers

Staff position papers are professional position papers on issues relating to implementation of securities law. At times, the staff’s position is given incidentally to corporations’ immediate reports, and these too are published on the ISA’s website. Additionally, the ISA publishes, on the website, notices to companies under the heading “Notices to Companies”.

C) Highlights of Staff Position Papers and FAQs Published in 2015

In February 2015 the ISA published FAQ 22. The question and answer involved the necessary disclosure in the setting of the annual financial statements for 2014, regarding the change of valuation derived from Staff Accounting Position Paper No. 21-1, dated November 2014, which dealt with “The Existence of a Deep Market for High Quality Company Bonds”.

4. Plenary and Staff Position Papers on Legal Issues

A) General Position Papers

Decision 103-37 – A New Method for Attaching Financial Statements to Offer Documents

New rules on attaching financial statements to offer documents took effect in 2014. According to the new model, and as part of the reliefs plan promoted by the ISA, financial statements included in an offer document no longer require re- signing, and they will be attached to it as signed in the original. Additionally, all material events which occurred from the last financial statements’ original signature date, would be detailed in a separate report titled “Events Report”. The Events Report is not a part of the financial statements, and is designed to provide updated information regarding the corporation, current to the date of reporting, above and beyond the information contained in the financial statements attached to the offer document. Decision 103-37 was published in July 2015, when the Events Report model took effect, and it clarified several issues pertaining to implementation of the model. These included: The extent of required disclosure; the period to which the events report will refer; the identity of the organs approving and signing the events report; the agreement of the auditor, and more.

Decision 105-30 – Disclosure of the Appraiser’s Dependency on the Corporation and Disclosure Regarding the Appraiser whose Valuations are Highly Material to the Corporation

In light of adopting the IFRS rules, reporting corporations perform appraisals with the aid of external appraisers, and often these are independent of the company. The Report Regulations prescribe a duty to disclose the existence of an affiliation between the corporation and the appraiser, and if such dependency exists, the corporation is required to disclose its nature, and to explain why said appraiser was preferred to other, independent, appraisers. However, the regulations do not detail which circumstances create dependency. Decision 105-30 details the circumstances that would be considered creating dependency, and would thus require such disclosure. The decision further regulates the requisite disclosure regarding the existence of a highly material appraiser, who handles several appraisals on behalf of the company, so that the reporting in the company’s financial statements relies heavily on him.

Decision 101-19 – A Company’s Duty to Examine and Classify a Shareholder who Has a Personal Interest in a Transaction

Certain decisions taken by shareholders in a company require approval of a majority of shareholders who have no personal interest in the decision. This Staff Position Paper is designed to clarify what a company’s duties are, when it classifies voters in transactions which require a majority of voters who have no personal interest in the transaction, or a majority of shareholders with some other similar characteristic. The Staff’s position is, that the question of whether a shareholder has a personal interest in approving the transaction is a legal question, and the answer to it is derived from the facts and the circumstances of the case. Therefore, the company is under a duty, when it is aware of the existence of business ties or other material ties that the voter may have with the company or the controlling shareholder, to clarify the nature of the ties and their character, and if needed, to classify him as having an interest in approving the transaction (except for classification of shareholders as having a negative personal interest).

Decision 101-20 – Disclosure Regarding Activity Boundaries Arrangements In the Israeli capital market there is a not insignificant rate of officers, mainly those who are also controlling shareholders, who have private businesses similar to their company’s businesses. Naturally, they could come across business opportunities in the company’s field of operation, or in fields of operation which are similar in nature, which they could be interested in pursuing for their personal benefit. In light of the foregoing, and in light of the duty of fealty the officers owe the company, over the years a custom has developed whereby companies stipulate arrangements to set boundaries for the company’s activities with the officer. Therefore, and in light of the significance the ISA attaches both to detailed reporting and disclosing the existence and nature of boundary arrangements, and to reporting the operation of such arrangement in an ongoing manner, the abovementioned decision regulated the disclosure framework which the staff deemed appropriate. This includes: The highlights of the arrangement; the identity of the parties to the arrangement; the period for which the arrangement is effective and binding; the manner in which decisions are taken by the company with regard to operating the arrangement; the method for changing or rescinding the arrangement, and more.

Decision 104-17 – Reliefs to Immediate Reporting

Several amendments to periodic and immediate reports were published in October 2015. These amendments include, inter alia, relief regarding the date to file an immediate report; reporting the holdings of interested parties and senior officers; appointment of senior officers and termination of their tenure; negotiations and delaying filing a report; inclusion of information by way of reference; revoking immediate reports on issues in relation to which additional disclosure has been given. In this position paper, the staff at the ISA clarified some of the reliefs fixed in the setting of the amendments relating to the date to file an immediate report, and in relation to reporting changes to the holdings of interested parties and senior officers.

Revocation of Decision 101-11 – Sale of a Unit in a Residential Project to the Controlling Shareholder

Decision 101-11 dealt with the question of whether it could be determined that sale of an apartment to a controlling shareholder occurs on market terms and conditions. In December 2015 the ISA gave notice of its rescission. This was done in light of legislative amendments enacted in recent years relating to the “market terms and conditions” component in the definition of an “extraordinary transaction”, and inter alia, the duty of the Audit Committee to examine the terms and conditions prevalent in the marketplace, and the duty to affect a competitive or other process. For this reason, there was no longer any need for a unique position paper regarding sale of a unit in a residential project.

Updating Decision 105-25 – Shortening Reports (Including Revocation of Decision 105-20)

Together with promoting legislation to improve the structure of the reports and the quality of disclosure, as described in the previous parts of this chapter, the ISA acts to improve the quality of reporting under the provisions of existing regulation, and for this reason published, in 2012, a position paper on the matter (Decision105-20: Shortening Reports). The staff’s position on this matter also contains a detailed list of concrete proposals to improve the reports. From time to time, the ISA updates the list of examples in light of findings from inspections conducted over the course of a year. In December the ISA published such an update to the Decision, which contains additional examples.

Moreover, in the setting of the update, Decision 105-20, which deals with the issue of when a corporation is entitled to cease from including disclosure required of it in the past, was revoked, since this Decision was apparently misunderstood in a manner that lead to excessive disclosure. The staff’s position on the matter was clarified in the setting of Decision 105-25.

B) Publishing Staff Position Papers which were Published Incidentally to Public Reports and Positions Filed with the Courts

Over the course of 2015, the ISA issued three public legal position papers in the setting of company reports relating to controlling shareholders and officers in a company. Furthermore, eight positions were filed with the courts:

1. Staff Position Papers Published Incidentally to Public Reports

a. March 2015 – The staff’s position regarding a report from Aura Investments Ltd.: The position is on the personal interest of a voter in light of purchasing shares from the controlling shareholder for a discount on the market price, which was executed close in time to the meeting date, loans which he gave the controlling shareholder in the past, and his daughter’s tenure as a director in the company otherwise than further to a minority rights’ agreement.

b. June 2015 – The staff’s position regarding a report from Spectronics Ltd.: The position taken, was that if a shareholder who classified himself in the setting of his vote at a meeting notifies the company that he erred in the classification, whether that occurred before the meeting or after it, the approval of the transaction has to be reviewed in light of the amended classification.

c. November 2015 – The staff’s position regarding a report from Shemen Oil and Gas Resources Ltd.: The position deals with the definition of “holding securities or purchasing them jointly with others”, in Section 1 of the Securities Law. This definition contains a presumption, that a corporation that holds securities jointly with an interested party in it, should be viewed as holding jointly. The ISA’s staff’s position, was that this presumption is rebutted when the corporation has a controlling shareholder who is not the interested party, and when there is no cooperation between the interested party and the controlling shareholder in the holding corporation, with regard to their holdings in the holding corporation or in connection with the holdings in the reporting corporation. d. December 2015 – The staff’s position regarding a request from Kitov Pharmaceuticals Holdings Ltd. for the general meeting to approve a transition to reporting under Chapter E3 of the Securities Law (dual reporting method). Before summoning the general meeting, the company completed an issue of shares constituting approximately 83% of its capital, on the NASDAQ stock exchange in the US. The staff expressed its position that there was scope to differentiate between the shareholders in Israel from those in the US in the setting of the approval by the owners of the company’s securities. This position was based on a purposive interpretation of Section 35FF of the Securities Law, which refers to holders of securities on the Tel Aviv Stock Exchange as a separate class from holders of securities on NASDAQ. That is too say, the company must conduct class meetings for the different shareholders.

2. Positions Filed with the Courts:

a. Civil Action 67298-12-14 Telkoor Telecom Ltd. v. The Israel Securities Authority – the staff at the ISA expressed its position that the necessary majority needed to approve ending the duty to report under Regulation 52 of the Report Regulations is a 75% majority of shareholders from amongst the public, as defined in the Reports Regulations.

b. Company Liquidation File 4201-02-15 Galten Biodiesel Ltd. v. The Tel Aviv Official Receiver et al. – The staff at the ISA expressed its position that the arrangements presented in that matter to the court were not arrangements to revive an ailing company, but were artificially presented under that guise, when the entire purpose of it was to bypass the provisions of the Securities Law and its Regulations, which include the provisions blocking the sales of share. Thus, it could not justify waiving the interests protected under the Securities Law and its Regulations.

c. Civil Action 35381-04-15 Proteologics Ltd. v. The Israel Securities Authority – The ISA presented the court with a question arising in connection with the ISA to declare a distribution, passed by the board of directors of a company from a certain tier, on which no independent majority is serving.

d. Company Liquidation File 2028-12-11 Aura Investments Ltd. et al v. Aurora Fidelity Trust Co. Ltd. et al (Petition No. 46) – Proceedings related to a petition for an exemption from appointing an expert in the arrangements affected under Section 350 of the Companies Law, owing to the apparent tenure of a functionary on behalf of the court. The ISA expressed its position that the appointment of the functionary did not make the appointment of an expert redundant.

e. Company Liquidation File 55728-12-11 A.F.S.K. Industries Ltd. v. The Tel Aviv Official Receiver – The ISA presented its decision not to issue a “Token” (device for electronic reporting) to parties who asked for such a device to be issued to them for the purpose of affecting a purchase offer for companies to which the Purchase Offer Regulations did not apply. In this matter, the ISA stipulated that such an entity may apply to the company liquidator and ask him to publish his offer as the reporting entity in the company, under the Securities Law and its Regulations. That liquidator is bound to examine whether the information in the company’s reports at that time was the most up to date information, and includes the information required by the investing public for the purposes of taking an investment decision.

f. Company Liquidation File 59052-05-15 Scorpio Real Estate Ltd. v. Hermetic Trusts (1975) Ltd. et al. – The ISA expressed its position regarding ending the reporting duties of a corporation in the midst of proceedings to realise all its assets, or in winding up proceedings, in accordance with the Reports Regulations.

g. Civil Action 40274-09-15 Perrigo Plc. Company v. Mylan N.V. et al. – The ISA presented its position in legal proceedings related to listing a company on the stock exchange which has a poison pill, and in connection with the existence of a public offering in an alternative purchase offer of a dually listed company, by a foreign company.

C) Accountancy and Audit Enforcement Decisions

Accountancy Enforcement Decisions:

With examining the financial statements of reporting corporations in mind, certain accounting enforcement decisions were published pertaining to measures taken in instances in which the accounting treatment in the financial statements was erroneous. In 2015, the ISA published one enforcement decision.

Decision No. Decision Topic

15-1 Revaluation of investment property

Audit Enforcement Decisions:

The ISA views the proper auditing of the financial statements of reporting corporations as highly important, and acts in several channels to secure that aim. In the setting of the ongoing reviews conducted by the ISA’s staff of the reports published by corporations, the staff at times encounter instances in which a company’s auditor did not act according to the rules required of him by virtue of his capacity. In such instances, the ISA acts vis-à-vis the corporation in whose reports such failings were detected, and if need be also vis-à-vis the company’s auditor. In addition to said individual treatment, the ISA also deems it suitable to call some of these instances to the public’s attention, including by way of publishing the enforcement actions taken in their regard.

6.2. The Investment Department

A. General 1. The Investment Department’s Purview

The Investment Department regulates the activities of entities in the fields of mutual funds, exchange traded notes and portfolio management, and supervises these. These entities’ assets under management (AUM) amount to more than half a trillion NIS. In addition, the ISA supervises licensed investment advisers and investment marketers, who grant services to a significant portion of the citizens of the State of Israel who invest their money in the capital market. The services of these license holders are given in the setting of the advisory divisions within the banks, and independently by companies and individuals.

Moreover, the department deals in granting licenses and permits in the abovementioned fields. 2. The Highlights of Activity in 2015

1) Amending the Joint Investments Law, which mainly deals with transferring exchange traded notes into a regime of supervision under the Law – promoting changes to the outline of legislation, so that the debit component be removed from the exchange traded note and they become exchange traded funds.

2) Amendment 23 to the Joint Investments Law – The amendment to the Law was approved by the Knesset’s third reading and published in July 2014. Following this amendment, offering foreign funds to the investing public in Israel is made possible. This option is expected to increase competition in the field and develop the capital market. Over the course of the passing year, after the public’s comments were received, the ISA’s plenum approved drafts of the regulations to offer units of foreign funds in accordance with the Law’s amendment.

3) The legislative process that enables offering the public conservative money market funds.

4) The Joint Investments Trust Regulations (High Tech Fund) – An amendment to the Joint Investments Trust Law was approved by the Knesset at the end of 2015, and is conditional upon the abovementioned Regulations becoming effective. Over the course of the year, staff has acted to draft regulations regarding the characteristics of the fund, investment rules and disclosure duties (in a report and a prospectus), and these have been published for public comment.

5) Joint Investments Trust Regulations (Fund Manager’s Participation in Holders Meetings) 5776-2015 and the Joint Investments Trust Regulations (Reports) (Amendment) 5776-2015, were published in the Official Gazette – These regulations narrow a fund manager’s duty to participate in a corporation’s general meetings, and regulate the manner of reporting their participation in such meetings. 6) Drafts relevant to the regulations regulating a new prospectus model in the field of mutual trusts were published – The ISA initiated a new prospectus model for mutual trusts, which is designed to significantly reduce the number of applications for a permit, to make the administrative process of obtaining said permits more efficient, and to create a uniform and comparable presentation of the data for any given point in time according to a fund’s classification, and to reduce the fund manager’s costs in publishing a prospectus, and all while upholding the principle of full disclosure. 3. Highlights of the Actions Planned for the Coming Year

1) Continuing to promote an amendment to the Joint Investment Trust Law and the regulations promulgated thereunder, to an updated model, in the setting of which exchanged traded notes will become exchange traded funds;

2) Continuing to promote the new prospectus model for mutual funds;

3) Continuing to promote absorption of foreign funds in the setting of Amendment 23 to the Joint Investment Trust Law;

4) Regulation of online services in the field of investment advice and portfolio management;

5) Continued participation in promoting legislative proposals to create the infrastructure needed to establish R&D Funds;

6) Continuing to promote legislation to develop the market for commercial paper.

4. The Regulatory Tools Used by the Department’s Staff

The department’s staff is acting to promote primary and secondary legislation. Moreover, the staff have several tools which do not require the legislator’s involvement:

a. Provisions under Section 97(b) of the Joint Investment Law and Section 28(b) of the Advice Law;

b. Disclosure guidelines under Section 36A(b) of the Securities Law;

c. Professional circulars, in which staff expresses its position regarding the interpretation of legal provisions on matters with lateral implications pertaining to many players, or to the market in general, and which in the staff’s opinion are not sufficiently clear, or require further elucidation, or whose language is general and requires detailing;

d. Pre-rulings – In the setting of this procedure, the entities supervised by the Investment Department are entitled to contact the ISA’s staff with accounting and legal questions prior to performing a particular action, to examine its most suitable treatment. A pre-ruling is, for the most part, a complex question with innovative or lateral implications, the answer to which is not obvious. The ISA exercises discretion as to the urgency and necessity of answering such questions, in light of these characteristics. Pre- rulings are divided into two main categories:  A request for guidance from the ISA regarding performance, by the questioner, of some future action or transaction;

 A request for a No-Action Letter – that is to say the ISA’s confirmation that it will not take future enforcement action in the circumstances described by the company in its question.

e. FAQs – Publication of questions and answers the source of which are questions which arise in the course of the department’s ongoing activity, to promote transparency vis-à-vis the supervised entities and to clarify the legal environment in which they operate. B. Mutual Funds 1. General

At the end of 2015, the number of active mutual funds reached an all-time high, and stood at 1,392 funds, all of which were open end funds. Over the course of the year, 159 open end funds were added, and 73 funds discontinued, of which 67 were merged into other funds, and the remaining ones were liquidated. The number of active mutual fund managers did not change in 2015, and at year’s end continued to be 19. The number of active trustees for mutual funds at year’s end was five.

At the end of December 2015, mutual funds’ assets under management (AUM) was approximately 229.1 billion NIS (on 30th December 2015, mutual funds AUM reached 228.9 billion NIS, representing a two-year low point of AUM value at mutual funds, since the end of November 2013), as compared with approximately 261.5 billion NIS at the end of 2014 (see Table 2). The drop in total assets in 2015, amounting to approximately 32.4 billion NIS, resulted from redemptions of approx. 35 billion NIS, off-set from capital gains worth some 2.6 billion NIS.

Diagram 1: Number of mutual funds, 2011-2015

Diagram 2: Value of mutual fund assets under management, 31st December, 2011- 2015 (billions of NIS)

According to Section 73(c1)(1) of the Joint Investment Law, mutual funds must be classified in publication according to relevant, pre-defined, headings that were set by ISA. It is subject to changes according to ISA discretion. The Classifications are published on the ISA’s website. The following are statistical data regarding the classification of mutual funds, including the number of funds and the value of their assets in each category, current to the end of 2015.

Table 11: Statistical data re mutual funds, per classification, 31st December 2015 Number of Value of assets Average fund Rate of funds’ funds (millions NIS) size (millions assets NIS) Israeli Fixed income – Broad 324 71,546 220.82 31.2 Market Israeli Fixed income – 205 39,366 192.03 17.2 Government Israeli Fixed income – 211 28,749 136.25 12.5 Corporate and Convertibles Money Market 36 27,384 760.67 11.9 Funds Israeli Fixed income – 164 26,855 163.75 11.7 Shekels Global Equity 158 11,316 71.62 4.9 Global Fixed 103 9,654 93.73 4.2 income Israeli Equity 127 10,283 80.97 4.5 Flexible 25 1,999 79.96 0.9 Fund of Funds 13 778 59.85 0.3 Leveraged and 18 641 35.61 0.3 strategic Global Securities 1 387 387.00 0.2 Israeli Fixed income – 2 159 79.50 0.1 Foreign Currency Limited for Foreign 5 48 9.60 0.0 Residents

According to the data, and principally owing to the low interest environment, one can see a trend diverting funds from the solid funds, including money market funds (redemptions worth approx. 27 billion NIS), searching for alternative investment channels, which are less solid. The fixed income channel, which this year raised approx. 2.3 billion NIS, is currently the investment channel with the highest AUM.

Diagram 3: Funds’ diminishing management fee trend, 2008-2015 (simple average)

Rate of average management fees in mutual funds

After the Bachar Reform, and since the extensive reform of the mutual funds field in 2008, management fees in the fund industry are in constant decline. Over the last seven years, average management fees declined almost 50%. Over the last two years, the average rate has been less than 1% (in the year reported – 0.91%). The drop in the year reported was, less steep than in 2014, but the continuing declining trend in management fees demonstrates that competition in the industry persists. 2. Permits to Hold Controlling Shares in Fund Managers, and Licensing Fund Managers and Trustees

Handling permit applications is done under the auspices of the procedure for granting permits to hold controlling shares in fund managers and approving fund managers, published on the ISA’s website. Over the course of the year reported, six applications18 were reviewed and granted to hold controlling shares in fund managers.

Handling applications to confirm a company as a fund’s trustee, is done under the auspices of the procedure to approve fund trustees, which is also published on the ISA’s website. Over the course of the year reported, no new applications were filed to confirm any company as a trustee for a mutual fund.

3. Prospectuses

A. Granting Permission to Publish a Prospectus

The term for which an open fund prospectus is valid is 12 months from its publication. To ensure continuity of offering of mutual fund units to the public, a fund manager must publish a prospectus at least once a year.

In the year reported, 1,425 permits to publish prospectuses were issued, of which 160 permits were for mutual funds’ prospectuses which offered units to the public for the first time (as compared with 1,346 permits in 2014, of which 134 permits were for mutual funds’ prospectuses which offered units to the public for the first time). Furthermore, 19 permits were granted to publish prospectuses for fund managers (Part B of a fund prospectus).

B. A New Prospectus Model for Mutual Funds

In recent years, the ISA received, more than one thousand two hundred applications to publish Part A of fund prospectuses every year, and, to date, 19 applications to publish Part B of a prospectus (identical to the up-to-date number of active fund managers). Part A Prospectuses of the repeat prospectuses, are examined by the ISA on a sample basis.

The multiplicity of prospectuses presented to the ISA every year to secure grant of a publication permit, present the fund managers, as well as the ISA’s staff, with a tight examination schedule, to enable preservation of continuity of offering funds' units to the public. Additionally, existing procedures to obtain a permit to publish a prospectus involves significant costs for the fund manager.

Both the prospectus and current reports were designed to provide the public with every detail necessary to make investment decisions – to give it the tools to enable comparison amongst alternative investments. The ISA has concluded, that concentrating

18 Handling three of which, all connected with a single transaction, was suspended owing to circumstances connected to the applicants. Two of the remaining ones, are applications to amend permits owing to changes in the structure of control, and one is an application by a foreign bank to purchase a holding in a fund manager. the information on a fixed date (or a number of fixed dates, according to a fund’s classification) could serve this aim better. Therefore, the quantitative information included thus far in Part A of a prospectus, will be included in an annual report filed for each one of the funds on one of four dates, according to the relevant classification and pursuant to the ISA’s decision. Concurrently, details regarding the offering of units and the relevant information regarding the fund manager, will be concentrated in a single document (the fund manager’s principal prospectus). This document will be filed once per annum, will be granted a permit after full inspection, and permits to offer units in all the funds managed by the fund manager, will be granted according to it.

Accordingly, the ISA’s plenum approved, in February 2015, a proposal for new regulations and amendments of existing regulations19, reflecting the new prospectus model. The regulations, were approved by the Knesset’s Finance Committee on 5th January 2016.

4. Reports

1) In the course of the year reported, there was a rise in the number of reports fund managers presented to the public. In 2015, 23,946 reports20 were filed (as compared with 22,219 reports for 2014) according to the following distribution: 23,536 reports fund managers are obligated to file under the Law and its regulations (as compared with 21,908 reports in 2014); 410 reports which fund trustees are obligated to file under the Law and its regulations (as compared with 311 reports in 2014).

2) Regulation 22(a) of the Joint Investment Trust Regulations (Reports) 5755- 1994, prescribes that a fund manager must file a monthly report to the ISA which contains data regarding the fund’s assets, obligations, receipts and expenses, in the format set out in the Regulations’ Schedule. Over the course of 2015, two circulars were distributed to fund managers and trustees, which contained a concentration of the changes, and clarifications regarding the monthly report. In these circulars, the ISA concentrated all the position papers published in connection with the monthly report, and the answers given to questions on the matter, including clarifications to questions that had not yet been published, so as to present in a clearer, updated, and complete manner, the staff’s position regarding the various cases.

5. Fund Managers’ Participation at General Meetings

A. Section 77 of the Joint Investment Law21 defines a fund manager’s duty to participate in a vote at a general meeting of a corporation in which the fund holds securities, if proposed resolutions put before those meetings could prejudice the

19 The Joint Investment Trust Regulations (Details of a Fund’s Prospectus, Structure and Format) 5775- 2015; The Joint Investment Trust Regulations (A Fund’s Annual Report) 5775-2015; The Joint Investment Trust Regulations (Reports) (Amendment) 5775-2015. 20 The count refers exclusively to public reports (reports presented to the public), and does not include reports which are not public. Reports of events relating to several funds, collated for convenience into a single report form, are recorded as several reports. 21 In its previous format. In this regard see Sub-Section B of this Clause. interests of the unit owners, including proposed resolutions to approve transactions with interested parties, and proposed resolutions that may promote the interests of the unit owners. Section 77(c) of the Law imposes a duty on a fund manager to file a report with the ISA and the Stock Exchange, detailing how he voted at the meeting.

The following table presents data regarding the rate of fund managers’ participation at general meetings in which they were obligated to participate in, and vote at, according to the Law22.

Table 12: Ratio of fund manager participation at general meetings in which they were obligated to participate in, and vote at, according to the law, 2011-2015 Year No. of Less than 30% of 30% to 70% managers More than 70% of Meetings managers participated participated managers participated No. of Percentage No. of Percentage No. of Percentage meetings meetings meetings 2011 865 55 6.4% 78 9.0% 732 84.6% 2012 670 22 3.3% 55 8.2% 593 88.5% 2013 880 21 2.4% 52 5.9% 807 91.7% 2014 802 4 0.5% 34 4.2% 764 95.3% 2015 662 2 0.3% 22 3.32% 638 96.3%

The year was characterised by high involvement on behalf of fund managers at general meetings, and at more than 96% of the meetings, more than 70% of the fund managers participated in, and voted. However, there was a decline in the number of meetings in which fund managers were under a duty to participate in.

B. Narrowing the Duties for Mutual Fund Managers to Participate in General Meetings

In the setting of Amendment 23 of the Joint Investment Trust Law, published on 30th July 2014, Section 77 was amended and in place of the arrangements currently prescribed by law, which regulate the participation duty of fund managers in holders’ meetings, the Minister of Finance was empowered to prescribe arrangements in a more detailed fashion, by regulations, with reference to the decision making voting proceedings.

On 2nd November 2015, the Joint Investment Trust Regulations (Fund Manager Participation in Holders’ Meetings) 5776-2015, and the Joint Investment Trust Regulations (Reports) (Amendment) 5775-2015, were published in the Official Gazette. According to the amendment, a fund manager will not be required to

22 In the absence of data about securities held by funds over the course of the month, we base ourselves on the assumption that holding a security at the end of the month preceding the date of record for the purposes of participating in a general meeting and at the end of the month in which the general meeting convened, constitutes holding the security on the date of the general meeting. Additional assumptions: A meeting in which at least one fund manager participated, is a meeting in which other fund managers were supposed to participate; at meetings convened by MAGNA Forms Taf133 (reporting a transaction with the controlling shareholder) and Taf138 (reporting a private offering) – at least one proposed resolution was tabled on the agenda in which a fund manager holding shares of that company was bound to participate in, and vote at. participate in, and vote, in the following instances: meetings in which no special majority is necessary to pass the resolution, except for votes on amendments to a company’s articles of association which could prejudice shareholders; voting on appointment and dismissal of directors; votes on contracts in which a director has a personal interest; meetings to approve a merger under Section 320 of the Companies Law. The participation of a fund manager is also not required at a meeting in which the controlling shareholder can pass the resolution even if all remaining shareholders oppose it.

This amendment also referred to fund managers’ voting policy, relying on proxy advisors, and the manner of reporting these.

6. Auditing Mutual Fund Managers

Over the course of the year reported, audits were conducted at mutual fund managers, as detailed hereinafter:

1) Field Inspections – Three field inspections were conducted by the department’s staff at mutual fund managers. The inspections reviewed compliance with the various legal provisions. Additionally, one inspection was performed relating to corporate governance.

2) Lateral Inspections (by correspondence) – One lateral inspection of mutual funds’ investment in bonds issued by foreign companies on the Tel Aviv Stock Exchange was conducted. In addition, the financial statements of some of the funds were reviewed, focusing on the value appraisals of goodwill, and how contingent liabilities were recorded, and fund managers’ meeting minimum equity requirements was also examined in them.

3) The department’s staff inspected the securities activities of fund managers by analysing transactions brought to the surface by current and extraordinary reports – both by means of manager-focused tests, and by lateral topic-focused tests. 7. Supervising Mutual Fund Trustees

In the setting of supervising funds’ trustees, several actions were performed:

1) Staff examined various aspects of trustee qualifications, including maintaining independence and absence of conflict of interests in their activity.

2) Staff contacted trustees and examined how they functioned when shortcomings occurred at the fund managers.

3) Trustees’ quarterly reports, in their new format, were monitored.

8. Regulatory Activity

In the year reported, the department’s staff drafted and promoted the following legislative proposals:

A. Formulating an outline to regulate offering units in foreign funds to the Israeli public In 2014 the Knesset approved an amendment to the Joint Investment Law (Amendment No. 23) 5774-2014, regulating the legal framework for offering foreign funds in Israel23. Over the course of the year, the ISA continued examining the outline for offering such units, and continued to draft the relevant regulations. For this, staff continued to hold many meetings with various entities from Israel and from overseas. Drafts of the regulations regulating the terms and conditions for offering foreign funds in Israel and the manner in which they must be offered, were tabled on the agenda of the Knesset’s Finance Committee (see details in Chapter 6.6 Legal Counsel).

B. Limitations to changes in a fund manager’s remuneration, and affecting material changes to the characteristics of a fund

In the setting of the proposal to regulate the activities of exchange traded funds under the Joint Investment Trust Law (hereinafter: the “Bill”), the ISA proposed forbidding any material changes to a funds’ investment policy. This, owing to a principled approach that unit owners, who for their own reasons preferred purchasing one fund over another, should not be forcibly submitted to material changes in the funds’ investment policy. The Bill facilitates providing unit owners with certainty regarding the characteristics of the investments conducted on their behalf, and prevents changes to the portfolio for reasons unrelated to changes in investor preferences.

The ISA’s position was reflected in the plenum’s decision in March 2015, according to which this issue does not only deal with a fund’s investment policy, but also complementary measures. On the basis of this idea, the ISA’s plenum approved the proposed Joint Investment Trust Regulations (Changes to Material Joint Investment Characteristics and Conditions for Changes to a Joint Investment Manager’s Remuneration) 5775-2015. According to this proposal, changes to a fund’s permanent tax tracks, changes to the dates on which fund’s units are redeemable, and changes to the currency in which the units are quoted, are changes of “Material Characteristics” in the fund, and therefore should be prohibited. Moreover, it was also proposed to limit the frequency of raising a fund manager’s management fee rates to once per annum, on January 1st. This, because frequent changes in the management fee rates, a phenomenon that characterises the behaviour of some of the managers currently operating in the field, create uncertainty amongst unit holders, who, as part of the considerations of their investment, also take into account the level of management fees collected by the fund. Changing a manager’s remuneration with no limits, requires the investor to monitor these changes on an ongoing basis, and to respond to them if needs be, thus transforming the mutual fund into an investment that could be perceived by the public, and by the advisers at the banks, as being a short-term investment, when it is supposed to afford the investor an investment for longer periods of time. It is noted, that redemption of the units owned by the investor is a tax event, which could entail expenses.

23 Section 77 and Chapter I1, relating to voting at general meetings and offering units of foreign funds in Israel, will take effect once the regulations in their matter are enacted. Other sections have already been in force since 30th October 2014. C. Implementing the recommendations of the Inter-Ministerial Committee to Examine the Custody Market in Israel and the duty of disclosure regarding a fund’s exposure to credit risk factors

On 29th December 2011, the Inter-Ministerial Committee to Examine the Custody Market in Israel, published its recommendations to regulate custody services in the Israeli capital market. The Committee’s recommendations prescribed basic norms in the field of custody services, corresponding to international standards in this field, to create regulatory uniformity applicable to those operating in this field in Israel. This was designed to improve protection of Israeli investors and to limit the probability of failings. The Committee’s recommendations dealt with defining custody services and custody service providers, basic duties incumbent on custody service providers, basic principles which custody service providers must adhere to, handling a customer’s cash, appointment of a third party custodian by an investment broker and ongoing supervision of him, external audit by an accountant, supervision and enforcement.

Regarding supervision and enforcement, the Committee recommended that every regulatory entity should instigate regulation and conduct supervision and enforcement of the rules detailed in the Committee’s recommendations, regarding a custodian or broker subject to his supervision. The ISA therefore reviewed existing regulation regarding mutual trusts and the Committee’s recommendations regarding the requisite regulation in the field of investment brokers, relevant to the field of mutual trusts. In the course of the year reported, the ISA published, for public comment, drafts for a decree and a staff position circular, regulating, inter alia, the duties incumbent on a fund manager regarding the following issues: contracting with a custodian, monitoring, documentation and supervision of a custodian, disclosure regarding the choice of custodian, and external supervision of the process of choosing a custodian. Following the publication, meetings were held with relevant parties, including trade unions. All the responses received introduced material changes in the proposed manner of regulation. The ISA’s staff is expected to formulate its conclusions in an ISA Directive, (at the beginning of 2016), which will regulate, inter alia, also disclosure regarding credit risks at mutual funds.

D. Establishing Structured Investment Management Processes

The ISA’s position paper published on 26th September 2011, stipulated that it would be right and proper for fund managers to adopt fund investment management criteria, according to which selecting a fund’s investments and their ongoing management would be accompanied by a decision supporting process that would reflect a structured method of action, supported by clear and reasoned criteria.

In 2014, the ISA published a comprehensive document which contained insights gained following the examinations conducted regarding the process of choosing investments and managing them, central issues on the matter, shortcomings discovered in the course of the examination, and the staff’s position on all of these.

With the multiplicity of debt restructuring arrangements in the Israeli marketplace in recent years in mind, the Minister of Finance appointed a committee to examine debt restructuring arrangements in Israel (the Andorn Committee). On 17th November 2014, the committee published its recommendations, and they are expected to lead to a healthier equilibrium in the relations between the various interested parties in a company, and in particular between the controlling shareholders and a company’s creditors. The committee also detailed an array of recommendations relating to other aspects, such as the process of obtaining and managing credit.

This year, the staff saw fit to issue a circular collecting the staff’s previously published positions on investment management policy. This circular also referred to handling decision making on investment in debt following the Andorn Committee’s recommendations. The circular was published for public comment in 2015.

E. Full Disclosure - Monthly Report

The Tel Aviv Stock Exchange has been publishing for many years a "disclosure file", which contained various data conveyed to it by the members of the Stock Exchange representing fund managers, in a format determined by it. From inspections conducted by the ISA it transpires, that in the majority of cases the data sent by the representatives is not checked and verified by the fund managers. Aside from which, the ISA believed that the information contained in the existing file, which is based on a format fixed many years ago, does not reflect the funds’ data well.

In light of which, and so as to create an extensive and up to date information basis regarding mutual funds’ for the investing public, and the advisory divisions at the banks, the ISA acted jointly with the Fund Managers Association to formulate a new full disclosure file, containing detailed information regarding fund assets and other relevant data. The file will be reported to the public by a designated form on the MAGNA system as an immediate report starting in April 2016. The banks will begin assimilating said report in their advisory divisions over the course of the coming year, and are expected to complete their preparations by the end of 2016.

F. Updating the List of Characterising Headings under Section 73(c1)(2) of the Joint Investment Law

For the purpose of improving the transfer of information regarding mutual funds to the public investing in them, the regulations prescribed a format for media publication of information to the public, regarding the prices of mutual funds units and their yields, and the ISA has been empowered to set a list of characterising headings according to which the funds would be classified, to publish it on its website, and to update it from time to time. In the year reported, the list of headings was updated in the following manner:

1. Added headings (wholly or partially) – “Foreign Currency Exposed”, “Foreign currency hedged” and “Foreign currency denominated” – under the relevant classification headings for funds that invest in securities overseas, and for foreign currency money market funds.

2. Added five main headings – “Israeli fixed Income- broad market- up to X% equities” under the over-heading “Israel Bonds”, according to five levels of maximum exposure to Equity (Without Equity, up to 10%, up to 20%, up to 30% and above 30% equities). G. Market Development

High Tech Fund

Currently, the source of the majority of capital invested in Israeli high tech research and development companies is foreign capital, and most of these companies are purchased by foreign corporations at relatively early stages in their development. This prevents the Israeli market from enjoying the fruits of those companies maturing. For this reason, in September 2012, the chairman of the ISA appointed a committee to promote investment in public companies operating in the field of R&D. The committee was appointed with the aim of examining and recommending measures that would encourage investing in high-tech companies through the Stock Exchange, without prejudicing the interests of the investing public and the normalcy of trading.

As a completing move to a number of legislative proposals implementing the committee’s recommendations, the ISA acted to complete the legal framework to regulate the establishment of listed high tech funds. These funds would specialise in investing in Israeli high tech companies, and mainly in those at the preliminary stages of R&D.

In the year reported, the ISA published, for public comment, a draft for the Joint Investment Trust Regulations (High Tech Fund) 5775-2015, which regulates, inter alia, the funds’ modus operandi, the investment rules applicable to them, and the disclosure duties they are bound by.

Commercial Paper

In the year reported, the ISA continued to act through a joint team from the Corporations Department and the Investment Department, examining barriers to developing the market for commercial paper, in the setting of the ISA’s project to remove barriers and develop the market. The team formulated its conclusions and proposals to promote the measures and moves to develop the market for commercial paper. In the coming year, staff will act to implement its recommendations, both by way of granting relief to corporations issuing commercial paper, and by regulating the rules and limitations applicable to mutual funds in general, and money market funds in particular, when investing in such instruments.

C. Exchange Traded Notes 1. General

At the beginning of 2015, four issuing groups operated in the market for exchange traded notes, each one of which comprised of several companies. By the end of the year, the number of exchange traded notes reached 638, as compared with 591 exchange traded notes at the end of 2014.

Diagram 4: Number of exchange traded notes, 2011-2015

The value of the public’s holdings in exchange traded notes at the end of the year reported was approx. 103.5 billion NIS, as compared with approx. 118 billion NIS at the end of 2014, a decline of approx. 15 billion NIS (12.3%). This change is owed to a decline of some 17.3 billion NIS of assets under management in certificates of deposit, an increase of approx. 4.2 billion NIS in certificates that track foreign share indices, an increase of approx. 2.8 billion NIS in certificates that track bonds, and from changes to the indices. Since 2010, the market for exchange traded notes has grown by 100% following issue of new Israeli and foreign index products, and in light of the rise in the indices.

Diagram 5: Value of public holdings in exchange traded notes, 2011-2015

2. Prospectuses

The exchange traded notes’ market is comprised of a limited number of issuing companies. For the companies to be able to provide solutions to real time market demand, they make extensive use of shelf prospectuses, which enable them to offer the public exchange traded notes, and register them for trade relatively quickly.

Over the course of 2015, no permits were granted for new shelf prospectuses, as compared with 4 prospectuses in the course of 2014, which included 17 series of exchange traded notes, of which one was a series of exchange traded notes that tracks a new index. In line with the de-regulation plan, over the course of the year, six permits to extend shelf prospectuses were granted to exchange traded note companies, extending them from two to three years, to facilitate easing the companies’ ongoing issuance activity.

Over the course of 2015, 8 amendments were affected to shelf prospectuses and 56 new underlying assets were approved for exchange traded notes. This, as compared with 2014, in which there were 22 prospectus amendments, which included 45 new underlying assets for exchange traded notes.

Over the course of 2015, 38 shelf offerings by virtue of shelf prospectuses were published, as compared with 46 shelf offerings published in 2014.

In the setting of handling the prospectuses, the staff examined, inter alia, the financial statements, the financial extracts of the exchange traded notes’ series, the extent of disclosure made on account of the new indices, disclosures regarding liquidity risks, credit risk, market risk and risk of public holdings of financial instruments, disclosure regarding exchange traded notes’ exposure profile, disclosure regarding exchange traded notes’ conversion mechanism, and registration of liens over the assets in the country of origin. Similarly, issues regulated in the exchange traded notes’ deeds of trust, were also looked into. 3. Reports

A. Exchange traded notes’ managers report under the Securities Law, the regulations promulgated thereunder, and designated disclosure guidelines the subject matter of which is disclosure of information relating to series of exchange traded notes issued to the public. Staff tracked the reports and examined the measure to which the companies comply with the disclosure duties imposed on them. Inter alia, periodic reports were examined, as well as quarterly reports, immediate reports, prospectuses, and shelf offerings. Aside from these reports, companies file designated reports in this field of activity24, such as a daily report containing data to appraise exchange traded notes and index products (Form Samech124), published every day of trading, before trading begins, by each one of the managing entities. The report contains details for the purpose of evaluating the note.

B. A monthly report regarding credit risk exposure (Form Samech203) – The report contains data regarding credit risk exposure, at the managing body level25, at the issuing company level, and at the level of each one of the exchange traded notes, detailing the manner of exposure to the source of the credit risk (banks, brokers, etc.) and the type of financial instrument on account of which the exposure was created (deposits, notes, derivatives, loans, exchange traded notes, etc.)

C. A monthly report of public holdings (Form Samech224) – The report encompasses data regarding the value of the public’s holdings in each one of the exchange traded notes separately, and on account of all the series issued by a company and the managing body jointly.

D. A monthly report of deposits and cash balances invested in bonds (Form Samech226) – The report shows the liquidity of exchange traded notes’ deposits in an aggregate manner, divided for periods of liquidity, and the investment of cash balances in bonds which are not part of the exchange traded notes’ underlying asset.

E. A quarterly report of the exchange traded notes’ yields, and comparison to the yields of the underlying index – The report entered the list of reports at the beginning of 2013, and presents the exchange traded notes’ yields, the yields of the indices they track and an additional comparison index, that takes account of the dividend receipts received by the shares which comprise the index26. Moreover, an explanation is presented explaining the disparity in the various yields.

24 Also companies that issue structured products to the public, are required to comply with some of these reporting duties. 25 The “Managing Body” refers to the exchange traded notes’ manager, that is to say, the investment house that owns several exchange traded note issuing companies. 26 When dealing with notes that track a commodity or commodity index, a comparison index is chosen that weights profits and losses arising from rolling over the commodities’ future contracts. 4. Regulatory Activity

A. Structural changes to exchange traded notes

Exchange traded notes are currently subject to a disclosure regime under the Securities Law. In light of the unique characteristics of the field of exchange traded notes, the Israel Securities Authority took the strategic decision to transfer the industry to a regime of supervision under the Joint Investment Trust Law. Over the course of recent years, this extensive reform has entered its advanced stages, and the ISA published a draft for a legislative proposal and for many regulations to promote it.

Over the course of 2015, the ISA published its intention to change the structure of the instrument, so that the debit component in it be cancelled. That is to say, that the amendment of the Joint Investment Trust Law would rescind the debit embodied in the exchange traded notes and would transform it into an “Exchange Traded Fund”, an instrument similar to exchange traded funds overseas. Exchange Traded Funds (ETFs) are mutual funds that track pre- determined underlying assets, namely indexes. The ETFs are not committed to track the index rather they aim to track the index ("best effort"). The Exchange Traded Funds will be traded on the stock exchange in a format similar to the exchange traded notes and the ETFs issued overseas.

B. Exchange traded notes’ trustees

In exchange traded notes, similarly to other bonds, there is a trustee for the holders, but his powers and responsibilities, at least as these are perceived by the issuers and the trustees, are not adapted to the characteristics of exchange traded notes, and are significantly limited as compared with those which a mutual fund trustee has. In recent years, the ISA has conducted visits with the various exchange traded notes trustees, and has conducted inspections on various issues pertaining to the trustees, in order to obtain information regarding the controls put into place by the exchange traded notes’ trustees.

Over the course of 2015, staff at the ISA met the exchange traded notes’ trustees and the exchange traded notes’ issuers, and formulated, jointly with them, an outline of action for the exchange traded notes’ trustees, in a manner that is adapted to the exchange traded notes fields and the risks inherent in it, that will improve a trustee’s supervisory abilities and his status.

C. Liquidity Risk

An exchange traded note is a financial instrument that promises to pay a sum derived from an underlying asset, in accordance with the conversion formula set by the prospectus, and enables daily conversion. The issuers of exchange traded notes back various assets to meet their obligation to the public to obtain the yield of the underlying asset.

The liquidity risk in exchange traded notes, reflects the risk of the issuer’s inability to liquidate the underlying assets when needed, and consequently – a breach of his obligation to the note holders to enable them daily conversion of the note. This liquidity risk arises from backing a financial instrument, the cost of which constitutes a small portion of the consideration received by the issuer from the purchaser of the note. The balance of the sum is usually invested in a bank deposit, and when this deposit is for a term that is not short, a liquidity risk is created.

Over the course of 2015, staff continued to promote a model for the companies to manage the liquidity risk, and formulated the necessary disclosure regarding the liquidity risk by means of a designated reporting form (Form Samech226)

D. Improving disclosure in trading exchange traded notes and reducing the costs of trading

Over the course of recent years, the ISA is leading a move to reduce the costs of trading in the field of exchange traded notes – narrowing the spread, reducing conversion commissions, and improving the conversion mechanism. In January 2013, an outline was formulated with the Association for Exchange Traded Notes, designed to remove trading barriers and enable the various players in the capital market to participate in trading exchange traded notes. In the past, there were very high barriers to converting exchange traded notes (conversion commissions, conversion minimums, a complex conversion process, etc.), which neutralised arbitrage players’ ability to participate in trading exchange traded notes, except when extraordinary distortions existed. The purpose of the move was to lower the barriers to a level that would permit improving the process of arbitrage in this product, together with creating a framework of rules that would enable the market maker to operate in trading.

Over the course of 2015, the ISA reviewed the levels of disclosure regarding market making, the conversion process, and the creation process. Following the review’s findings, the ISA acted to create a reporting form for days on which there is no duty to make a market in exchange traded notes (Form Samech234), and a form was developed for immediate reporting, by means of which the companies report information on any transaction of conversion or creation (Form Samech06).

E. Easing regulation of prospectuses

As part of the ISA’s move to ease the regulatory burden imposed on the capital market, on the one hand, and improving investor information access, on the other, the ISA promoted a move which led to a dramatic shortening and simplification of the various reports in the field of exchange traded notes, including in the prospectuses issuing the notes, while maintaining the level of transparency and quality of supervision which is no less than that which existed previously. For instance, the information regarding the indices used as underlying assets for the exchange traded notes was transferred to public electronic reporting forms (Samech041-043). Similarly, also the financial extracts of the exchange traded notes were transferred to public electronic reporting forms (Samech131).

Over the course of 2014, the ISA promoted a move that included, inter alia, easing the process of offerings to the public, which apply also to the exchange traded notes issued per a shelf prospectus. These allowances were anchored in several legislative amendments, and are designed to make the process of granting a permit for a prospectus more efficient, and simplifying the process of offering the securities to the public.

Over the course of 2015, rules were set relating to issues in the field of exchange traded notes, enabling removal of the requirement to include details of the offered securities and their characteristics in the shelf prospectus, and promoting an abridged process for granting a permit to publish a shelf offer for a new exchange traded note. Additionally, the rules enable publishing a shelf offer to extend a series of an existing note, without need for obtaining an additional permit. 5. Developing the Website

Over the course of 2015, extensive information was published on the website regarding all the active exchange traded notes issued to the public, extensive information regarding indices and basic assets used as underlying assets for exchange traded notes, and information regarding the value of the assets managed on the market for exchange traded notes at a particular point in time. 6. Audits

In the year reported, four issuers of exchange traded notes were audited. These audits focused on examining the propriety of information used by the issuers of the notes in public reports, the decision making process, and examination of technological solutions for the notes’ managers’ business continuity plans. D. Investment Advisers, Investment Marketers and Portfolio Managers

1. General

At the end of December 2015, there were 4,524 individual license holders (of which 884 were portfolio managers, 3,058 investment advisers and 582 investment marketers).

Table 13: Total licenses granted to individuals – portfolio managers, investment advisers and investment marketers, 2011-2015 Year Portfolio Investment Investment Managers Advisers Marketers Up to 2011 2,331 6,633 1,127 2012 138 274 161 2013 173 229 147 2014 153 163 150 2015 139 145 132 Total licenses granted 2,934 7,444 1,717

Table 14: Grant, conversion and revocation of company licenses, 2015 Total Portfolio Investment Investment Managing Advising Marketing Companies Companies Companies On 31st Dec 2014 159 122 14 23 Removed owing - - - - to conversion Willing 10 5 2 3 cancellation Cancelled by the - - - - ISA Added owing to - - - - conversion Licenses granted 8 7 1 - On 31st Dec 2015 157 124 13 20

The following are data regarding the value of assets under management for companies with portfolio managing licenses, as they were on 31st December 2015. These data are based on the companies’ reports under to the Advice Law and the Regulation ‎ of ‎ Investment ‎ Advice, Investment ‎ Marketing ‎ and ‎ Investment‎ Portfolio Management‎ Regulations‎ (Reports)‎ 5772-2012.

Diagram 6: Value of assets under management - portfolio management companies, 2011-2015 (Billions NIS)

Current to 31st December 2015, the value of assets managed for customers who are not institutional investors is approx. 161 billion NIS. The value of portfolios belonging to customers who are not institutional investors, the majority of whose assets (50% and more) is invested in mutual funds, is approx. 27 billion NIS, and constitutes 17% of total assets under management for these customers.

Table 15: Value of managed assets - non institutional investors, 31st December 2015 Value of assets Number of Ratio to total Ratio of total value managed for companies number of of the assets of all customers who are companies companies which not institutional are managed in investors – millions portfolios of NIS customers who are not institutional investors Up to 50 30 24% Approx. 0.5% 50-100 18 14.5% 0.5% 100-500 37 30% 5.5% 500-1000 14 11% 6% 1000-5000 15 12% 17% Above 5000 10 8% 70.5% Total 124 100% 100%

2. Licensing

1) Exams:

In the setting of licensing investment advisers, investment marketers and portfolio managers under the Advice Law, two exam sittings were held in 2015, as in every year – in May-June and in November-December – on the following subjects:

A. Securities law and professional ethics;

B. Accounting;

C. Statistics and finance;

D. Economics;

E. Securities and financial instrument analysis;

F. Portfolio management (for portfolio manager applicants only).

Over the course of the year reported, 5,382 exams units were conducted, as compared with 5,028 exam units in 2014. The number of examinees was 4,374, of which 2,571 passed the exams, as compared with 2014, when the number of examinees was 4,266, of which 2,295 passed the exams.

Table 16: Exam pass rate, 2015 Exam topic Number of examinees Annual pass rate27 Professional ethics - -

27 An examinee who passed one of the two sittings in a given year, is deemed to have passed the exam. Securities law and 723 61 professional ethics Accounting 681 49 Statistics and finance 746 50 Economics 784 52 Vocational A 1,157 72 Vocational B 283 64

Exemptions from testing: The Regulation ‎ of ‎ Investment ‎ Advice, Investment ‎ Marketing ‎and ‎Investment Portfolio Management Services Regulations (Application for License, Examinations, Internship and Fees) 5757-1997 (hereinafter – the “Licensing Regulations”) stipulate that anyone with a relevant academic degree, as defined in the Regulations, is entitled to an exemption from three foundation exams: economics, accounting, statistics and finance. Over the course of the year reported, 934 applications for exemption were reviewed, of which 881 were approved.

2) Internship:

The Licensing Regulations also regulate the internship, which is another requirement for obtaining a license. Over the course of the year reported, 269 applications for an internship were approved, of which 61 were in investment advice, 102 in investment marketing and 106 in portfolio management.

3) Applications reviewed by the authorised committee under Section 8a of the Advice Law:

The ISA’s authorised committee, empowered to grant licenses under Section 8a of the Advice Law, discussed over the passing year 29 applications in the following areas: granting exemption from examination, granting partial or complete exemption from internship, and recognising internship absentee days.

4) Over the course of the year, one licensed corporation was registered on the register of foreign dealers (registration that reflected an organisational restructure at a corporation that was already on the register).

5) The ISA took the lateral decision to suspend licenses of licensees not acting as investment advisers, investment marketers or portfolio managers and which did not carry professional indemnity insurance28. The ISA instructed staff to review the circumstances regarding the relevant dealers, and to notify them that their licenses were being suspended, in suitable circumstances, in accordance with its decision.

6) Changing the criteria for an exemption from internship:

28 Unless they filed an application to retain their license despite not actually providing the services. Over the course of the year, the ISA established criteria to shorten the length of a portfolio management internship, an investment adviser or investment marketer must undertake when seeking to convert their license to portfolio management. The holder of an investment adviser or investment marketer license can now benefit from relief in the internship requirement when upgrading his license to portfolio manager, subject to fixed criteria, relating to the length of time since he concluded his investment advice or marketing internship, and the professional experience he gained since.

7) Licensing related enforcement actions:

The (indirect) controlling shareholders of a company that manages portfolios were declared bankrupt, which evidences, prima facie, that it also is not worthy of being a license holder (hereinafter – a “Reliability Flaw”)29. This is a borderline case, in which indeed a circumstance listed amongst the circumstances that could evidence a Reliability Flaw in the company has materialised, but the influence which the controlling shareholders had over the company was not so clear cut that it required early cancelling of the company’s license by the ISA. The ISA examined the event, and after conducting a hearing for the company’s management, and being persuaded that there was no immediate fear that the company’s clients would be damaged, and that there was no unequivocal and severe harm to the reliability of the company itself, it accepted the company’s petition to refrain from cancelling the license, on the basis of the company’s declaration that it would cancel the license itself. However, the ISA notified the company that should it fail to notify the ISA that its license is to be cancelled and its activity discontinued, within four months from the date the decision was delivered, the company’s license would be cancelled by the ISA under its powers pursuant to Section 10(a1)(1) of the Advice Law, immediately and without further hearing. The company was also informed, that if ISA is asked to grant a new license to a new company, that company, and its controlling shareholders and officers, would be required to meet all legal requirements and criteria, including the reliability requirement.

3. Supervision

Supervision of investment advisers, investment marketers and portfolio managers focused this year mainly on the following topics:

A) Ongoing contacts with supervised entities and closely accompanying them

The activities in the year reported involved ongoing contacts with supervised entities. Accompanying these entities is an important aspect of the License Holder Supervision Unit’s work, and is designed to guide them in properly performing their work. In the setting of contacts with the supervised entities, meetings were held with various parties in those entities, often inviting them to update meetings, auditing the internal enforcement plans they adopt, and more. As part of the ongoing contacts, the ISA demands that the supervised entities inspect themselves

29 Under Circumstance 9 of the list of circumstances published by the ISA under Section 10(a1) of the Advice Law, according to which one must review whether a licensee should properly retain his license. on various matters relating to the Advice Law, and to report the findings of the inspection to the ISA.

Moreover, meetings with license holders invite unmediated and direct contacts, which enable the ISA to clarify its positions on a range of issues relating to the Advice Law, and enable license holders to respond and to call various issues to the ISA’s attention. The staff at the ISA views these meetings with supervisees as a method of conveying messages and strengthening the bonds, trust and communications, inter alia, to improve the efficiency of the regulatory process, and promote professional and fair conduct on behalf of the supervisees. At the meetings, the unit’s supervisors present the guiding principles of the supervision work, first and foremost amongst which is to give more importance to substance than to technical details, giving specific examples, and conducting enriching dialogue. Over the course of the year, the unit’s staff conducted nine meetings with license holders. Additionally, periodic meetings were held with the heads of the advice divisions at the banks, the persons in charge of internal enforcement at banks, and compliance officers at portfolio management companies.

B) Auditing compliance with the prescriptions of the Advice Law

In the passing year, two types of audits were conducted relating to compliance with the provisions of the Advice Law:

a. Lateral Audits

An audit examining one issue at a large number of companies, conducted by correspondence, in the setting of which companies are asked, inter alia, to provide the ISA with documents. Over the passing year, three lateral audits were carried out, of which two have been completed.

Additionally, the department’s staff also examined the securities activities of portfolio managers, by analysing transactions brought to light by extraordinary and current reports – both lateral issue-focused reviews and manager-focused reviews.

b. Company Focused Audits

This type of audit examines specific issues related to the Advice Law at license holding companies, and at banking corporation advising divisions. In the passing year, 40 such audits were carried out, as detailed hereinafter:

1. 13 audits of portfolio management companies involving compliance with the various legal prescriptions. Some of the audits also examined aspects of compliance with the provisions of the Prohibition of Money Laundering Law. Two of the audits dealt with corporate governance, and one dealt with business continuity.

2. Seven audits were performed on the advisory divisions of banking corporations.

3. Nine audits of new companies (six of which have been completed). 4. Five audits in the setting of development of increased supervision of license holding companies.

5. Five audits regarding suitable internships in portfolio management and investment advice.

6. One audit of a company that was suspected to be operating without a license. c. Ongoing tracking of the activities of license holders and analysis of their reports

1. Analysing the trading activity of portfolio managers to detect activity that violates legal prescriptions.

2. Analysing the activities of advisers at the banks on the basis of the banks’ monthly reports. d. Examining quarterly and annual reports filed by license holding companies

Information regarding the insurance requirements, its substitutes, as well as equity requirements, in the quarterly and annual reports of license holders, was audited by the licensing division of the department. e. Examining suspicions of violations of the Advice Law

As part of its on-going functions, the department’s staff review cases in which there is a suspicion that the provisions of the Advice Law have been broken. The reviews take place following complaints from the public or owing to concern arising in the course of the department’s ongoing work. Aside from talking to complainants, the reviews include meeting them, contacting members of the Stock Exchange and banks to obtain data and in depth review of the findings. At the end of a review, a decision is taken what measures need to be taken in each case, taking into account, inter alia, the public interest, the reliability of the information, and the quality of the evidence.

In the passing year, 106 cases in which there was a suspicion that the Advice Law had been broken were dealt with, of which 15 cases were transferred from the previous year. Of the 106 cases dealt with, 85 cases were concluded.

It is noted that in one instance (Utrade Premium Ltd,) the ISA appealed to the courts after it reviewed customer complaints, and conducted a surprise audit at the company, and petitioned to suspend its activities. Accordingly, an injunction prohibiting the company’s continued operation was granted. f. Training

To improve levels of license holding companies’ legal compliance, the ISA conducts training for all new companies and new independent license holders. Training sessions take place with each company separately, a short time after the license is granted. The training is conducted in a face-to-face meeting with the company’s management and staff, and in the course of it, the company’s representatives receive a review of the highlights of the Advice Law and the Prohibition of Money Laundering Law, including the companies’ duties to its customers and the supervisory authorities. Moreover, the company’s representatives receive information regarding problems and defects that arose in previous audits (inspections) with other companies and explanations how to avoid these issues. Training is conducted in a small forum of participants, which facilitates treating specific questions and issues raised by the company’s representatives. This year, four training sessions were conducted for new companies in the format described above, which particularly emphasised the companies’ duties to act, first and foremost, in their clients’ best interests and the importance of having an internal enforcement and audit function in every company.

g. Publication of data regarding portfolio managers

The ISA continues to publish data on its website regarding the activities of portfolio managers. These data are derived from the reports filed with the ISA under the regulations, and it is the ISA’s intention to publish this type of data from time to time.

4. Regulation

A. Directive to adviser and marketing license holders regarding referral of customers to portfolio management services: A directive regulating the rules applicable to adviser and marketer license holders who refer customers to receive portfolio management services, was published. This directive also forbids direct or indirect remuneration of investment advisers on account of such referral.

B. Amendment of the directive to authorised corporations regarding their duty to set working procedures regarding their modus operandi: The ISA published an amended version of this directive, which contained easing the requirements pertaining to the process of approving procedures in a company.

C. Regulation of Investment Advice and Investment Portfolio Management Rules (Receiving Benefits for Analysis Work) 5774-2014: In the setting of implementing the plan under which a licensee publishing analysis work will be permitted to receive remuneration, indirectly originating also from the company he reviewed, the need to amend Section 3(3) of the Rules arose, regarding the requirement that the analysis be published in the company’s reporting language, which is Hebrew, excluding cases of dual listed companies. The amendment enabled publication of an extract of the analysis in Hebrew and the full analysis in English. Additionally, two technical amendments were effected to the Rules: the heading of the Rules was amended, and the definition of the term “Financial Asset” in Section 1 of the Rules was also amended.

E. Lateral Issues 1. Corporate Governance In the course of 2015, staff at the department examined the manner of adopting and implementing corporate governance rules by supervised entities required to do so. Inter alia, the characteristics and functioning of board of directors and management of these entities was reviewed, from the point of view of adhering to corporate governance rules, the internal audit array, the internal enforcement plan, and the way in which it was implemented, as well as the internal audit array. For this purpose, the following actions were taken:

A) Examination of the existence of corporate governance characteristics at all companies obligated to adopting corporate governance rules by means of reviewing their relevant reports.

B) Conducting interviews with external directors and directors who are members of audit committees, regarding several issues relating to corporate governance, analysing the answers given and the issues raised, and preparing a document of insights.

C) Conducting three field audits on various subjects relating to corporate governance. One audit was conducted at a fund manager, and two audits at portfolio management companies, as detailed also in the chapters dealing with supervision of mutual funds and license holders, respectively.

2. Reviewing Emergency Preparations

Over the course of 2015, the department performed three audits to review the preparedness of supervised entities to providing services in time of emergency. One audit was performed regarding all supervised companies in the investment house (the “Group Aspect” audit) and two additional audits were performed regarding issuers of exchange traded notes (as detailed in the chapter dealing with supervision of exchange traded notes).

3. Prohibition of Money Laundering and Financing of Terrorism

In the setting of its ongoing activities, the department oversees implementation of the Prohibition of Money Laundering Order (Identification, Reporting and Record Keeping Requirements of a Portfolio Manager to Prevent Money Laundering and Financing of Terrorism) 5771-2010. In doing so, the department takes part in a national project to evaluate risks in the field of prohibition of money laundering, spearheaded by the Prohibition of Money Laundering and Financing of Terrorism Authority.

Over the course of the year, the ISA has published an instruction regarding partial exemption under Section 6(a)(8) of the Prohibition of Money Laundering Order (Identification, Reporting and Record Keeping Requirements of a Portfolio Manager to Prevent Money Laundering and Financing of Terrorism) 5771-2010; additionally, staff gave ongoing answers in the setting of audits conducted by international bodies (the FATF30 and Moneyval)31, and published circulars and answers to pre-rulings in this area.

30 The FATF (Financial Action Task Force) is an international task force aimed at developing and promoting policy to combat money laundering and financing of terrorism. The organisation sets the binding standards for all countries in the field of combating money laundering and financing of terrorism, standards referred to as the “FATF’s Recommendations”. Similarly, it was involved in legislative initiatives to implement Moneyval’s recommendations. F. Staff Position Papers and Interpretation

1. Staff Position Circulars

A. Three staff position circulars were published pertaining to the prescription in the Advice Law and its regulations: A circular for license holders regarding investment marketing and portfolio management activity relating to foreign funds; a circular for corporations which hold portfolio manager licenses re the staff’s position regarding a portfolio manager’s license holding corporation having other dealings; summary of the project to make customer investment advice more efficient.

B. Five circulars and notices were published on various matters relating to the provisions of the Joint Investment Law and its regulations: Two circulars for fund managers and trustees collating changes and making clarifications pertaining to the monthly report; a circular to fund managers and trustees regarding the full disclosure file; a circular regarding principles and rules to select a fund’s name (update); a circular regarding the manner of approving a fund manager’s contract with an index editor and index calculator in an index fund.

C. A circular was published to mutual fund managers, issuers of exchange traded notes, and large portfolio management companies, relating the staff’s position on several findings and questions that arose incidentally to analysing the responses of managing companies to a corporate governance questionnaire.

D. Two circulars were published in the field of the prohibition of money laundering and financing of terrorism: A clarification circular regarding the duties of a portfolio manager on the issue of prohibition of money laundering and financing of terrorism in accordance with international standards; a clarification circular regarding the duties of a portfolio manager on the prohibition of money laundering and financing of terrorism with reference to the Tax Authority’s voluntary disclosure process. 2. Pre-rulings

In the course of the passing year, staff published replies to 15 applications for a pre- ruling in the fields of the Joint Investment Law, exchange traded notes, and corporate governance.

3. FAQs

In the course of the passing year, the ISA continued to publish on the ISA’s website, on an ongoing basis, answers to questions referred to it by supervised parties, with the aim of promoting transparency vis-à-vis the supervised entities, and so as to clarify the legal environment in which they operate.

31 To ensure that countries comply with the “FATF’s Recommendations”, periodic audits are conducted in each and every country. The audits are performed once every few years by several regional organisations authorised to do so. The audits in Israel are conducted by the regional organisation of the Counsel of Europe – the Moneyval organisation. G. Enforcement – Financial Sanctions and Administrative Enforcement

According to the prescriptions of the Joint Investment Law and the Advice Law, the ISA is empowered to instigate financial sanction proceedings and administrative enforcement proceedings on account of violation of the provisions of these enactments. The staff of the department identifies and monitors the instances in which the law is broken, and which are suitable for enforcement. Handling the financial sanctions is coordinated by the Administrative Enforcement Department closely accompanied by staff at the Investment Department. For additional details regarding these proceedings, taken in the course of the passing year, see hereinafter Chapter 6.9: Administrative Enforcement. H. Legislative Activity

The department reviews regulation in the fields it is charged with on an ongoing basis. Further to which, the department formulates proposals to amend regulation, alternative outlines, and new arrangements, the purpose of which is to develop the various branches. Moreover, the department deals with drafting legislative proposals necessary to anchor the proposed arrangements and amendments, handles public comments on such proposals, examines them, amends the proposals pursuant to them, presents them to the ISA’s plenum, and promotes them by means of the ISA Legal Counsel Department.

1. Primary Legislation Published in the Passing Year

In the passing year, the department’s staff dealt, inter alia, with drafting and promoting legislative proposals and legislative amendments relating to the Advice Law, the Joint Investment Law, the Reliefs Law, and the Bill to Promote Investment in Public Companies in the Field of Research and Development 5774-2014 (for details of the primary legislation published in the passing year and the legislative proposals promoted by the department, except for with regard to the amendment to the Joint Investment Law regarding exchange traded notes and the proposed regulations thereunder, which will be detailed hereinafter, see Chapter 6.6 – Legal Counsel).

2. Secondary Legislation and Complementary Regulation Published in the Passing Year

For details of the secondary legislation approved in the course of 2015, see Chapter 6.6 – Legal Counsel.

3. Primary and Secondary Legislation Proposals

1) The Bill to Amend the Joint Investments Trust Law (Amendment 21) (Exchange Traded Notes and Exchange Traded Funds), 5772-2012 and the regulations promulgated thereunder – As detailed above in the chapter dealing with the activities of exchange traded notes in light of the unique characteristics of the field of exchange traded notes, the Israel Securities Authority took the strategic decision to transfer the industry to a regime of supervision under the Joint Investment Trust Law. The legislative proposal implemented this decision, but its promotion was delayed owing to the Knesset’s dissolution (twice). Over the course of this period, the ISA worked on the changes and adaptations to the proposed framework, and on formulating proposals to amend the regulations under the proposed legislation. In the passing year, two proposed amendments to the abovementioned regulations were published for public comment, having been approved by the ISA’s plenum.

A. The Joint Investment Trust Regulations (Equity and Insurance for a Joint Investment Manager and Trustee) (Amendment) 5775-2015.

B. The Joint Investment Trust Regulations (Changes to Material Investment Characteristics and Conditions to Change the Remuneration of a Joint Investment Manager) 5775-2015.

2) Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Regulations (Recording Transactions and Recording Advisory Actions) (Amendment), 5774-2014;

3) Allowances regarding insurance requirement for license holders (a draft was published on the ISA’s website after several rounds of public comment):

a. Proposed ‎ Regulation ‎ of ‎ Investment ‎ Advice, Investment‎ ‎ Marketing ‎ and ‎ Investment‎ Portfolio ‎ Management ‎ Regulations (Equity Capital and Insurance) (Amendment), 5774-2014;

b. Proposed ‎ Regulation ‎ of ‎ Investment ‎ Advice,‎ Investment ‎ Marketing ‎ and‎ Investment‎ Portfolio Management‎ Regulations‎ (Reports)‎ (Amendment),‎ 5774‎ -2014;

I. Investment Department Related Legal Proceedings

For legal proceedings related to the Investment Department in which the ISA was involved over the passing year, see Chapter 6.6 hereinafter – Legal Counsel, Sub-section B: The Department’s Activities – Clause 3: Coordinating and Accompanying Civil Legal Proceedings, and in particular Administrative Petition 15892-05-14 Bram Sluki & Co v. The Israel Securities Authority and the Association of Banks in Israel – A petition under the Freedom of Information Law to publish additional details regarding the findings of audits the department conducted; Liquidation File 12321-12-13 Alpha Platinum Mutual Funds (in Liquidation) v. The Israel Securities Authority et al. – An application under the Companies Law to issue instructions to the liquidator to order the respondents, including the ISA, to pay compensation to the company in liquidation; Civil Action 43133- 12-15 The Israel Securities Authority v. Utrade Premium Ltd., which dealt with cessation of activity of a company that operated without a portfolio manager’s license as required by law.

6.3. The Department of Research, Development & Strategic Economic Consulting

A. General

The function of the Department of Research, Development & Strategic Economic Consulting (hereinafter: the “Economic Department”) is to give the chairman of the ISA and the various departments in the ISA economic advice on a wide range of subjects. The advice given by the department is based on several foundations: ongoing monitoring of the capital market and the economic developments in Israel and the wider world; examination of the implications of decisions and particular events relating to the workings of the ISA or the capital market; and generic research conducted by the department on subjects with wide ranging implications for the capital market. All this, while making use of databases and computerised indices developed and maintained by the department; moreover, the department is responsible for developing designated decision-supporting systems.

1. Economic Advice

The department gives economic advice and assistance to the ISA’s departments on subjects relating to the behaviour of markets and players in them, and the regulation of their activity, as well as the character of the products traded on the markets and the regulation of trade in them. Amongst the subjects it is involved in: Examining the efficiency of new regulation, examining the implications of repealing existing regulation, giving advice and accompanying enforcement entities in the ISA, and constructing models to map and manage systemic risk. Moreover, the Economic Department also takes part in working vis-à-vis international organisations.

The Economic Department leads two working teams: The Capital Market Team and the ISA’s Systemic Risk Management Team. Additionally, it participates in two working parties inside the ISA, and represents the ISA in inter-ministerial working parties. Moreover, it participates in public committees established by the ISA and by other entities.

2. Strategic Advice

The accumulated experience and research and applied knowledge, enable the department to provide strategic advice to the ISA’s chairman and its departments. The department analyses economic data and information, while monitoring global capital markets – trends, developments and regulation – emphasising development of products and trading platforms and entry of new players. This analysis provides the department with the factual basis and system-wide perspective on a range of regulatory fields which the Israel Securities Authority is charged with, constituting added value to the strategic decision making process at the ISA.

3. Economic Research

The Economic Department undertakes economic research with the aim of expanding the knowledge basis and understanding the capital market, and the range of tools to research and monitor the market. Some of these research papers are prepared jointly with research personal and academia outside the department. The purpose of these co- operations is to expand the resources available to perform research at the ISA, and thus to increase productivity and the span of research at the department. The co-operations are conducted, inter alia, by means of scholarships offered to researchers by the ISA.

B. Highlights of the Department’s Activities

Aside from the ongoing activity, the Economic Department also focuses on five main areas:

1. Development – Creating and developing the economic information infrastructure to support the ISA’s decision making process

In the setting of its activities, the department develops and continuously maintains databases, develops tools and computerised indices for sequential monitoring, and develops economic information infrastructure to support the ISA’s decision making process.

In the course of 2015, work on a range of systems has been completed, amongst which are: A system used to analyse intra-daily trade positions in shares comprising the Tel Aviv 25 Index and options on that index; a system to construct yield curves adapted to the IFRS standards.

2. Systemic Risk – Coordinating a team at the Israel Securities Authority and participating in an inter-ministerial think tank and an international think tank with the aim of identifying, monitoring, minimising and managing systemic risk

The financial crisis of 2008 and the environment of instability prevalent in the markets since, have significantly increased preoccupation with systemic risks – the risk that the operation of the entire system could be disrupted owing to an originating event (for instance, a crisis at a particular company or organisation), which would cause in its wake a crisis in the entire marketplace32. Academic papers and field tests conducted following the crisis, demonstrated the need to run a prudential macro policy at the regulatory authorities and in the capital market itself, and not only in the banking system.

To identify ahead of time, monitor and minimise, as far as possible, phenomena in the capital market that could develop into risks with systemic implications, the ISA created a dedicated team, whose work is coordinated by the Economic Department. The Economic Department characterises the information necessary from the ISA’s various departments and from existing databases, to develop tools and indicators that will assist in identifying systemic risk and evaluating its level, on an ongoing basis.

Since the beginning of 2012, an informal inter-ministerial team, the aim of which is to identify, monitor and minimise systemic risks in Israel, has been operating. The team members, who convene for discussions every other week, number representatives of the Bank of Israel, the Ministry of Finance, and the Israel Securities Authority. The Economic Department represents the ISA in the team’s ongoing work. The following

32 The following is the IMF’s definition of systemic risk, adopted by the International Organization of Securities Commissions (IOSCO): “A risk of disruption to financial services that (i) is caused by an impairment of all or parts of the financial system and (ii) has the potential to have serious negative consequences for the real economy.” subjects have been discussed and reviewed since the team started operating: Economic reviews, exposure of supervised entities to Europe and the possibility of a credit crunch in the market, examination of the implications of a sudden interest rise in the market, and the implications of stress scenarios (deterioration in the security conditions).

Over the course of 2015, a review of the impact of an ongoing low-interest environment on pricing risk in the market, took place.

3. Research and Study of Trends and Developments in the Marketplace

Global capital markets in general, and the Israeli one in particular, are changing at a rapid pace in light of technological changes, changes to the business environment, etc. These changes demand a constant and continuous examination of the trends in the market, and a need to adapt the regulatory framework.

In 2015 the department monitored the central issues in the capital market: The off-bank credit market, issues on the primary and secondary markets, algorithmic trading, the composition of institutional investors’ portfolios, executive compensation, capital market liquidity, the pyramidal ownership structure of business groups, dual listing companies, and debt restructuring arrangements.

4. Research and Study of Regulatory Processes – The Economic Department is Party to Examination of Future Regulation Together with Examining the Implications of Regulation Enacted in the Past

Appropriate regulation is carried out in a lengthy process, which begins with examining the market and understanding its needs, and ends with an examination, after the fact, of how the regulation affected the market. The Economic Department is a party to both the decision making process before regulation is enacted, and to studying its consequences.

At the end of 2012, Amendment 20 of the Companies Law took effect, which deals with manager pay at reporting corporations. Amendment 20 is founded on the recommendations of the Neeman Committee (the empirical factual basis for whose recommendations was research conducted by the department). Amendment 20 was designed to cause the decision making process on the subject of executive compensation at any given company, to be both transparent and wise, and lead to strengthening the bond between the structure of the compensation package and a company’s performance.

In this regard, in 2015, the Economic Department continued to monitor senior officer remuneration.

In November 2015, a paper was published on the ISA’s website, entitled: “Executive compensation in Israel 2011-2014”. The paper resents the developments which occurred in Israel to the levels of executive pay (amongst the highest paid managers) and its central components, in the first few years of the current decade. Moreover, the paper examined the connection between the structure of compensation packages and a company’s performance, samples gender pay inequality, and reviews the effectiveness of compensation scheme policy. To do so, data was collected on all listed companies who published their financial statements for 2011-2014. Furthermore, in 2014, a unique database was created that maps compensation scheme policy at all the companies comprising the Tel Aviv 100 Index, as approved by the companies’ shareholders’ representatives. This database served as a tool to examine the causal links between a company’s approved policy and the salaries it pays.

5. Economic Research – Research on Subjects Affecting the Policy Implemented in the Capital Market in Israel and on Subjects Affiliated to the ISA’s Purview and Goals

Research cooperation between the Israel Securities Authority and Academic Institutions

This year, similarly to previous years, the department held a competitive process, the goal of which is to recruit researchers from the academic world to work on joint research papers. The purpose of the process is to expand the ISA’s research infrastructure in the setting of the workings of the Department of Research, Development & Strategic Economic Consulting. Researchers with a Master’s Degree or higher, in a range of relevant fields, may participate in the program. Amongst the subjects: Developing the capital market and removing economic and regulatory failings, protecting the investing public, increasing investor confidence, and increasing the public’s awareness of issues in the capital market. In the setting of these cooperative efforts, this year, several research papers were published:

 “Is there a “deep market” for corporate bonds in Israel?”

This paper examines the question of whether a “deep market” for negotiable corporate bonds exists in Israel, as defined in IAS-19, to capitalise long term post-retirement liabilities to employees. The examination spanned two aspects of the phrase “deep market”: The macro-economic aspect, which looks at the financial system’s ability to provide liquidity (that is to say credit lines) to the real sector, and the micro-economic aspect, that looks into the level of the liquidity premium in the corporate bond market in Israel. The macro-economic review was conducted on the basis of daily trading data (monthly average) in corporate bonds from the beginning of 2004 and through to the beginning of 2014, categorised per linkage and rating segments. The results of the study show that the liquidity premium for linked corporate bonds rated AA and above, is similar to the premium measured for investment grade corporate bonds in the US, and therefore this sector is deemed to fulfil the conditions of a deep market.

 “Market Makers in Different Market Conditions: Is Timing Important?”

The paper studies the impact of a notice appointing a market maker under various market conditions. Findings show, that despite the notice’s positive contribution to liquidity in all market conditions and at all share trading levels, the notice appointing market makers could increase volatility accompanying the market trend in extreme market conditions, that is to say, a market characterised by sharp upswings and downswings. As to yields, in a bull market the impact is positive, as literature would indicate, but in a stable market the signalling mechanism is fully expressed, and therefore the market’s reaction is negative. This, contrary to literature, which did not distinguish between the various market conditions, and therefore forecast a positive reaction in all market conditions.  “High Volume Trading. Its Impact on the Capital Market and the Impact Regulation has on it”

This paper reviews the history of high volume trading – When was it recently used, and the expansion of using it over the years following technological developments in the capital market environment. The paper deal, inter alia, with the development of regulation concurrently with technological developments, and the regulatory and legislative response in the US, Canada and Europe, designed to solve the problems and increase investor protection vis-à-vis the new challenges.

6. Accompanying Enforcement Entities in the ISA and Outside it

In the course of its work, the department accompanies different enforcement entities in the ISA and outside it, amongst which are the securities Department at the Tel Aviv District Attorney’s Office (Taxation and Economics), on various subjects and at various stages of the enforcement process.

C. Highlights of Activities Planned for 2016

1. Monitoring developments in the market – Similarly to last year, the department will perform a range analyses of different topics relating to the development of the market, including the market’s liquidity, the number of issuing companies, and players’ concentration.

2. Economic research – Promotion of economic research on a diverse range of subjects which the department deals with, such as the impact regulatory changes have on the market, and changes in the financial industry. In the coming year, special emphasis will be placed on research related to the impact regulatory and legal arrangements have on the markets’ activity. Research will deal, inter alia, with distribution of dividends from re-valuation profits, the impact Amendment 20 has on manager remuneration at public companies, the level of centralisation in the business groups, the voting system, internal audit and characterisation of HFT (high frequency trading) offences. Moreover, a reform centred around market making for government bonds will be examined (jointly with the Accountant General’s Office).

3. Economic opinions – Producing economic opinions, both per need and upon demand from the chairman or the departments, on a range of subjects related to the departments’ and the ISA’s activities, focusing on the implications of regulation and its costs, and regarding new trends, products, and players in the market.

4. Development – Development and assimilation of technological means to improve the efficiency of the Economic Department’s workings in particular, and that of the ISA in general. Inter alia, an index will be developed for the time necessary for the capital market to “digest” information, and the development of designated systems to monitor market activity will continue, which includes supporting new types of trading orders added by the Stock Exchange.

5. Systemic risk – Continued action in teams with the aim of identifying, monitoring, minimising and managing systemic risks. In this, over the coming year, an examination will be conducted of the impact of adopting international scale of credit rating in Israel.

6.4. Investigations, Intelligence & Market Surveillance Department

A. General

The Investigations, Intelligence & Market Surveillance Department at the ISA implements the chairman’s policy regarding increasing deterrence and enforcement, improving the efficiency of handling investigations and administrative inquiries, and supervising trading regularity. Moreover, the department promotes issues relating to complementary enforcement methods. B. Highlights of Activity in 2015

1. Criminal Investigations – Over the course of 2015, the Investigations, Intelligence & Market Surveillance Department investigated events relating to initiatives to raise funds from the investing public without a prospectus, while creating misrepresentations or without a portfolio manager’s license. The department also investigated the trading activity of securities which took place in the accounts of institutional investors, in the course of which officers and employees in those entities apparently acted to gain profits, committing activity suspected of being securities fraud. Additionally, the department detected and investigated events in which activity suspected as fraudulent motivating by means of false publications in internet-based forums, as well as events suspected of including misleading details in financial statements.

2. Administrative Inquiries – In the course of the departments activity, administrative inquiries were conducted, the findings of which are conveyed to the ISA’s chairman for the purpose of deciding whether to institute administrative proceedings. The inquiries in 2015 related mainly to violations connected to the reporting corporations’ disclosure duties in immediate reports and financial statements, securities fraud, and trading of restricted shares.

3. Market Surveillance – The Market Surveillance Unit operates on two spheres: focused action to detect irregular activity which could indicate offences and violations of the Securities Law, and detecting and analysing trade phenomena and trends.

Over the course of 2015 the unit acted to calibrate the BI System (Business Intelligence), and to develop and improve algorithms to detect and identify irregular market activity. Moreover, the unit developed, in the course of the year, automated analysis tools to improve the efficiency of the analysts’ work in analysing market events. Market events surveyed which raised a suspicion of offences against, and violations of, the Securities Law, were transferred for to be handled by the Intelligence and Investigations Units.

4. Legal Inquests – As part of the ISA’s strategy to integrate with globalisation processes, the department continued, over the course of the passing year, to respond to applications from foreign authorities to conduct legal inquests in the setting of the treaties to which it is a signatory. In 2015, the number of such applications increased markedly. 5. Cooperative Efforts – The Department participates in the activities of other enforcement agencies in the setting of the battle the Israeli authorities are waging to eliminate financial crime.

Table 17: Distribution of investigation files the Investigation Unit began handling in 2011-2015, per offence type33 (exclusively criminal) Offence Type 2011 2012 2013 2014 2015 Total Securities fraud 4 5 5 5 3 22 Use of inside information 4 - 3 2 3 12 Misleading detail or failure to report (in a prospectus, financial statement or 1 - 1 2 3 7 immediate report) Stock Exchange member offences and - 1 1 - 1 3 offences under the Advice Law Offences against the Penal Law: bribery, 2 - 1 1 1 5 theft, obtaining by deception Total 1134 6 11 10 11 49

Table 18: The Investigations, Intelligence & Market Surveillance Department assisting foreign authorities (legal inquests) in 2011-2015 2011 2012 2013 2014 2015 Total Legal inquests 6 6 9 4 16 41

Table 19: Files in which a determination was made regarding prima facie evidence an offence was committed in 2011-2015 Year Files in which there was no Files in which there was a Total determination that there is prima determination that there is prima facie evidence offences were facie evidence offences were committed committed 2011 1 14 1535 2012 0 3 336 37

33 The classification per type of offence was made according to the offence in the main file. 34 These data include one file span off from an existing file, and do not include administrative inquiries instigated in that year. 35 This datum does not include 7 files of legal inquests the findings of which were passed on to the foreign commission. 36 This datum does not include 9 files of administrative inquiries passed on to the chairman for the first time in the course of the year; see separate table. 37 This datum does not include 10 files of legal inquests the findings of which were passed on to the foreign commission. 2013 0 10 1038 2014 2 8 1039 2015 3 9 1240 Total 6 44 50

Table 20: Distribution of investigation files passed on to the District Attorney’s Office, per principal offence type, 2011-2015 Offence Type 2011 2012 2013 2014 2015 Total Securities fraud 1 3 5 4 8 21 Use of inside information 3 2 2 4 2 13 Misleading detail or failure to report (in a prospectus, financial statement or 2 3 2 1 1 9 immediate report) Offences under the Advice Law - 1 - - - 1 Offences against the Penal Law: bribery, 3 3 - 1 2 9 theft, obtaining by deception Offences under the Joint Investment ------Law Total 9 12 9 10 13 53

Table 21: Distribution of investigation files passed on to the Investigation Unit, per offence type in 2011-2015 Offence Type 2011 2012 2013 2014 2015 Total Securities fraud 2 2 2 1 3 10 Use of inside information - 3 - - - 3 Reporting violations and misleading details (in a prospectus, financial 1 - 7 8 4 20 statement or immediate report) Violations connected with trading 1 2 - - 2 5 platforms and the Advice Law Total 4 7 9 9 9 38

Table 22: Distribution of administrative inquiry files passed on to the chairman, per principal offence type, 2012-2015 Offence Type 2012 2013 2014 2015 Total

38 This datum does not include 9 files of legal inquests the findings of which were passed on to the foreign commission. Moreover, this datum does not include 7 files of administrative inquiries passed on to the chairman in the course of the year; see separate table. 39 This datum does not include 6 files of legal inquests the findings of which were passed on to the foreign commission. 40 This datum does not include 11 files of legal inquests the findings of which were passed on to the foreign commission. Securities fraud 3 2 - 2 7 Use of inside information 1 1 - - 2 Reporting violations and misleading details (in a prospectus, financial 2 4 6 6 18 statement or immediate report) Violations connected with trading 3 - - - 3 platforms and the Advice Law Total 9 7 6 8 30

Table 23: Files the Investigation Unit began handling in 2011-2015 (excluding legal inquests) 2011 2012 2013 2014 2015 Total Criminal offence files 11 6 11 10 11 49 Administrative inquiry files 4 7 9 9 9 38 Total 15 13 20 19 20 87

At the end of the year reported, the Investigations, Intelligence & Market Surveillance Department had 12 investigation files the investigation of which had not yet concluded, and 7 administrative inquiry files the inquiry in which had not yet been concluded. Similarly, 11 legal inquests remained open.

6.5. Stock Exchange & Trading Platforms Supervision Department A. General

1. The Purview of the Stock Exchange & Trading Platforms Supervision Department

a) Stock Exchange supervision

1) The department coordinates, on behalf of the ISA, supervision and surveillance of the proper and fair management of the Tel Aviv Stock Exchange. The department’s authority derives from provisions in the Securities Law, and in particular Chapter H of the Law, which deals with the ISA’s responsibility to supervise the proper and fair management of the Stock Exchange and with its authority to prescribe provisions in the Stock Exchange’s code and guidelines.

2) The department ensures that the supervision operated by the stock exchange over its members focuses on material issues, and is conducted by proper methods and with suitable tools, to minimise failures and risks inherent in members’ activities.

3) The department’s representatives serve as observers on the Stock Exchange’s Board of Directors and committees.

4) The department examines the Stock Exchange’s suggested amendments of the Stock Exchange’s code and guidelines, and recommends on this matter to the ISA’s plenum.

5) The department examines pre-rulings applications presented to the ISA regarding the exchange license requirement under the Securities Law.

b) Supervision of clearing houses

1) The department acts to secure supervision of the Stock Exchange’s Clearing Houses and to ensure its stability and efficiency under the ISA's authorities as specified in the Securities Law.

2) The department’s supervision of the clearing houses includes, inter alia, examination of the clearing houses’ rules and their compliance with the clearing and payment systems requirements applicable according to internationally accepted standards.

3) The department’s representatives serve as observers on the Clearing House’s Board of Directors and committees.

c) Supervision of trading platforms

1) In the setting of Amendment 42 of the Securities Law, Chapter G3 was added to the Law, governing trading platforms to its own account (hereinafter: “Trading Platforms”). Under this amendment, the department is responsible for the examination of license applications. 2) In the duration of 2015, 21 companies applied for a license, and the department examined the applications in accordance to the terms and conditions prescribed by the Law.

3) The department will be responsible for the future ongoing supervision of the trading platforms that are granted a license. The supervision will ensure compliance with relevant provisions of the Securities Law and the regulations promulgated thereunder, and the ongoing proper and fair operation of Trading Platforms.

d) Supervision of non-bank stock exchange members regarding the prohibition of money laundering and financing terrorism

The department supervises implementation of the provisions of the Prohibition of Money Laundering Law 5760-2000 (hereinafter: the “Prohibition of Money Laundering Law”) and the Prohibition of Money Laundering Order (Identification, Reporting and Keeping Records Requirements by Stock Exchange Members for the Purpose of Preventing Money Laundering and Financing of Terrorism) 5770-2010 (hereinafter: the “Prohibition of Money Laundering Order”) by non-bank members of the Stock Exchange. In the setting of this work, the department carries out the following tasks:

1) Promotion of legislative amendments to the Prohibition of Money Laundering Order, jointly with the Legal Counsel’s Department.

2) The Publishing of questions and answers (FAQs) regarding implementation of the provisions of the Prohibition of Money Laundering Law and the Prohibition of Money Laundering Order.

3) The publishing of professional circulars on the interpretation of the Prohibition of Money Laundering Law and the Prohibition of Money Laundering Order in matters of lateral implication, provisions which are not deemed sufficiently clear or which require additional clarification, or when the language of the provisions is general and requires detailing.

4) Processing and responding for applications regarding the interpretation of the provisions of the Prohibition of Money Laundering Law and the Prohibition of Money Laundering Order, and their implementation on an ongoing manner.

5) Participation in joint forums with other government and regulatory entities.

6) Conduction of audits to examine non-bank stock exchange members’ compliance with the provisions of the Prohibition of Money Laundering Law and the Prohibition of Money Laundering Order, and formulation of its position on the need to take enforcement actions. 2. Highlights of the Activities Planned for 2016

a) Accompanying the legislation process regarding the structural changes to the Stock Exchange’s ownership, from a partnership model to a for-profit corporation 1) The Tel Aviv Stock Exchange is a private company incorporated in 1953. Under the Securities Law, the Stock Exchange is a not-for-profit company, that is to say it is prohibited from distributing profits. Additionally, under the current structure, ownership and membership are indistinguishable. Hence, access for trading services is given only to exchange members who also have ownership rights. The Committee for Increasing Trading Competition and Committee for Encouraging Market Liquidity41

2) proposed a structural change, which would constitute a significant part of changing the Stock Exchange’s character, and adjusting its operation to modern markets reality. According to the proposed change, the Stock Exchange would become a for-profit corporation, and ownership and voting rights would be separated from membership. The main purpose of this process of structural changes, is to transform the Stock Exchange into a more competitive and efficient entity, which would have better capability to compete globally and locally.

Another aim of this process is to expand the membership of the Stock Exchange, and enable access to a larger number of entities. After the structural change, access to trading will no longer be dependent on ownership rights, but instead would be based on contractual relations between the Stock Exchange and the potential members, which would facilitate the increasing of access rights. Currently, there are 26 members with access to trading on the Tel Aviv Stock Exchange, significantly less than in equivalent entities abroad. The transition from a not-for-profit to a for-profit corporation, where ownership will be separated from trading access, will enable the Stock Exchange to respond more effectively to competitive pressures, and act independently of the individual interests of members, thus establishing a simple and efficient “market oriented” stock exchange. The structural change will require the Stock Exchange to focus on its business in a way which serves its own the interests, as well as those of its shareholders and all those using its services, and not only members’ interests.

Moreover, separating ownership from trading access, is designed to lay down a solid and necessary foundation for future strategic cooperation with foreign stock exchanges, the operation of additional stock exchanges in Israel in the future, and to raising capital by the Stock Exchange itself. From a wider perspective, the proposed change is designed to strengthen the Stock Exchange’s status as a fundamental infrastructure of the Israeli economy and to expand its activity. Simultaneously, the suggested change is expected to ensure that the Stock Exchange acts to promote fairness and efficiency of trading. These in turn will increase public confidence in the capital market and incentivize corporations to list for trading on the Stock Exchange, thus increasing trading volumes on both the primary and the secondary markets.

b) Examining the stock exchange’s clearing houses’ compliance with the requirements imposed on payment and clearing systems according to international standards and principles. Mapping gaps and monitoring actions

41 The Committee submitted its recommendations in April 2014 as part of the final report. taken by the stock exchange’s clearing houses to adjust itself to the international requirements. The process is designed to enable ISA to declare the clearing houses to be “Qualifying Central Counter Parties” (hereinafter: “QCCP”).

Recognising the risks inherent in clearing and settlement activity, has driven the BIS and IOSCO to establish a special Committee on Payment & Settlement Systems (CPSS), which formulated a document of international principles (hereinafter: the “Core Principles”) to be applied to financial market infrastructures, which include central securities’ and derivatives’ clearing systems operating as a central counter-party (CCP) and as a Central Securities Depository (CSD). The Committee’s report42 was published in April 2012, and contains 24 Core Principles. These principles extended and strengthened the ten Core Principles set several years earlier by the BIS.

In May 2015, the Supervisor of Banks published a directive based on the Basel Accords, relating to equity requirements for banking corporations which trade in derivatives and thus use the services of a CCP. The directive prescribes that when allocating capital against exposures to a CCP that does not qualify, these exposures must be weighted according to the level of relevant risk. However, the additional allocation is not required against exposure to a qualifying CCP. For the Stock Exchange’s Clearing Houses to be deemed qualifying, a declaration from the ISA is required that will approve the CCP's operation according to the core principles. The Supervisor of Banks’ directive is expected to gradually take effect by 30th June 2017.

c) A Provision to ensure the proper ongoing operation of the Tel Aviv Stock Exchange Ltd.’s Clearing House and the Maof Ltd. Clearing House

In December 2015, the ISA’s plenum approved a provision to ensure the proper ongoing operation of the Stock Exchange’s Clearing Houses under Section 50C(b) of the Securities Law. The provision contains, inter alia, regulation of corporate governance, settlement arrangements, risk management, guarantees, clearing member’s default procedure, membership requirements, information disclosure, equity, liquidity and insurance requirements.

d) Assessment of the equivalency of CCPs regulation in Israel with its corresponding regulation in Europe.

The EU Commission has contacted the ISA to complete an assessment process aimed to establish the level of equivalency between the corresponding regulations. In the setting of the process, a detailed questionnaire reviewing regulation and existing arrangements in Israel is to be answered. The questionnaire will enable the Commission to examine the regulation in Israel as compared with their European counterparts. Completing the assessment process is required under the European Market Infrastructure Regulation (EMIR) for the purpose of securing formal recognition from the European Securities and Markets Authority (ESMA), as a clearing house entitled to provide settlement services to European entities. Recognition as a QCCP under the EMIR rules also

42 Principles for Financial Market Infrastructures – April 2012. involves completing the legal infrastructure to license the clearing houses and their ongoing supervision, necessary under such standards.

e) Processing trading platforms license applications. The processing includes examining applicants’ compliance with the terms and conditions set by the regulation, and formulating recommendations regarding ISA's decisions on license applications and its terms.

f) Commencing supervision over licensed trading platforms.

g) Performing audits of non-bank members of the Stock Exchange in the aspect of prohibition of money laundering and financing of terror.

h) Completing the national risk assessment process in the aspect of prohibition of money laundering and financing of terror.

i) Completing the legislative amendment of the Prohibition of Money Laundering Order applicable to non-bank members of the Stock Exchange.

B. The Department’s Activities

1. Supervision of the Stock Exchange and Clearing Houses

a) Attending the Stock Exchange’s Board of Directors and committee meetings.

Over the course of the year, the department’s representatives accompanied meetings held by the Stock Exchange’s Board of Directors and its committees, as well as the meetings of the Clearing Houses’ Boards of Directors. In the setting of this activity, the department’s representatives also attended the meetings of the Audit Committee, the Remuneration Committee and the Chairman nomination committee.

b) Changes to the Stock Exchange’s rules and the guidelines issued thereunder

In the setting of the ISA’s supervision of the proper and fair operation of the Stock Exchange, the ISA’s recommendation to the Minister of Finance is a precondition to amending the Stock Exchange’s rules. Moreover, the ISA’s approval of the Stock Exchange’s proposals to make changes to its guidelines, is necessary. Correspondingly, the ISA discussed and approved proposals submitted by the Stock Exchange to amend its guidelines, and recommended adopting amendments proposed by the Stock Exchange to amend its rules, as follows:

On 22nd February 2015:

 The ISA recommended that the Minister of Finance approve amending the rules, and concurrently approved amending the guidelines, according to which the term “Business Day” be replaced by the term “Trading Day”.

 The ISA approved amending the price list (an appendix to the guidelines) regarding settlement of foreign company securities on Euroclear.  The ISA approved an amendment to the guidelines regarding listing exchange traded notes – adding a stipulation limiting the weight of the issuer of index bonds and convertible bonds serving as the exchange traded notes’ underlying assets.

 The ISA approved an amendment of the guidelines regarding the base rate of a new company that was spun off.

On 11th June 2015:

 The ISA approved an amendment to the guidelines regarding maximal value of guarantees for financial assets.

 The ISA approved an amendment to the guidelines regarding the base rate in the event a security is replaced following a merger.

 The ISA approved amending the guidelines and the price list (an appendix to the guidelines) regarding proposals to update the Stock Exchange’s price list.

On 10th September 2015:

 The ISA approved amending the price list (an appendix to the guidelines) regarding a lending action on the clearing house.

 The ISA approved an amendment to the guidelines regarding non-calculation of the X rate on a corporate bond of a company which has been appointed a receiver or a liquidator.

 The ISA approved an amendment to the guidelines regarding changes to the stages of submitting instructions for options.

 The ISA approved an amendment to the guidelines regarding the base rate when securities are replaced otherwise than pursuant to a merger.

 The ISA approved an amendment to the guidelines regarding the maximal value of guarantees for government bonds (“Haircut”) on clearing houses and for non-bank members of the Stock Exchange.

 The ISA recommended that the Minister of Finance approve amending the rules, and concurrently approved amending the guidelines regarding changes to the holdings of shares of a non-bank member of the Stock Exchange and regarding employee option allocation.

 The ISA approved temporary guidelines regarding the definition of a project in a limited partnership, operating in the field of oil and gas exploration.

On 25th October 2015:

 The ISA approved temporary guidelines regarding preference share allocation.

 The ISA approved an amendment to the guidelines regarding the trade unit of hybrid bonds.  The ISA recommended that the Minister of Finance approve amending the rules in the matter of listing limited partnerships.

 The ISA approved an amendment to the guidelines regarding the schedules for payment and the last day of trading.

 The ISA approved amending the price list (an appendix to the guidelines) regarding a reduction in the commission for registering commercial paper.

On 26th November 2015:

 The ISA approved an amendment to the guidelines regarding threshold requirements in the stock exchange’s indices – affiliation to Israel and weight ceiling for shares added to the indices.

 The ISA approved amending the price list (an appendix to the guidelines) regarding the Bank of Israel commission for the use of Real Time Gross Settlement (RTGS) System.

c) Answering pre-ruling applications regarding the exchange license requirement.

Over the course of the year, the department’s representatives processed several applications for a pre-ruling regarding exchange license requirement in Israel, filed mainly by foreign stock exchanges when contacting Israeli companies trading for their own account, and which meet the conditions detailed in the First Schedule of the Securities Law, to be accepted as members of those stock exchanges.

2. The Trading Platforms

a) Examining license applications

 According to the transitional provisions prescribed in the Securities Regulations (Trading Platforms to Own Account) 5774-2014, a company that filed an application for a license to manage Trading Platforms by the date the Law and the Regulations commence, 26th May 2015, would be entitled to continue to operate after that date as long as its application is being processed.

 By the date of commencement, 21 companies applied for a license. The department is responsible for reviewing the license applications.

 Inter alia, the department examines the following conditions: Control of the company’s business and its management are exercised in Israel; if they are not – the company’s ability to fulfil all the provisions of the law and regulations and it's enforceability; the sole purpose of the company is the management of Trading Platforms; the company has adopted an approved trading code; the company has proper technical skills and suitable means to operate a Trading Platform; the company meets the requirements regarding self-funds, liquid assets and insurance.

 The ISA is entitled to reject an application of an applicant firm who successfully met all the terms and conditions of the license, for reasons relating to its reliability, or the reliability of a senior employee, or of the controlling shareholder.

 Moreover, in addition to the license, the controlling shareholder of a trading platform must secure a permit. The department is responsible for reviewing the applications to obtain such control permits.

 The ISA is entitled to prescribe in a Trading Platforms’ license, the types of financial instruments that can be traded on the platform, and is entitled to limit it, inter alia, to the types of actions which the licensee is entitled to perform, or to the class of clients who will be entitled to trade on the platform. b) Publication of position papers interpreting different aspects of the Law and regulation and of the application process.

Over the course of 2015, the ISA’s staff issued four public legal position papers regarding the applicability of the law and the licensing procedure. The following are their highlights in order of publication dates.

8th January 2015:

 A legal position paper regarding the requirement to describe the technological system in the additional details report, presented to the ISA as part of the application for a Trading Platforms license. Under the regulations, applicants must include in the application a description of the technological system used to provide its services. Following questions addressed to the ISA, clarifications were published regarding the necessary description of the technological system. The ISA stipulated that the description must include, inter alia: Details of the logical and physical information security mechanisms serving the system; details of the permissions’ mechanisms; details of the back-up and restoring mechanisms, which include data and software; reference to dependence on development and maintenance parties for the information systems (intra-organisational or external); description of dependence on external suppliers – details of the contractual mechanisms, service levels (SLA), the mechanism to disengage the supplier, supplier control mechanisms, etc.

15th January 2015:

 A legal position paper regarding qualifying customers for Trading Platforms. The staff’s position specified acceptable methods which will use the trading platforms in client classification and whether or not clients are meeting the qualification conditions set by Section 44DD of the Law – regarding the limit of the law’s applicability – and under Regulation 4 (regarding exemption from the leverage limit). In addition, the staff stipulated that training in courses, training sessions or similar study set ups, will not consist as adequate skills and expertise necessary to define a person as a qualifying client for the purposes of the aforesaid limitations.

1st March 2015:  A legal position paper regarding the necessary details in the setting of the trading code of a licensed trading platform. One of the conditions to securing a Trading Platforms license is that the company has adopted a code that has been approved by the ISA. Following questions referred to the ISA, the staff published clarifications regarding the proposed code. Inter alia, the staff determined that the code must include the following items: conflict of interests’ policy, details of the financial instruments traded on the platform and their terms and conditions, rules regarding trade on the Trading Platforms, rules regulating the surety requirements and trading limitations.

1st March 2015:

 A legal position paper regarding the territorial applicability of Amendment 42 of the Law. The staff’s position dealt with the question of whether a Trading Platform managed, wholly or partially, in Israel, which exclusively serves overseas customers, and does not grant trading access to customers in Israel, is required to file a license application in Israel. The ISA’s position is that a Trading Platform which does not enable trading access to customers in Israel, is not subject to the Law. c) Answer to pre-ruling applications on the Trading Platform license requirement

Over the course of the year, the department’s staff dealt with requests for pre- rulings on the Trading Platforms license requirement in Israel.

26th October 2015:

 A currencies conversion system executing spot transactions – The applicant sought the ISA’s concurrence that managing a system enabling execution of spot transactions, described in the pre – ruling application, does not necessitate a license to manage a Trading Platform under Section 44M of the Securities Law. The staff replied that the spot transactions described, subject to additional conditions detailed in the staff’s reply, are not deemed a “financial instrument” and therefore the activity described does not require obtaining a license to manage Trading Platforms under Section 44M of the Law. d) Publication of FAQs and staff notices

Over the course of the past year the department had provided answers to questions pertaining to implementation of the new Trading Platforms regulation. In doing so, the department seeks to reduce uncertainty in the industry. The department published FAQs on the subjects of the licensing process and the equity and insurance requirements. e) Promoting complementary legislation to regulate Trading Platforms

Over the course of 2015, the department worked jointly with the Legal Counsel’s Department to promote complementary legislative amendments necessary to assure effective regulation of Trading Platforms. The following are the amendments completed:  A Prohibition of Money Laundering Order applicable to Trading Platforms. The Order was published in the Official Gazette in December 2015 and took force in June 2016.

 The Securities Regulations (Secured Email) 5773-2012; the Securities Regulations (Electronic Signing and Reporting) 5763-2003, inclusion of Trading Platforms. The amendments were approved by the Knesset in August 2015.

f) Preparing the infrastructure to examine license applications and for ongoing supervision

In the duration of 2015, the department coordinated the processing of applications filed by companies for trading platforms permits and licenses. After licenses will be granted, the department will coordinate supervision of the proper and fair management of the Trading Platforms, and will examine the license holding companies’ compliance with the provisions of the Securities Law and the regulations promulgated thereunder. The department continues to draft and develop organisational, legal, and technological infrastructure, to implement these tasks.

3. Supervising Compliance of Non-Bank Members of the Stock Exchange with the Money Laundering and Terror Financing Duties

a) National risk assessment

Over the course of 2015, the department participated in a National Risk Assessment process, as part of an inter-regulatory working group of the regulatory entities. The process was designed to assess the risks facing the State of Israel in the field of the prohibition of money laundering and financing of terrorism. Its purpose on a departmental level was to identify the vulnerabilities and central threats in the field of money laundering and financing of terrorism, relating to the activities of the members of the Stock Exchange who are not banks, and in the field of securities trading. The process included collection and analysis of relevant information from the non-bank members of the Stock Exchange and from other sources. The threats and weaknesses analysis is expected to be incorporated into the overall national risk assessment, and be the basis for a future working plan founded on the outcomes of the risk assessment, including setting implementation priorities.

b) Staff position papers

Over the course of 2015, the department published two position papers relating to the requirements applicable to non-bank members of the Stock Exchange in the aspect of money laundering and financing of terrorism:

 A circular regarding risk management for the purposes of preventing money laundering and financing of terrorism, clarifying how a non-bank member of the Stock Exchange must implement various requirements imposed on it under of the Prohibition of Money Laundering Law and the Prohibition of Money Laundering Order.  A circular regarding the requirements applicable to non-bank members of the Stock Exchange regarding the prohibition of money laundering and financing of terrorism with reference to the Tax Authority’s voluntary disclosure process. c) FAQs

Over the course of the past year, the department published FAQs relating to the process of know your client in a closed system under Section 8 of the Prohibition of Money Laundering Order. d) Conducting audits of compliance with the provisions of the Prohibition of Money Laundering Order

 Over the course of 2015, a thorough audit was completed, designed to expand familiarity with non-bank members of the Stock Exchange and the way they operate to prevent money laundering and financing of terrorism, and to identify the main threats and industry crosswise difficulties in this field.

 Over the course of 2015, four focused audits were carried out, to examine the compliance of non-bank members of the Stock Exchange with the provisions of the Prohibition of Money Laundering Law and the Prohibition of Money Laundering Order. e) Promoting legislative processes

Over the course of 2015, the department, jointly with the Legal Counsel’s Department, promoted legislative amendments to the Prohibition of Money Laundering Order applicable to non-bank members of the Stock Exchange: Amendment of Section 8 of the Prohibition of Money Laundering Order was approved by the Knesset in July 2015, and took effect in December 2015.

 The amendment of the Prohibition of Money Laundering Order was published for public comment in October 2015.

6.6. Legal Counsel A. General

1. The Legal Counsel’s Purview and Functions

The Legal Counsel has three main functions:

A) Providing legal advice related to the ISA’s activities and supervisory powers

In the course of performing this function, the Legal Counsel deals with policy issues and lateral decision making in a particular area or on a particular subject (such as legislative initiatives and legal interpretation of the law, which may affect the entire market, or a sector in the marketplace), decisions on specific issues of particular significance (for instance, enforcement decisions relating to supervised entities, and legal staff position papers), and promotion of the main projects on the ISA’s agenda.

Aside from legal advice to the ISA’s plenum, committees and chairman, the Legal Counsel also guides the various departments, provides them with legal support, and monitors their activities. This, is to ensure that activities correlate to the ISA’s powers, policy, and positions.

The Legal Counsel may, when needed, interface with external entities (such as other regulators, the State Comptroller, etc.), and is involved in legal proceedings in which the ISA is a party or in which it is involved in (such as criminal, administrative or civil proceedings – which may include class actions, derivative actions, etc.). The Legal Counsel coordinates handling public complaints and applications under the Freedom of Information Law. Moreover, the Legal Counsel deals with professional training of jurists in the ISA, and participates in various professional forums outside the ISA.

B) Legislation

The Legislation Unit in the Legal Counsel Department is responsible for providing solutions to all the ISA’s many legislative needs. The unit is responsible for leading and promoting regulation relating to the ISA’s activities in the subjects within its purview, and represents the ISA’s position in legislative processes that were not initiated by the ISA, but which are relevant to its purview. The unit cooperates with the various departments in the ISA, each according to the issues under its supervision, and with the various government ministries, the Knesset, and other entities involved in the process of legislation. Aside from which, the unit is also in dialogue with the various supervisees, and the investing public, during the various stages of the legislative process.

C) Organisational legal advice

In the setting of this function, the Legal Counsel provides the ISA, as an organisation, with legal advice, similarly to the function of a legal counsel department at any company or public authority, integrating the unique characteristics connected with the ISA’s structure and powers. In recent years, the ISA has significantly increased in size, both in the number of employees and in the scope of its purview, and as a result, is required to deal with an increasing number of questions relating to general legal issues, such as tender law, employment law, etc.

2. Highlights of Activity in 2015

A) The Deregulation Program – Approval of the second round of deregulation by the Knesset and promoting the third round of deregulation for the purpose of tabling it on the Knesset’s agenda.

B) Structural Changes to the Stock Exchange – Discussion of the public’s comments, and tabling the memorandum draft of changes to the Stock Exchange’s organisational structure, for approval by the ISA’s plenum.

C) The Research and Development Law – Pushing the Knesset to pass the proposed Law to Promote Investment in Elite Technology (High Tech) Companies (Legislative Amendments) 5776-2015 (hereinafter: the “R&D Law”), designed to implement the recommendations of the Committee for the Promotion of Investment in Public Companies Operating in the Field of Research and Development.

D) Legal Proceedings – Handling a range of legal proceedings in which the ISA was involved, including proceedings relating to the definition of “Securities” (In re Kedem), decided by the Supreme Court, and proceedings regarding a purchase offer made by a foreign company to buy a dual listed company (In re Mylan – Perrigo), decided by the Economic Division of the District Court.

E) Handling Unsupervised Investments – Handling the phenomena of unsupervised investments in various spheres, including reviewing initiatives offering financial services to the public, enforcement, position papers relating to the law’s applicability, and legislative amendments.

F) Individual Enforcement – Involvement in private enforcement proceedings, mainly by participating in financing class actions and derivative actions.

3. Highlights of the Activities Planned for 2016

A) The Deregulation Program – Over the course of the current year, the second round of deregulation was completed, which included a list of legislative amendments designed to ease the regulatory burden on reporting corporations and mutual funds. In the coming year, the promotion of the third round of deregulation is expected to continue apace, dealing with easing the regulatory burden on companies offering their securities to the public for the first time (IPOs), and which will possibly also include additional deregulation pertaining to small companies.

B) Structural Changes in the Stock Exchange – Promoting the legislative process, in the Knesset, to regulate the activity of a stock exchange operating for profit. C) Regulations Under the R&D Law – Over the course of the current year, the R&D Law was passed. Further to which, in the coming year, the Knesset is expected to promote a series of regulations to complement the Law.

D) Interpretation of Securities Law – The Legal Counsel deals with interpreting securities law on an ongoing basis, in order to protect the investing public and promote legal certainty in the field. Over the course of the passing year, the Legal Counsel handled, inter alia, questions relating to offering securities to the public, inside information offences, and securities fraud, in the setting of the staff’s position papers and answers to pre-rulings published at large. In the coming year, this work is expected to continue.

E) Handling Unsupervised Investment – Continued dealing with the phenomena of companies making offers to the public at large to invest in unsupervised activities. Some unsupervised activity constitutes violation of securities law. The activity in this regard, includes publishing warnings to the public, reviewing unsupervised activity, conducting proceedings before the courts, and managing enforcement proceedings.

B. The Department’s Activities

1. Main subjects handled by the Legal Counsel in 2015

Over the course of 2015, the Legal Counsel was involved in handling central lateral issues in the ISA’s activity, concurrently with handling many issues in the ordinary course of its business (refreshing procedures, answering requests for pre-rulings, handling legal proceedings to which the ISA is party, and petitions to fund class and derivative actions), while accompanying the relevant professional departments at the ISA. The following are details of the main subjects dealt with by the Legal Counsel in the course of 2015:

A) The Deregulation Program

Further to the deregulation outline published in September 2012, and following an extensive public comment process, processing and applying the comments to the proposed legislation drafts, in 2015, the second round of deregulation was approved, which included amendment of several regulations. The aim of the deregulation program is to reduce, in a proportional and balanced manner, the regulatory burden imposed on the entities supervised by the Israel Securities Authority, where this is feasible, while still protecting the interests of the investing public. This is done to develop the capital market, which is a vital factor for growth in the Israeli economy. The second round of deregulation mainly dealt with allowances in the area of immediate reports made by reporting corporations, and granting reliefs relating to updating and refining the methods of offering securities to the public (see hereinafter – “Secondary Legislation Published in the Year Reported”). Concurrently, additional legislation amendments were pursued, to be approved in the third round of deregulation.

B) Structural Changes to the Stock Exchange Following the conclusions of the Committee to Encourage Stock Exchange Liquidity, the ISA began acting to change the legal infrastructure, to enable the Stock Exchange to operate as an efficient business entity. The purpose of the legislative amendment, is to transform the Stock Exchange into a profit pursuing company, so that it may truly complete with stock exchanges in international markets; expand membership of the Stock Exchange, and make the Stock Exchange more accessible to a larger number of entities with rights of access to trading; and updating the supervising arrangements to correspond to the new state of affairs.

C) The Research and Development Law

Over the course of 2015, the Knesset passed legislation designed to implement the recommendations of the Committee to Promote Investment in Public Companies Operating in the Field of Research and Development, published in January 2014. The aim of the law is to strengthen the Stock Exchange as a significant alternative to finance R&D companies, while increasing the likelihood that these companies will grow in Israel, reducing their dependence on external financial markets, and refining the workings of the Israeli capital market for the benefit of all those investing in it. Three main subjects are covered by the law: laying down the legal infrastructure for the option of raising equity from, or issuing debt to, the public, through crowd- funding, granting reliefs and adaptations in the requirements of disclosure in prospectuses and current reports for high tech companies listing for trade on the High Tech Index on the Stock Exchange, and laying down the legal infrastructure to establish listed high tech funds.

D) Legal Proceedings

In recent years, the number of legal proceedings in which the ISA has been involved has increased, and they deal with subjects of the highest order of importance. Over the course of 2015, some cases worthy of noting, include proceedings relating to the definition of “Securities” (In re Kedem), where the ISA appealed the judgement of the District Court, and the Supreme Court accepted its position, in a judgement dealing with securities law applicability. Another precedent set, related to a purchase offer made by a foreign company to buy shares in a dual listed company (In re Mylan – Perrigo), decided by the Economic Division of the District Court, where the ISA’s position was again accepted by the courts.

E) Handling Unsupervised Investments

The phenomenon of unsupervised investments has expanded in recent years, most likely owing to the low interest environment and technological measures (chief amongst which is the Internet) making public access easier. Handling these phenomena was done on several spheres, and required significant inputs such as: reviewing initiatives offering financial services to the public, enforcement, position papers relating to the law’s applicability, and legislative amendments.

F) Individual Enforcement

Over the course of 2015, the ISA continued to be involved in private enforcement proceedings of securities law and company law, in two main channels: (a) by participating in financing class actions and derivative actions pursuant to the power granted to the ISA under Section 55C of the Securities Law (which replaced Section 209 of the Companies Law) and Section 205A of the Companies Law, respectively; (b) examining settlement arrangements in such proceedings, and involvement in them.

Over the course of 2015, the ISA has made principled decisions to assist the financing of five new proceedings. By the end of the year reported, the ISA had aided the finance of 20 proceedings. The assistance is expressed, usually, by financing expert opinions, the costs of which are high.

Over the course of 2015, the ISA reviewed all the settlements reached in class actions in the fields of securities and derivative actions, and was involved in filing 12 position papers regarding ten settlements (in two matters, two position papers were filed in each – see Clauses 3b and 3b(2.6) hereinafter, respectively). In the majority of cases, these positions influenced the settlements as they were finally approved, in a manner that benefited the members of the class.

2. Legislation

A) Primary and Secondary Legislation Published in the Year Reported

A.1.Primary Legislation

The Law to Promote Investment in Elite Technology (High Tech) Companies (Legislative Amendments) 5776-2015

The Bill was published in the Official Gazette on 27th October 2014 and passed its first reading in the previous Knesset on 3rd November 2014. On 27th July 2015, a Continuity Motion* procedure was applied to it in the current Knesset. On 28th December 2015, the Bill passed its second and third readings. The Law was published in the Official Gazette on 31st December 2015, and took effect immediately; however, regarding most the subjects it covers, regulations still need to be enacted under it.

The central purpose of the Law is to implement the recommendations of the Committee for Promotion of Investment in Public Companies Operating in the Field of Research and Development, published in January 2014. The Law is designed to strengthen the Stock Exchange and cause it to become an additional significant channel for financing R&D companies. In doing so, the chances that these companies will grow in Israel increases, and their dependence on external financial markets will reduce, while refining the workings of the capital market for the benefit of all those investing in it.

Three main subjects are covered by the Law: laying down the legal infrastructure for the option of raising equity from, or issuing debt to, the public, through crowd- funding; granting reliefs and adaptations in the requirements of disclosure in prospectuses and current reports for high tech companies listing for trade on the High Tech Index on the Stock Exchange; and laying down the legal infrastructure to establish listed high tech funds. * Translator’s Note: Israeli parliamentary procedure that obviates the need to re- introduce proposed legislation anew, if a Bill was introduced in a previous Knesset which was subsequently dissolved – g.m.

The Law also covers several other issues, central of which is designed to refine the local capital market and increase trading on the Stock Exchange by laying down the legal infrastructure for a mechanism of offering securities to the public in the course of trading - At The Market Offering (hereinafter: “ATM”). This mechanism would simplify existing issue proceedings by significantly shortening the period of time between a corporation’s decision to issue, and its execution (Time to Market), thus reducing the corporations’ costs of issue.

Moreover, the Law includes indirect amendments of the Securities Law and the Joint Investment Trust Law.

A.2.Secondary Legislation

2.1. Secondary Legislation Pertaining to Deregulation and Development of the Capital Market

As part of the deregulation program initiated by the Israel Securities Authority in the passing year, a second round of legislation granting regulatory relief was passed. The second round of deregulation project included amendments to several groups of regulations on two central subjects: Deregulation in the field of immediate reporting and deregulation regarding updating and refining the methods of offering securities to the public. Additionally, allowances were also introduced to the registration regulations applicable to license holders.

2.1.1. Deregulation in the field of immediate reporting

The Securities Regulations (Periodic and Immediate Reports) (Amendment No. 3) 5776-2015; The Securities Regulations (Date to File a Notice by an Interested Party or Senior Officer) (Amendment) 5776-2015 [Regulations Book 7560, (year 5776), pages 39-46]

The regulations were published on 18th October 2015 (5th Heshvan 5776), and were set to commence 90 days following publication (17th January 2016). They contained allowances on the following issues:

2.1.1.1. The date for an immediate report

An immediate report is designed to achieve full transparency from a reporting corporation vis-à-vis the investing public, in real time, and is the foundation of trading on the stock exchange. Therefore, it is important for the immediate report to be actually filed within a relatively short period of time from the timing of the event, inter alia, since it is an important and necessary condition to ensure investor equality and prevent information gaps between insiders in the corporation, and the public. However, the arrangements prior to the amendment created circumstance in which the time to prepare formulating and publish the immediate report was short, and could adversely affect the quality of the report, and control of the statement contained in it. The principal difficulty in this regard, was reflected in instances of events which become known to a corporation late in the day, in a way that did not leave a reasonable time to prepare the report, as abovementioned. Under the amendment, if relevant information arrived at a corporation after 17:00, the immediate report regarding it would have to be filed by 13:00 the following trading day (instead of by 9:30 under current arrangements).

2.1.1.2. Reporting the holdings of interested parties and senior officers

The legal state of affairs before the amendment, prescribed that a reporting corporation had to convey a report regarding any change in the holdings of a person with an interest in the corporation, at the latest, on the first day of trading after the date on which the reporting corporation first become aware of the change. Moreover, the corporation was obligated to publishing a report once per month presenting details of persons with an interest in the corporation, and the rates of their holdings.

The abovementioned duty to report, required that a corporation to track all changes to the holdings of persons with an interest in it, and to publish many reports, at a relatively high frequency as compared with reporting on other matters. Such monitoring could also involve investing significant time and manpower resources, and not in every instance was there any justification for such a high number of reports. In light of the foregoing, an amendment was passed, in the setting of which, it was prescribed that the corporation was bound to report changes in the holdings of an interested party, only when the change crossed a cumulative threshold of holdings, or of a rate of holdings. Such a change could evidence an occurrence or material information which the interested party may hold. Moreover, instead of the monthly report, the amendment stipulated that such a report of holdings only needs to be filed quarterly.

2.1.1.3. Reporting negotiations and delaying a report

The legal state of affairs before the amendment, prescribed that a reporting corporation had to convey an immediate report already at the stage of negotiating a material agreement. Together with this duty, the corporation had the right to delay information if there was fear that its publication could prevent completing the transaction, or significantly worsen its terms and conditions, provided that this information was not published at large. The arrangement described, caused corporations to struggle with the question of whether negotiations of a particular transaction were sufficiently advanced to warrant reporting, and if so – whether the corporation had the right to delay the publication of it.

In light of the foregoing, an amendment was passed, enabling corporations to delay reporting negotiations in anticipation of signing a material agreement, without the condition that the transaction had to be potentially frustrated, or its terms and conditions significantly worsened. In doing so, the burden of uncertainty regarding the right to delay the report has been removed. With regard to other events, the right to delay reporting remained unchanged.

2.1.1.4. Other Amendments

2.1.1.4.1. Reporting the appointment and termination of tenure of senior officers

The reporting duty incumbent on corporations was reduced, so that instead of publishing an immediate report regarding every appointment of a senior officer in the corporation, or the termination thereof, the amendment states that the duty would not apply regarding officers whose influence on the corporation’s management was lesser (in which case an update would be given in the setting of the periodic report).

2.1.1.4.2. Cancelling duplicitous immediate reports

Duplicities were cancelled, when it is deemed that the duplicitous report does not contribute to the investing public, since in such circumstances, the burden imposed on the corporation owing to the duty to report, is not justified.

2.1.1.4.3. Extending the option of publication by way of reference

The option of publishing reports by way of reference was extended. Instead of the situation in which referring to other reports was permitted from an extensive report to a smaller report, it was amended so that such reference is also made possible from a smaller report to a more extensive one.

2.1.2. Updating and Refining Methods of Offering Securities to the Public

The Securities Regulations (Method of Offering Securities to the Public) (Amendment) 5775-2015; The Securities Regulations (Shelf Offering Securities) (Amendment) 5775-2015; The Securities Regulations (Complementary Notice and Draft Prospectus) (Amendment) 5776-2015; The Securities Regulations (Details of Prospectus and Draft Prospectus – Structure and Form) (Amendment) 5775-2015; The Securities Regulations (Details of Outline Offering Securities to Employees) (Amendment) 5775-2015; The Securities Regulations (Period for Filing Invitations for Securities Offered by Prospectus) (Amendment) 5775-2015 [Regulations Book 7564, (year 5776), pages 97-102]

The regulations were published on 27th October 2015 (14th Heshvan 5776), their commencement was set for 30 days from the date of their publication. The regulations include amendments of the following topics:

2.1.2.1. Limiting entitlement to participate in an institutional investors’ tender The list of those entitled to participate in an institutional investors’ tender was amended, and investors meeting the definition of a qualifying customer were deleted from it.

2.1.2.2. Prescribing an additional mechanism for a uniform offering

An additional mechanism for making a uniform offering was prescribed, in the setting of which the public tender and the institutional investors’ tender were consolidated, so that a single tender would take place for all investors. This mechanism is designed to be an alternative to the mechanism used today, thus creating diversification of options for raising capital.

2.1.2.3. Updates to the mechanism for offering a non-uniform offering

Legislation was amended so that currently one can secure early commitments also in a non-uniform offering. Moreover, the extent of underwriting commitment required was reduced to 25% of the issue.

2.1.2.4. Updates to the dates to file orders

The amendment prescribes that instead of the arrangement according to which one may present orders after the passage of five hours from publication of the final issue document, orders to purchase securities pursuant to a prospectus may be presented immediately once the final issue document is published. However, the timing of the end of the period will be no shorter than after the passage of seven hours from publication of the final issue document, provided that in said seven hours, at least five hours of them were trading hours.

2.1.2.5. Employee outlines

The maximal time in the setting of which securities may be offered to employees under a published outline was extended, and in place of a one-year period, the period was extended to two years. Moreover, an option to include reports in the outline by way of reference to the corporation’s various reports was added.

2.1.3. Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Regulations (Recording Transactions and Recording Advisory Actions) (Amendment), 5774-2014 [Collection of Regulations 7581, (year 5776), page 270]

Section 25(b) of the Advice Law requires that a license holder keep records of every advisory process given to a customer. The Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Regulations (Recording Transactions and Recording Advisory Actions), 5768- 2007, list what details must be included in the records, the manner of keeping them, and how they are to be delivered to the customer.

The amendment is designed to make life easier for license holders, by simplifying the transaction and advisory action documentation process, and improve the service given to their customers. The amendment states, that there is no duty for the customer to sign the minutes of the advisory meeting, rather, the customer may be identified in a different manner. They further state, that the minutes be delivered to the customer within four business days, and the requirement to deliver written notice to the customer if the minutes were kept by way of a recording, was abolished.

The regulations were published on 17th December 2015 (5th Tevet 5776), and their commencement was set for 30 days from the date of their publication.

2.1.4. Regulation amendments by force of the Securities Law 5728-1968, the subject matter of which is deregulation and developing the capital market – completion of the first round of regulation

The Securities Regulations (Transaction between a Company and its Controlling Shareholder) (Amendment) 5775-2015; The Securities Regulations (Private Offer of Securities in a Listed Company) (Amendment) 5775-2015; The Securities Regulations (Purchase Offer) (Amendment) 5775- 2015; The Securities Regulations (Underwriting) (Amendment) 5775-2015

Further to the legislative amendments regarding deregulations in the capital market and development thereof, described above (see Clause 2.1.1 above), additional amendments were pursued, attached to the first round of deregulations approved in 2014. The amendments covered the following topics: Cancellation of covers of the controlling shareholder transaction report; covers of an unordinary private offering and covers of specifications of a purchase offer; authorising the chairman of the ISA to exempt a detail from disclosure in the report of a transaction with a controlling shareholder and/or an unordinary private offer; updating the non-uniform offering mechanism.

The regulations were approved by the Knesset’s Finance Committee on 14th December 2015 and have yet to be published in the Official Gazette.

2.2. Notice of publication of a list of circumstances that may evidence a reliability flaw relating to Trading Platforms under the Securities Law; notice of publication of a list of circumstances that may evidence a reliability flaw relating to credit rating agencies under the Law for Regulating the Activity of Credit Rating Agencies [Official Advertisement and Announcements Gazette 7052, (year 5775), page 6305]

On 4th December 2011, the ISA’s website published a list of circumstances the occurrence of which constitutes prima facie evidence of a possible reliability flaw. This list serves the ISA when considering revoking a license, registration or permit. From the time of the reliability list’s publication, several additional legislative amendments have been enacted, and the ISA’s powers pertaining to examining reliability have been applied also with regard to a company with a Trading Platforms license and the controlling shareholder of it, and in relation to credit rating agencies.

Further to which, the reliability list has been updated, and applied also in relation to companies with a Trading Platforms license and credit rating agencies. The notice was published on the ISA’s website on 25th May 2015 (7th Sivan 5775), and commenced 30 days from its publication. 2.3. The Securities Regulations (Nominee Companies), 5775-2015 [Collection of Regulations 7526, (year 5775), page 1322]

These regulations replaced the Securities Order (Nominee Companies) 5761-2001, and added a company acting on behalf of Euroclear Bank SA/NV as a “Nominee Company”. This was done in order to enable an arrangement whereby the Tel Aviv Stock Exchange’s Clearing House would open a securities account with the Euroclear Bank SA/NV group of clearing houses, which provides settlement services and depository services in the European market. Opening the clearing account with Euroclear, enables registration of securities traded in Israel and Europe concurrently, and makes transferring the securities and settling them between the two markets easier, cheaper, and quicker, in a computerised and more efficient manner. This is similarly to the arrangement in effect for securities held by the clearing house in its account with the American Depository Trust Company (hereinafter: “DTC”).

The regulations were published in the Official Gazette on 30th June 2015 (13th Tamuz 5775) and their commencement was set for their date of publication.

2.4. The Securities Regulations (Written Ballot, Position Notice, and Proof of Ownership of Bonds for the Purpose of Voting at a Bondholder Meeting), 5775- 2015 [Collection of Regulations 7545, (year 5775), page 1830]

Amendment 53 of the Securities Law, laid down the legal infrastructure to create and operate an electronic voting system. With the system, securities’ holders (shareholders and bondholders, option holders and holders of participating units in listed partnerships) can vote over the internet at meetings in which they are entitled to vote. The system was designed to add to the options currently available to securities’ holders for vote at meetings (physical presence at the meeting, voting by proxy, sending a written ballot to the convener of the meeting). The electronic voting system will ease access to the information, and increase options to exercise the right to vote for those entitled to vote at meetings, without imposing any costs on them, thus increasing the rate of the public’s participation in general meetings.

The abovementioned Regulations cover proving ownership and the manner of participating in votes of bondholders at bondholder meetings. The Regulations prescribe the following details: The manner for proving ownership of a bond; the duties of a member of the Stock Exchange, who is the link between a company convening the meeting and the public holding the bonds and the system through which the voting takes place; the wording of the ballot; duties imposed on the person convening the meeting; the manner of voting, and publishing the vote’s outcomes.

The regulations were published on 23rd February 2015 (4th Adar 5775) and their commencement was set for two months from their date of publication.

2.5. The Securities Order (Amendment of the Third Schedule of the Law) 5776-2015 [Collection of Regulations 7564, (year 5776), page 102]

In February 2013, the London Stock Exchange (“LSE”) founded a new track, HGS, constituting part of the primary market, but not part of the official list. Companies traded on the list, are subject to the European Directive and are supervised by the LSE. To promote and encourage trading on the Tel Aviv Stock Exchange, an Order was enacted which added the HGS List to the items appearing in the Third Schedule, thus adding this list to the dual listing arrangements.

The Order was published on 27th October 2015 (14th Heshvan 5776) and its commencement was set for its date of publication.

2.6. Complementary regulations to amend Section 77 of the Joint Investment Law in the setting of Amendment 23 of the Joint Investment Law

The Securities Regulations (Fund Manager’s Participation in Holders’ Meetings) 5776-2015; The Joint Investment Trust Regulations (Reports) (Amendment) 5776- 2015 [Collection of Regulations 7567, (year 5776), page 124]; The Securities Regulations (Periodic and Immediate Reports) (Amendment No. 2) 5776-2015 [Collection of Regulations 7560, (year 5776), page 39]

In the setting of Amendment 23 of the Joint Investment Law, Section 77 of the Law was amended, so that in place of the arrangement prescribed by the Law regarding fund managers’ duty to participate in holders’ meetings, the Minister of Finance was authorised to prescribe the arrangement by regulation in a more detailed manner, with reference to the decision making voting processes.

Under the Regulations, a fund manager will be under a duty to participate in the meetings of a corporation, if the funds under its management hold securities in the corporation, except for in these instances:

(1) When a majority that is not an ordinary majority is not necessary to pass the proposed resolution, except for meetings to approve proposals to amend a company’s articles of association that may adversely affect the interests of shareholders, at meetings involving the appointment and dismissal of directors, at meetings involving a company engagement in which a director has a personal interest and at meetings to approve a merger under Section 320 of the Companies Law.

(2) At shareholder meetings if the controlling shareholder holds a majority that enables him to pass the resolution even if all other shareholders vote against it, as well as at meetings of holders of foreign securities.

Additionally, it prescribes that the board of directors of a fund manager is under a duty to set a voting policy regarding proposed resolutions, and to call the trustee’s attention to it. The fund manager must report his actual voting pattern to the board of directors every 12 months.

Under the Regulations, a fund manager is permitted to contract with a professional party to formulate voting recommendations, with the approval of the board of directors.

The Regulations were published on 2nd November 2015 (20th Heshvan 5776), and their commencement was set for 90 days from the date of their publication.

2.7. Prohibition of Money Laundering Order (Identification, Reporting and Record Keeping Requirements of a Member of the Stock Exchange to Prevent Money Laundering and Financing of Terrorism) (Amendment) 5776-2015 [Collection of Regulations 7573, (year 5776), page 180]

The purpose of the amendment is to increase competition between non-bank members of the stock exchange (hereinafter: “Investment Houses”) and banks in the field of securities’ trading services, and in the field of financial deposit management for private clients. This, by extending the option for Investment Houses to manage client accounts in a closed system. For these purposes, the exemption in the Order was extended to cover a closed system, and was applied not only to executing purchase and sale transactions in securities and financial assets, but also to holding them and managing financial deposits.

The amendment of the Order enables Investment Houses to open three types of accounts in a closed system: a “closed system account with no deposit services”, a “financial deposit account in a closed system”, and a “closed system account”. Each type of account is defined for a particular form of activity, and each has been set the allowances relevant to it according to the type of activity carried on in it.

The Order was published in the Official Gazette on 23rd November 2015 (11th Kislev 5776), and its commencement was set for 30 days from the date of its publication.

2.8. Completing Regulations Regarding Special Money Market Funds

The Joint Investment Trust Regulations (Assets Which a Fund is Permitted to Purchase and Hold and their Maximal Rates) (Amendment) 5776-2015 [Collection of Regulations 7578, (year 5776), page 256]

The Joint Investment Trust Regulations (Assets Which a Fund is Permitted to Purchase and Hold and their Maximal Rates) 5755-1994, lay down the legal infrastructure to create a new investment asset – the conservative money market fund. Owing to an error in the wording of the Regulations, the regulations stated that an offer and redemption of units in a conservative money market fund could only take place once per week. The Amendment prescribes that the fund issuer is permitted to shape it as a fund that may offer and redeem its units once per week or once per month.

The Regulations were published on 8th December 2015 (26th Kislev 5776), and their commencement was set for their date of publication.

2.9. Amending Regulations Involving Inclusion of Trading Platforms in the Reporting and Email Regulations

The Securities Regulations (Electronic Signature and Reporting) (Amendment), 5776-2015 [Collection of Regulations 7573, (year 5776), page 82]; The Securities Regulations (Secure Email) (Amendment), 5776-2015 [Collection of Regulations 7581, (year 5776), page 271]

In the setting of regulating the activities of Trading Platforms for Own Account, the regulations were amended so that the Trading Platforms and the companies seeking a Trading Platforms’ license may report to the ISA via the MAGNA system and receive a secured email from the ISA. The amendment further states that companies seeking a Trading Platforms’ license must appoint two persons authorised to sign electronically, for the purposes of filing the reports to the ISA.

The Electronic Signature and Reporting Regulations were published in the Official Gazette on 23rd November 2015 (11th Kislev 5776) and their commencement was set for 30 days from the date of their publication. The Secured Email Regulations were published in the Official Gazette on 17th December 2015 (5th Tevet 5776) and their commencement was set for 30 days from the date of their publication.

2.10. Prohibition of Money Laundering Order (Identification, Reporting and Record Keeping Requirements of a Trading Platforms to Own Account to Prevent Money Laundering and Financing of Terrorism) 5776-2015; Prohibition of Money Laundering Order (Exemption from the Duty to Register on the Currency Service Providers Register) 5776-2015

In the setting of Amendment 42 of the Securities Law, Chapter G3 was added, regulating the activities of Trading Platforms to Own Account. Amendment 42 took effect on 26th May 2015, when the Securities Regulations (Trading Platforms to Own Account) 5775-2014 took effect.

Amendment 42 also included an indirect amendment of the Prohibition of Money Laundering Law 5760-2010 (hereinafter: the “Prohibition of Money Laundering Law”) and the Prohibition of Financing of Terrorism Law 5765-2005, so that also a company with a Trading Platforms to Own Account license, be added to the list of entities to whom these Laws are applicable, and in whose matter the Minister of Finance is required to prescribe a Prohibition of Money Laundering and Financing of Terrorism Order.

The Order mainly contains provisions and duties dealing with identifying and familiarising with the account owners (Know Your Client), monitoring account owner activity and reporting certain actions, records and document safekeeping. The Order was approved by the Knesset’s Constitution, Law and Justice Committee on 4th November 2015.

In the setting of the Trading Platforms’ activities, the platforms also deal in currency conversion. Some of the Trading Platforms also see fit to register as Currency Service Providers (hereinafter: “CSP”), as defined in Chapter D1 of the Prohibition of Money Laundering Law, on the register kept by the Ministry of Finance (hereinafter: the “CSP Register”).

Since the Trading Platforms will be, as abovementioned, regulated by means of a designated Order, discussed in the previous clause, it is needless to mention that they will also be subjected to the Prohibition of Money Laundering Order (Identification, Reporting and Record Keeping Requirements of a Currency Service Providers to Prevent Money Laundering and Financing of Terrorism), 5774-2014. For this reason, Trading Platforms were given an exemption from the duty to register as CSPs and from the applicability of the foregoing Order dealing with CSPs.

The Order was approved by the Knesset’s Constitution, Law and Justice Committee on 4th November 2015, and its commencement was set for the date the Order regarding Trading Platforms, discussed in the previous clause, takes effect. 2.11. Permit to Transact in Securities, under the Securities Law, 5728-1968 [Official Announcements and Advertisements Gazette 7072, (year 5775), page 7120]

Section 35K of the Securities Law prescribes a prohibition of purchasing and holding bonds from the series which is the subject matter of the trust held by the trustee, an officer in the trustee, an employee of the trustee, or any person employed by the trustee for the purpose of performing his duties. The section further prohibits holding securities of the issuer, a parent company, subsidiary, or affiliated company of the issuer, by the stated parties. Under the Law, bonds and securities may be purchased and held subject to the terms and conditions of the permit stipulated by the Minister of Finance at the suggestion of the ISA or following consultation with it.

The permit creates a regime similar in nature to the regime prescribed for the ISA’s members and employees, and as a general rule enables: (1) Purchasing and holding bonds (the foregoing notwithstanding, a trustee will not purchase and not hold, for his own benefit, bonds from the series for which he is a trustee); (2) purchasing and holding securities by a person who is not authorised to take decisions regarding the bonds, on condition that he reports said purchasing and holding to the trustee; (3) purchasing and holding securities in a blind trust and when the terms and conditions prescribed by the permit are met. Additionally, those holding such permit, must report their actions under the permit to the bonds’ trustee, accept for actions in bonds.

The Permit was published on 22nd December 2015 (10th Tevet 5776), and its commencement was set for its date of publication.

2.12. The Securities Regulations (Signature Approver) (Amendment) 5774-2014

Amendment No. 53 of the Securities Law, established the legal infrastructure necessary to create and operate the electronic voting system, with which holders of securities may vote over the internet at meetings in which they are entitled to vote. The Securities Regulations (Signature Approver) 5763-2003, regulate the manner in which the identity of the parties making use of the ISA’s designated computerised systems, the MAGNA system and the secured email system, is to be verified. The regime mainly relies on the procedure prescribed in the Electronic Signature Law 5761-2001, but in accordance with the Securities Law, the Regulations prescribe adaptations to securities’ unique operating characteristics. The amendment, together with the rules prescribed by the ISA, will enable entities with multiple holdings (mainly institutional investors) to appoint an agent to vote for them, after identifying electronically.

The Amendment was approved by the Knesset’s Science and Technology Committee on 22nd December 2015 (10th Tevet 5776), and was published in the Official Gazette on 18th January 2016 (8th Shvat 5776).

2.13. The Securities Order (Replacing the Fourth Schedule of the Law) 5776-2015

Section 39A of the Securities Law stipulates that a company incorporated outside of Israel, offering its shares to the public in Israel, will be subject to the provisions of the Companies Law 5759-1999 (hereinafter: the “Companies Law”), as detailed in the Fourth Schedule of the Law. The Section further stipulates that the Minister of Finance, in consultation with the Minister of Justice and the Israel Securities Authority, is entitled to amend the Fourth Schedule.

In the setting of replacing the Schedule, additional provisions from the Companies Law, and the regulations promulgated thereunder, were added to the provisions of the Schedule, dealing with two principal subjects: applying the provisions to bond issuing companies, and applying additional provisions to public companies. These provisions are prescribed by the Companies Law, and the majority of them were added to Israeli corporate law in legislative amendments that followed enactment of Section 39A of the Law, and in particular amendments 16, 17 and 20 of the Companies Law.

The Order was signed by the Minister of Finance and was published in the Official Gazette on 18th January 2016 (8th Shvat 5776).

B) Primary and Secondary Legislation Proposals Handled in 2015

1. Primary Legislation Bills

1.1. The Securities Bill (Amendment) (Changes to the Structure of the Stock Exchange)

A legislative pre-memorandum pertaining to changes in the structure of the Tel Aviv Stock Exchange (hereinafter: the “Stock Exchange”) was published on the ISA’s website in November 2014 for public comment. In March, the proposal was approved by the ISA’s plenum after discussion of the public’s comments.

The purpose of the Bill, is to create the possibility of changing the ownership structure of the Stock Exchange, transforming it into a profit pursuing company. The Stock Exchange is a private limited liability company, which was incorporated in 1953 as a limited liability company with no share capital. Since it is a not-for-profit company, it is not entitled to distribute profits. Additionally, currently, those owing the Stock Exchange and those with a right of access to trading are one and the same, and only the entities that own the Stock Exchange (the members of the Stock Exchange) enjoy access to trading. In light of the Stock Exchange’s method of incorporation as an entity that does not pursue profits, the members of the Stock Exchange do not hold any equity rights in it. Once the structure of the Stock Exchange is changed, and it is transformed into a profit pursuing company, and the ownership rights are separated from the trading access rights, every shareholder in the Stock Exchange will hold voting rights and equity rights, according to a division decided on by the shareholders.

The main purpose of the process of adapting the structure, is to transform the Stock Exchange into a more competitive and efficient entity, capable of truly competing with stock exchanges on international markets, and with alternative trading platforms in Israel and overseas. Another aim is to expand the Stock Exchange’s membership basis, and make it more accessible to a larger number of parties with trading rights. In addition, the change is designed to lay down solid and necessary infrastructure for future strategic cooperation with foreign stock exchanges and strategic investors, the activities of additional stock exchanges in Israel, and the ability to raise capital and develop the Stock Exchange itself. All these have the power to contribute to expanding the ownership basis of the Stock Exchange and diversifying its owners’ interests.

The proposed legislative amendment is designed therefore to enable the Stock Exchange to become a profit pursuing corporation, to prescribe the terms and conditions for issue of a stock exchange license, and the duty to obtain control permits on account of holding a controlling share, prescribing a regimen of corporate governance, and strengthening and solidifying the regulatory supervision powers over the Stock Exchange’s operation. This, inter alia, so that conflicts of interests that may arise owing to the new structure may be dealt with.

1.2. A Bill to Amend Enforcement Provisions of Securities Laws (Legislative Amendments), 5775-2015 (Front Running)

The principal purpose of this Bill, is to prescribe a prohibition of front running by financial brokers and their employees. The Bill was first published in 2009, but in light of comments received, a rethinking process was conducted, and several changes were affected to the framework of proposed legislation. Aside from the prohibition of front running, other additional enforcement related amendments are also proposed:

1.2.1. Front Running Prohibition

Front running is a transaction carried out on a security in light of advance knowledge of another’s action with the security. Front running is done with the anticipation of gaining a profit as a result of the said expected action. Front running may harm the ordinary running of the capital market, since the front runner has information which the other party to the transaction is not exposed to, thus giving him an unfair advantage. Aside from the unfair advantage gained by the front runner, the actions of market players attempting to front run their clients, adversely affects the ordinary running of the capital market and the interests of the investing public.

According to the proposal, a financial broker executing a transaction in securities, knowing of a future action about to be taken by his client in that security or some other related security, or a person conveying information about such an action, will be deemed executing a prohibited act of front running, the penalty for which is no more than five years’ incarceration or a fine of up to one million NIS for an individual, or five million NIS for a corporation. Moreover, the person receiving the information from the financial broker will also be deemed a front runner, of a lesser degree (similarly to a tipee regarding an offence of inside information).

Several defences are suggested, removing a person who performed actions with securities from the definition of a front runner. Amongst the proposed defences, a financial broker who acted as a manager of other people’s monies, who has information pertaining to a decision of an expected transaction received by him or by another as a manager of other people’s monies, will not be deemed to have committed front running.

1.2.2. Prohibition of Using an Opinion Received from an Insider at a Company

Amendment and clarification of the legal state of affairs regarding using an opinion relating to a security which reached a person from an insider at a company. It is proposed to expressly stipulate, that a person making use of an opinion which reached him from an insider at a company is making use of inside information, if he fulfils the other proposed fundamentals of the offence.

1.2.3. Limitations of Holding Securities and Transacting with Them

Amendments are proposed regarding the limitations on holding securities and transacting in securities, prescribed by Section 4 of the Advice Law (regarding license holders) and Section 21 of the Joint Investment Law (regarding employees at a fund manager). It is proposed that both regimes be replaced with a consistent regime, similar in nature to the prescriptions of these regimes and under the permission of the Minister of Finance by virtue of Section 5 of the Securities Law (which deals with the limitations applicable to employees of the ISA and others). Such regime will be enacted by regulations, and serve the provisions of both Laws, in accordance with the unique characteristics of each one. In this regard, no changes were performed as compared with the previous proposal.

1.2.4. Amending Section 52F of the Law:

The wording of Section 52F of the Law, which has not been amended since its enactment in 1968, according to which information is not deemed to be inside information if a trading day has passed since the date the information was published, is not suitable to the significant technological developments which took place over the last decade in reporting and distribution methods. In light of which, amending the section is proposed, so that it reflect the new technological reality, and prescribing that information is not deemed to be inside information after the passage of 30 trading minutes from the time it is duly published to the public.

The Memorandum of the Bill to Amend Enforcement of Securities Laws (Legislative Amendments), 5775-2015, was distributed for public comment on 24th September 2015.

1.3. A Bill to Regulate Cooperation Between the ISA and Foreign Authorities (Legislative Amendments), 5776-2015

The purpose of the Bill, is to adapt Chapter I2 of the Securities Law, which deals with cooperation between the ISA and foreign authorities, to changes which took place over the course of recent years, both in local law and in the character of international cooperation. In the setting of the Bill, it is proposed to clarify, that assisting a foreign securities commission to execute and enforce securities laws in the foreign country also includes assisting in the plain of supervision, and not only enforcement. It is further proposed, to adapt the powers granted to the ISA for the purpose of assisting foreign authorities to the changes which took place over the course of the years in the ISA’s enforcement powers as relating to Israeli securities laws.

Additionally, there is a suggestion that the chairman of the ISA be entitled to disclose news, or convey a document, to the Supervisor of Banks or the Commissioner for Capital Markets, if he believes that that is necessary for fulfilment of their duties.

The Bill’s Memorandum was distributed on 20th December 2015.

2. Suggested Secondary Legislation

2.1. New Prospectus Model for Mutual Funds

The Joint Investment Trust Regulations (Details of a Fund’s Prospectus, Structure and Form) (Amendment) 5776-2015; The Joint Investment Trust Regulations (Annual Report of a Fund) 5776-2015; The Joint Investment Trust Regulations (Reports) (Amendment) 5776-2015;

In 2010, the Joint Investment Trust Regulations (Details of a Fund’s Prospectus, Structure and Form) 5770-2009 (hereinafter: the “Prospectus Details Regulations”) took effect; according to which, a mutual fund’s prospectus is to be divided into two parts. Part A, containing information about the fund, is presented for every fund by the last day to offer its units. Part B of the prospectus, containing information about the fund manager, is presented once per annum for all the funds managed by that fund manager. The result is that every year the ISA is presented with approx. 1300 applications to approve Part A of a prospectus, which burdens both the ISA and the fund managers.

According to the proposed regulations, a fund manager will present, once per annum, a principal prospectus, containing information about the fund manager, and basic details regarding each fund under his management. Additionally, the fund manager will file once per annum, on a fixed date, an annual report for each fund under his management, containing details about the performance of the fund in the year preceding the date the report is filed.

The new model for mutual funds’ prospectuses will reduce the burden imposed on the ISA and fund managers, will ease the process of approving prospectuses, and make them more efficient. Moreover, filing the annual report on a single date, will enable the investing public to compare different funds of the same type, and execute educated investment decisions.

The Regulations were approved on 5th January 2016 and have not yet been published in the Official Gazette.

2.2. Regulations Pertaining to Regulating the Offer of Foreign Funds in Israel The Joint Investment Trust Regulations (Offering Units of Foreign Funds) 5776- 2015; The Joint Investment Trust Regulations (Distribution Commission) (Amendment) 5776-2015; The Joint Investment Trust Regulations (Fund Classification for Publication) (Amendment) 5776-2015; The Securities Regulations (Filing Fee for Application to Approve Publication of a Prospectus) (Amendment) 5776-2015; The Securities Regulations (Annual Fee) (Amendment) 5776-2015;

In the setting of Amendment 23 of the Joint Investment Law, the Minister of Finance was empowered to prescribe by regulations terms and conditions, on the occurrence of which a foreign fund operating under the laws of a foreign country which regulates it, may be offered, when their offering prospectus was approved by the country of origin; and applying certain duties related to offering such funds to the public in Israel.

The framework proposed to offer foreign funds in Israel includes, inter alia, the following conditions: Foreign funds operating under US law or the European Directive may be offered; units of a fund the value of whose assets is at least 50 million dollars may be offered, when its units are offered in Europe or the US; the foreign fund manager manages at least five funds, whose units have been on offer to the public for at least five years, and which the total value of assets held by each one of the funds for the two years preceding the application was no less than five hundred million dollars; the aggregate value of the assets of the funds managed by the foreign fund manager and its parent company is at least 20 billion dollars; the fund manager has deposited bank guarantees with the ISA valued at no less than one million NIS as well as a financial deposit.

Moreover, it proposes to amend the Classification Regulations so that they contain provisions regarding the classification of foreign funds, and to amend the Fee Regulations so that managers of foreign funds be obligated to pay fees on account of any fund the units of which are offered to the Israeli public. In addition, an amendment of the Distribution Commission Regulations is also proposed.

The Regulations have been tabled on the agenda of the Knesset’s Finance Committee for approval.

2.3. Amending the First Schedule of the Securities Law – Definition of a Qualifying Investor

The Securities Law prescribes an exception to the duty to publish a prospectus and an exemption from the duty to license a trading platform, for the investors listed in the First Schedule to the Law. Detail 12 of said Schedule refers to the definition of a “Qualifying Client” in the First Schedule of the Advice Law.

Over the course of the period since the “Qualifying Client” was inserted into the list in the First Schedule, difficulties have arisen in applying the tests laid down in the definition with regard to the Securities Law, arising, inter alia, for the following reasons: The high figure quoted in the test of liquid assets as compared with the corresponding amounts set in the US and Europe; failure to refer to the individual’s income as a substitute for the level of his liquid assets; meeting the liquid assets test is insufficient, and meeting an additional test is required; there is doubt as to whether meeting the transactions test actually evidences the individual’s skills, in particular for the purposes of Trading Platforms, on which, in any event, many transactions take place.

In light of these difficulties there is a proposal to amend Detail 12 in the First Schedule of the Securities Law, so that the reference to the Advice Law be abolished, and in its place three alternatives be inserted to test whether the investor qualifies under the tests of financial strength. These are the proposed tests:

- Holding liquid assets of 8 million NIS (instead of 12 million currently);

- Annual income of 1.2 million NIS per annum for an individual, or 1.5 million for a family unit;

- Holding liquid assets of 5 million NIS and an annual income of 600 hundred thousand NIS per annum for an individual, or 900 hundred thousand for a family unit.

At the same time, it is suggested that the skills test and the number of transactions test be abolished. The amendment is designed to create a test which is certain and easy to interpret, more adapted to the fields of corporations and Trading Platforms.

The abovementioned Regulations were approved on 5th January 2016 and published in the Official Gazette on 24th February 2016.

2.4. Amendment of the Fifth and Seventh Schedules of the Securities Law Regarding Trading Platforms to Own Account

The Securities Order (Amending the Fifth Schedule of the Law), 5776-2015; The Securities Order (Amending the Seventh Schedule of the Law), 5775-2015

On 26th May 2015, the Securities Law (Amendment No. 42) 5770-2010, took effect, in the setting of which Chapter G3 was added to the Securities Law, regulating the activities of Trading Platforms to Own Account.

Section 52N of the Securities Law stipulates, that the ISA is entitled to impose a financial sanction on an offender, on account of the offences listed in the Fifth Schedule. Chapter H4 of the Securities Law stipulates, that the Administrative Enforcement Committee is entitled to impose administrative enforcement measures on an offender, as prescribed by law, on account of the offences listed in the Seventh Schedule. The Law states that the Minister of Finance, with the approval of the Knesset’s Finance Committee, is entitled to amend the Fifth and Seventh Schedules.

Once the process of enacting the regulations in the setting of which additional duties were imposed on trading platforms to own account was completed, it is proposed that the Fifth and Seventh Schedules of the Law prescribe violations that would constitute grounds for imposition of financial sanctions by the ISA, as well as violations that would constitute cause to instigate administrative enforcement proceedings. Thus, for instance, it is suggested that violations be prescribed regarding the manner of contracting with a client; operating under conflicts of interests; the method of holding client funds and assets; giving information to a client; document safekeeping provisions; examining the suitability of a client to activity in the setting of trading platforms to own account, and more.

The Orders are on the Minister of Finance’s desk for transfer for the approval of the Finance Committee.

2.5. The‎Securities‎Regulations ‎(Periodic and‎ Immediate‎ Reports)‎(Amendment) 5776- 2015

It is suggested that the extent and manner of disclosure that a corporation must publish if a material error requiring rectification befell the financial statements published by the corporation, be prescribed by regulation.

In addition, it is proposed to prescribe a duty of disclosure regarding the manner of voting of institutional investors at meetings in which the review of a personal interest is required, and in relation to voting at meetings of bondholders in any meeting, since at bondholder meetings, for the most part, decisions are taken that materially affect the holders’ rights, at times in the setting of a waiver or changes to their rights, as well as decisions issuing instructions to the trustee how to act to protect the interest of the holders, or exercising the rights granted to them under the deed of trust.

The duty of disclosure will apply with regard to investors in relation to which there is already a duty at law to disclose their investment in the company’s shares and its rate (to which category, inter alia, institutional investors and interested parties belong). Thus achieving a balance between the infringement of privacy and the principle of disclosure, requiring provision of important information to investors.

The Regulations have been placed on the Minister of Finance’s desk for transfer for the approval of the Finance Committee.

2.6. The Third Round of Deregulation – Encouraging Equity Issues

The Securities Regulations (Conditions for an Offer Pursuant to a Shelf Prospectus) 5776-2015; The Securities Regulations (Period for Presenting Invitations for Securities Offered by a Prospectus) 5776-2015; The Securities Regulations (Complementary Notice and Draft Prospectus) 5776-2015; The Securities Regulations (Periodic and Immediate Reports) 5776-2015; The Securities Regulations (Details of a Prospectus and Draft Prospectus – Structure and Form) 5776-2015

In recent years, Israel, like many other western nations, has experienced a significant decline in the extent of IPOs (Initial Public Offering). Additionally, in recent years, we are witness to a trend by which Israeli companies elected to execute IPOs on foreign stock exchanges, mainly in the US.

As part and parcel of the ISA’s efforts to develop the capital market, it is proposed that legislative amendments be enacted to encourage companies to view the Stock Exchange as a proper development and equity raising channel, suitable to their purposes. These in turn, will encourage macro-economic growth, and create employment in the marketplace. All this, without derogating from the protection of the interests of the investing public, while the disclosure and corporate governance regimes shall, for the most part, remain unchanged.

Proposed legislation deals with two central subjects:

- Allowances regarding the issuing process: Besides changes that do not involve legislative amendments, it is proposed that the possibilities of raising capital by means of a shelf prospectus be extended to companies issuing for the first time: It is suggested that the period of time during which invitations may be presented be extended, and that changes to the quantity and price of the offered securities which may be affected by means of a complementary notice, be increased.

- Allowances relating to disclosure duties: It is suggested that the requirement to obtain the opinion of the auditing accountant regarding the efficacy of the internal audit be waived; it is suggested that for five years from the date of the IPO, the period of time in relation to which financial data is necessary in the chapter describing the corporation’s businesses in the company’s periodic report, be shortened to two years (from three).

The abovementioned legislative proposals are being promoted at the same time as legislation dealing with reliefs in the field of corporate governance, which the Ministry of Justice is promoting.

The Regulations have been placed on the desk of the Minister of Finance, for transfer to the Finance Committee’s approval.

2.7. The Securities Regulations (Trustees for Bondholders), 5776-2015

Section 35B of the Law prescribes, that bonds may not be offered to the public, unless the issuer has appointed a trustee for the bondholders. Underlying this requirement, is the need to register the liens in the name of a person who can act on behalf of the holders, if a suspicion arises that the issuer may not be able to meet his obligations to the holders.

To strengthen the protection of the public investing in bonds, the Securities Law was amended, and by Amendments 50 & 51 of the Law, provisions were prescribed to strengthen and clarify the trustee’s position and protect holders. In the framework of the Law’s regulations, which the Minister of Finance was authorised to enact, several main subjects are proposed for regulation: The threshold and qualification conditions necessary for a trustee to meet for the purpose of registering him on the statutory Trustee Register maintained by the ISA under Sections 35C1(d) & (e); the trustee’s reports to the holders – under Section 35H1(e); the issuer’s reports to the trustee under Section 35E1(e); changes to the wording of the decision detailed in the notice convening a meeting of holders under Section 35L8; the date of record for payment of principal and interest to holders under Section 35P1.

The Regulations were approved by the ISA’s plenum on 22nd February 2015. 2.8. Regulation ‎of ‎Investment ‎Advice,‎Investment ‎Marketing ‎and ‎Investment‎Portfolio ‎ Management ‎ Regulations (Equity Capital and Insurance) (Amendment), 5775- 2015

One of the conditions for a license holder to provide services under the Law, is meeting equity capital and insurance requirements, as prescribed by the Regulation ‎ of ‎ Investment ‎ Advice, Investment ‎ Marketing ‎ and ‎ Investment‎ Portfolio ‎ Management ‎Regulations (Equity Capital and Insurance), 5760-2000 (hereinafter: the “Regulations”).

On the one hand, the insurance duty imposes high costs on license holders, and on the other, it is doubtful whether it affords the client public adequate protection. For this reason, it is suggested that the rate of the insurable sum for small portfolio management companies be reduced, raising the deductible permissible for a company, and enabling conversion of the insurance to other sureties. This, subject to the approval of the board of directors regarding the adequacy of insurance.

Moreover, under the proposed amendment, new license holders may begin operating without having insurance, until they succeed in recruiting five clients, manage 50 million NIS, or conclude the first year of their activity.

The Regulations were approved by the ISA’s plenum on 28th June 2015.

2.9. Amending Regulations Regarding Separate Financial Information

The Securities Regulations (Details of a Prospectus and Draft Prospectus – Structure and Form) (Amendment) 5776-2015

As part of the ISA’s efforts to shorten and improve the relevance of the reports, it is suggested that reporting corporations be required to publish separate financial data, which do not amount to a full separate financial statement, but certain separate financial information to be included in the chapter on finance and liquidity. This information will include a report of financial conditions, a profit and loss statement, and other total profits, and a cash flow report. The information will not contain full notes, and will be inserted in the prospectus as part of the finance and liquidity chapter.

According to the proposals, the annual report will make disclosure of the sums of dividends, management fees, interest and repayment of loans which the corporation secured from its investee corporations, detailed per investee corporation, and will contain information regarding contracts between the corporation and its investee corporations. The quarterly report will provide updates regarding contracts between the corporation and its investee corporations, if any material changes in this regard have occurred since the date of the periodic report.

The provision will apply to a corporation that offered shares only once per annum, in the annual report, and to a corporation that offered bonds (exclusively, or in addition to shares) every quarter.

The Regulations were approved by the ISA’s plenum on 25th October 2015, and will be promoted as part of the report improvement project. 2.10. Amending Regulations Regarding the Disclosure Required Relating to Investee Companies

The Securities Regulations (Details of a Prospectus and Draft Prospectus – Structure and Form) (Amendment) 5776-2015; The Securities Regulations (Annual Financial Statements) (Amendment) 5776-2015; The Securities Regulations (Private Offering of Securities in a Listed Company) (Amendment) 5776-2015; The Securities Regulations (Transaction between a Company and its Controlling Shareholder) (Amendment) 5776-2015; The Securities Regulations (Periodic and Immediate Reports) (Amendment) 5776-2015

The disclosure provisions stipulate that a corporation must report its significant activities and investments in investee companies. Implementing this requirement raises difficulties owing to a lack of clarity regarding the extent of information required, and the extent to which the provision is applicable. For this reason, it is suggested that an amendment be drafted that clarifies the necessary extent of disclosure required in this regard.

It is further suggested that the possibility of referring from one report to another be extended. In this way, if an investee company, which is a reporting corporation, constitutes at least one whole operating segment for the company, a brief description of the segment will suffice, and the full description of the segment may be included by reference to the business description of the investee company, instead of including a full description in the body of the report of the holding company.

Finally, it is suggested that in extraordinary cases, in which a reporting corporation has a very significant investment in a corporation classified as a financial asset, the reporting corporation will be obligated to attach financial statements of said corporation. In addition, it is proposed that the ISA be given authority to grant an exemption from including financial statements in suitable instances and circumstances.

The Regulations were approved by the ISA’s plenum on 25th October 2015, and will be promoted as part of the report improvement project.

2.11. Regulations to Implement the Andorn Committee Recommendations

The Securities Regulations (Details of a Prospectus and Draft Prospectus – Structure and Form) (Amendment) 5776-2015; The Securities Regulations (Periodic and Immediate Reports) (Amendment) 5776-2015;

The Committee Examining Procedure for Debt Settlement Implementation in Israel (hereinafter: the “Andorn Committee”) was established following a wave of debt restructurings that overwhelmed the Israeli market in recent years, and the searching public debate following in the wake of the phenomenon. The Committee was charged with reviewing the field of debt restructuring in Israel and formulating recommendations on the matter.

The Committee published its recommendations in November 2014. The main thrust of which related to setting guiding rules to manage processes related to debt restructuring, to increase certainty amongst market players, and bring about a more efficient outcome, economically speaking.

To implement the Committee’s recommendations, an inter-ministerial legislative team was created, amongst whose members were representatives of the Ministry of Finance, the Ministry of Justice and the Israel Securities Authority. The team worked diligently on formulating a consolidated legislative package, that would include, inter alia, proposals to amend both relevant laws and regulations: The Companies Law; the Securities Law; The Securities Regulations (Periodic and Immediate Reports), 5730-1970; The Securities Regulations (Details of a Prospectus and Draft Prospectus – Structure and Form), 5729-1969.

The memorandum of the Law to Restructure Debts (Legislative Amendments) 5775- 2015, was designed to implement the recommendations requiring amendment of primary legislation, and was approved by the Ministerial Committee for Legislation in July 2015. At the same time, it is proposed that secondary legislation by regulation be promoted, imposing disclosure duties on several principal topics:

- Disclosure regarding the past conduct of a controlling shareholder in circumstances in which a company under his control got embroiled in financial difficulties;

- Disclosure regarding debt assumed by a controlling shareholder in a corporation for the purpose of financing acquisition of the controlling shares in the corporation, or pledging said shares;

- Disclosure regarding credit limits owing to “Relevant Credit” exceeding five percent of the total credit issued in the market, given to a business group, according to limitations to be imposed pursuant to the Committee’s recommendations.

The wording of the Regulations was approved by the ISA’s plenum on 15th December 2015.

2.12. Ancillary Regulations to the Law to Promote Investment in Companies Operating in the Field of Elite Technology:

The Securities Regulations (Offering Securities Through an Offering Portal); The Securities Regulations (Reports of a Corporation Whose Shares are Listed on the Elite Tech Tel Aviv Index); The Joint Investment Trust Regulations (Elite Technology Fund)

Concurrently with promoting the proposed legislation mentioned at Clause B)1.(1) above (hereinafter: the “R&D Bill”), and for the purpose of completing the arrangements prescribed by it, proposed regulations were drafted on the following subjects:

2.12.1. The Securities Regulations (Offering Securities Through an Offering Portal)

In the setting of the R&D Bill, it is suggested that an offer of securities to the public by way of crowd-funding be anchored in the Securities Law, which would be exempt from the duty to publish a prospectus. The regulations prescribe the conditions which a crowd-funding offer must meet, including the type of securities offered, the overall investment amount, the amount each investor invests in the offer, the type and manner of reporting which the offering corporation will be required to publish at the date of the offer and thereafter, the identity of the party coordinating the offer, terms and conditions to register it at the ISA or to remove the registration, duties incumbent on the offering portal and more.

The draft regulations were published for public comment. Comments were received both concerning the regulations, and concerning the proposal to regulate permission to raise capital by crowd-funding with an exemption from the duty to publish a prospectus, for small and medium sized businesses. After the comments were reviewed and included, a decision was taken to consolidate the two proposals and to promote one consolidated set of regulations. The draft Regulations were approved by the ISA’s plenum on 29th July 2015.

2.12.2. The Securities Regulations (Reports of a Corporation Whose Shares are Listed on the Elite Tech Tel Aviv Index)

These regulations prescribe allowances for companies operating in the field of elite technology, which are listed on the Tel Aviv Elite Tech Index, or which have secured an approval in principle from the Stock Exchange to be placed on such index after they are listed for trading. The purpose of the allowances is to encourage listing for trade on the Stock Exchange by granting various reliefs, amongst which is the option of drafting prospectuses and reports in English. Additional allowances are designed for small companies, and others for elite technology companies that do not fall into the classification of small companies.

The Regulations’ draft was published for public comment, and finally approved by the ISA’s plenum on 24th August 2014.

2.12.3. The Joint Investment Trust Regulations (Elite Technology Fund)

These Regulations anchor the framework for creating elite technology funds. Traded funds, which will be established according to the closed mutual fund model, and will invest in companies operating in the field of elite technology, which are not listed on the Stock Exchange, on top of ordinary traded investments. The regulations prescribe the duration of their existence, the method of offering their units and the redemption thereof, the assets held by the funds and their rates, the manner of determining the price of the non- listed assets held by a fund, expenses to be settled from a fund’s assets, provisions regarding the legal quorum for passing extraordinary decisions of fund unit holders, etc.

The Regulations’ draft was published for public comment, and at the date of the end of the reported year, are in the processes of being worked on internally.

2.12.4. Amending regulations regarding a mechanism for offering securities to the public according to the At the Market Offering (ATM) method The Securities Regulations (Method of Offering Securities to the Public) (Amendment) 5775-2015; The Securities Regulations (Shelf Offering of Securities) 5766-2005; The Securities Regulations (Periodic and Immediate Report) (Amendment) 5776-2015; The Securities Regulations (Period for Filing Invitations for Securities Offered by Prospectus) (Amendment) 5775- 2015

In the setting of the Bill to Encourage Investment in Elite Technology Companies (see Clause 2.a.1. above) there is a proposal to anchor an additional mechanism to offer securities to the public, which is, an offering in the course of trading on at the Stock Exchange – ATM. The regulations outline conditions for executing such an offer, which would prevent its abuse by the issuing corporations, and would ensure that trading continues orderly as well as protect the interest of the investing public.

The proposed regulations were approved by the ISA’s plenum in April 2014 after receiving the public’s comments.

Once the abovementioned Law takes effect, all the foregoing regulations will be promoted.

2.12.5. Proposal to Amend the Prohibition of Money Laundering Order (Identification, Reporting and Keeping Records Requirements by Stock Exchange Members for the Purpose of Preventing Money Laundering and Financing of Terrorism) 5770-2010, and the Prohibition of Money Laundering Order (Identification, Reporting and Keeping Records Requirements by Portfolio Managers for the Purpose of Preventing Money Laundering and Financing of Terrorism) 5770-2010

The proposed amendments of both Prohibition of Money Laundering Orders are designed to implement the lessons learnt from how the Orders were implemented over the years since they were published in 2010, inter alia, as a result of audits conducted at supervised entities. Additionally, the amendments are designed to implement new international standards set by the Financial Action Task Force (FATF) to prevent money laundering, financing of terrorism, and arms distribution.

The proposed amendment of the Orders was published on the ISA’s website for public comment, and at the date of the end of the reported year, discussions were taking place on the comments received from the public.

3. Coordinating and Accompanying Civil and Administrative Legal Proceedings

The ISA is involved in several civil and administrative legal proceedings. As a general rule, the District Attorney’s Office represents the ISA in court. A very significant part of a case’s preparatory work, is undertaken by the staff at the ISA, in cooperation with the District Attorney’s Office. The ISA’s involvement in civil legal proceedings is reflected in three main channels detailed hereinafter: First, legal proceedings in which the ISA has expressed a professional position (at the stage of settlement, or in the course of the proceedings); second, legal proceedings in which the ISA is a defendant (in ordinary proceedings) or a respondent (in an administrative petition); third, class actions or derivative actions which the ISA helps fund.

A. Legal proceedings which the ISA instigated and/or expressed a professional opinion on in 2015 and/or which are still pending before the courts

Over the course of the reported year, the ISA has offered the courts its position on legal proceedings which it viewed as being especially important, or involving some important principle. At times, these position papers were filed by the Attorney General, or his agent, but also in such instances, the ISA had a material contribution to shaping them. Additional details regarding these position papers can be viewed in the chapter on the activities of the Corporate Finance Department, the clause discussing “Plenum and Staff Positions on Legal Matters”.

Civil Proceedings Instigated by the ISA:

1. Civil Action 43133-12-15 The Israel Securities Authority v, Utrade Premium Ltd.

A motion for interim and permanent injunctions filed by the Israel Securities Authority against Utrade Premium Ltd. (hereinafter: “Utrade”).

In the setting of this motion, the ISA claimed that Utrade was carrying on portfolio management without a license, recruiting hundreds of investors from amongst the public, and causing significant losses in the process. The ISA claimed that Utrade was carrying out such activity, despite its express commitment to the ISA to stop doing so. The ISA further claimed that there was a suspicion that new investors’ money was not being invested for them, but was being “diverted” from their original purpose and was being used to refund monies of previous investors who demanded their money back. The court acceded to the ISA’s motion and issued an interim injunction. A short time thereafter, Utrade’s temporary liquidator consented to the imposition of a permanent injunction.

2. Civil Action 40274-09-15 Perrigo Company Plc. v. Mylan NV et al.

In September 2015, the District Court in Tel Aviv (Economic Division) heard a petition for an injunction filed by Perrigo against executing the purchase offer presented by Mylan. In the course of the hearing, the ISA presented its position, that Mylan had to publish a prospectus in Israel incidentally to making the purchase offer, and to comply with the provisions of Section 46B of the Securities Law. The court accepted the ISA’s position, and held that there was nothing preventing Mylan from listing on the Tel Aviv Stock Exchange in light of Section 46B of the Law, and that there was no scope to interfering with the decisions of the ISA and the Stock Exchange in this matter. For additional details see the chapter on the Corporate Finance Department at Clause 1.6 hereof.

B. Class Actions and Derivative Actions to which the ISA was joined or in which the ISA expressed a professional position

1. Professional Positions

1.1. Class Action 14144-05-09 Harel Pia Mutual Funds Ltd. v. Landmark Group Ltd. A motion of leave to file a class action, the main thrust of which were claims of misleading details contained in a prospectus published by Landmark Group Ltd. in 2007. In March 2012, the ISA filed its position with the court, which dealt with several central points: (a) The applicability of the defences prescribed by Section 33(1) and Section 33(1A) of the Securities Law to the underwriters of the issue; (b) the importance of disclosure of material indications of the value of assets for the purposes of taking an informed decision; (c) the possibility of filing class actions and managing same by a fund manager, on account of violations of legal provisions performed, so he claimed, by one of the corporations in which the funds’ monies were invested. In December 2012, the Court granted leave with regard to the principal cause of action, having held that the applicants met the burden imposed on them at the stage of the leave application – to prove that a misleading detail existed in the prospectus published by the Landmark Group Ltd. relating to a particular transaction with an American construction firm. It is noted that the court mentioned the ISA’s position in its decision, and even adopted extensive parts of it.

In February 2013, the respondents filed a motion of leave to appeal that decision to the Supreme Court (Civil Leave to Appeal 995/13; 625/13), and the applicants responded to the motion. Following the failure of mediation proceedings to which the parties were referred, proceedings before the Supreme Court were continued. In September 2013, the ISA filed a reply to the motion of leave to appeal with the Supreme Court, in the setting of which similar claims were made to those the ISA made before the District Court.

In June 2015, the Supreme Court decided to reject the motion for leave to appeal filed by the respondents, and the hearing of the action was referred back to the District Court. The Supreme Court chose not to deliberate the substantive issues raised in the motions of leave to appeal, since it believed that the correct time for hearing them would be after the full factual foundations are laid before the court of first instance. The Supreme Court noted that the ISA’s decision to support the action was taken into account in its decision to reject the motion of leave to appeal.

1.2. Class Action 36604-02-10 Magen v. Olizki Mining (1990) Ltd. et al.

Leave to file a class action under Section 338 of the Companies Law. In brief, the leave application criticised the value for which a full purchase offer was executed for the shares in Olizki Mining (1990) Ltd. in November 2009. The plaintiff claimed, that the price offered in the purchase offer deprived the offerees, since it was significantly lower than the fair value of the acquired shares. The company and the defendants filed replies to the motion of leave, and the plaintiff filed rejoinders of his own.

At the hearing held in February 2014, the Court permitted the ISA to join in, and express a position on the question, whether an action for a remedy of evaluation should be heard at all in the setting of a class action, and in particular whether it was “right and proper for such an action to be conducted as a class action noting the fact that the identities of the shareholders who agreed to the purchase offer were, for the most part, known, and amongst those consenting were representatives of investment houses, institutional investors and in this particular instance also the Official Receiver”.

In April 2014 the ISA filed a position, stating that there was nothing to prevent filing an action for a remedy of evaluation as a class action, since the legislator expressly stated that in the latter part of Section 338(b) of the Companies Law, and that was also accepted custom. Moreover, the ISA’s also opined that knowing the identity of part of the offerees who acceded to the purchase offer did not alter that conclusion, since an action for a remedy of evaluation could be filed as a class action.

In December 2015, the court decided to grant leave. In its decision, the court drew the distinction between sophisticated investors and institutional investors, and discussed the question of whether the manner of their voting with regard to the full purchase offer would serve as evidence of the fairness of the offered price. The court held that sophisticated investors manage their own funds, and it is possible that they would agree to a purchase offer for reasons that do not necessarily have to do to the fairness of the value of the shares. The court held that a vote of sophisticated investors in favour of a purchase offer could serve as evidence of the fairness of the price, but that it was weaker evidence as compared with the vote of institutional investors, the manner of whose voting constituted stronger evidence of the fairness of the price. Nevertheless, the court held that in that case, the applicant presented real evidence that the price set was not fair, and granted leave.

The court mentioned in its decision, that the fact that the applicant holds a large quantity of shares does not of itself deny him the possibility of filing a class action. Nevertheless, the court held that the representative plaintiff’s past (the fact that he was convicted of a securities offence), and the need to maintain public trust in the capital market, required that he be replaced with a different representative plaintiff.

2. Positions Regarding Settlements

2.1. Class Action 18335-10-11 Walter v. Delek Group Ltd.

A class action, filed in October 2011 against Delek Group Ltd. (hereinafter: the “Respondent”), dealing with a petition for a remedy of evaluation under Section 338 of the Companies Law. The applicant claimed that the price offered by the Respondent to the public in consideration of purchasing the shares in Gadot Biochemical Industries Ltd., in the setting of a full purchase offer, was not fair.

In November 2014, a settlement was filed for the court’s approval. According to the terms and conditions of the settlement, the sum of compensation would be 6.61 NIS (gross) per share. Additionally, it stipulated that if some members of the class are not located, and to the extent that the undistributed balance would exceed 5,000 NIS, another round would take place, in which the balance would be divided amongst the members of the class who were located. If the unpaid balance would be less than 5,000 NIS, it would be donated.

In January 2015, counsel for the Attorney General filed a short position in the setting of which he referred the court’s attention to several issues. The first, was implementation of the notification and distribution mechanism laid down in re Pama (Class Action 4425-01-10), to promote a proper and efficacious process of distribution. The second, was implementation of the mechanism tying the level of professional fees collected by applicant’s counsel to the actual distribution of the compensation award. The third, was that it would be right and proper to determine that 50% of the professional fees would be paid at the end of the process, to ensure that applicant’s counsel acts vigorously to implement the settlement.

In February 2015, the court approved the settlement, and partially accepted the position of counsel for the Attorney General. The court accepted counsel for the Attorney General’s recommendations regarding implementing the notification and distribution mechanism and relating to the timing of payment of applicant’s counsel’s professional fees. However, the court rejected the conditional professional fees mechanism which counsel to the Attorney General proposed, claiming that adopting the compensation mechanism (as set by in re Pama), together with implementing the two-stage mechanism on which the parties agreed, would cause an outcome whereby a high percentage of the compensation would be distributed to members of the class.

2.2. Class Action 37908-11-12 Prilook v. Kol Holdings Ltd. et al.; Class Action 48435-11-12 Vilenski v. Kol Holdings Ltd. et al.

The action involved a reversed triangular merger, in the setting of which Hot Communications Systems (hereinafter: “Hot”), the surviving entity, merged with A.G.B. Chaborshka Ltd., the target company. Two motions of leave to prosecute class actions were filed in the case, and these were consolidated in 2013. The applicants’ main claim was that the merger deprived Hot’s public shareholders, and that the process of approving it was negligent.

In December 2014, a settlement was presented to the court for approval. Under the settlement, the amount of compensation was due to be two NIS per share purchased in the setting of the merger. Which amounted to overall compensation of approx. 29 million NIS (gross) for the members of the class. Additionally, the parties mentioned in the petition that as far as they were concerned, there was no need to appoint an inspector in the case.

In February 2015, counsel for the Attorney-General filed his position on the settlement, in which he noted that he did not object to the settlement, but that he saw fit to refer the court’s attention to several issues. His position was, that the court needed the proper tools with which to examine the reasonableness of the settlement, and that for that reason, an inspector’s report should be obtained, which would appraise the fair value of Hot’s shares. In addition, the professional fees which the parties to the settlement recommended were high also with regard to the criteria laid down in re Reichart (Civil Appeal 2046/10, 2051/10). Further to which, counsel for the Attorney-General suggested to determine that 50% of the fees would be paid only once the restitution process had ended. He further suggested that members of the Stock Exchange convey a list that would contain the members of the class which they could not locate, and recommended that the duration in which details regarding class members who were not located could be passed on to trustees, be extended from 14 days to 30.

In December 2015, the court approved the settlement, and partially accepted counsel for the Attorney-General’s position. The court adopted his position regarding the restitution mechanism. However, the court rejected his position regarding the professional fees, justifying same by stating that the legal action was an innovative and complex one, which required applicant’s counsel to invest significant time and resources. The court also rejected counsel for the Attorney-General’s suggestion to stipulate that part of the fees be paid to applicants’ counsel at the end of the process, and the recommendation to appoint an inspector, stating that in examining the relevant questions, an inspector had no advantage over the court.

2.3. Class Action 26912-02-14 Shavit v. Hagag Group Real Estate Entrepreneurship Ltd.

A class action, filed in February 2014 against the Hagag Real Estate Group Ltd. (hereinafter: the “Respondent”), seeking a remedy of evaluation under Section 338 of the Companies Law. The applicant claimed, that the price the Respondent offered the public for purchasing the shares in the Regency Jerusalem Hotel Co. Ltd. in the setting of a full purchase offer, was not fair.

In February 2015, a settlement was presented to the court for approval. Under the settlement, the Respondent would pay members of the class aggregate compensation of 1.9 million NIS (gross). Additionally, the parties noted in the settlement motion that there was no need to appoint an inspector, since the issues contained in the settlement were legal issues, and therefore an inspector had no advantage over the court in reviewing them.

In April 2015, the ISA filed a short position relating to the settlement, in which it noted that it did not object to the settlement, but that it saw fit to refer the court’s attention to several matters. The ISA mentioned that in this case, opinions were filed both on behalf of the applicant and on behalf of the respondent, and that a significant gap existed between the two opinions, and that for that reason, an objective evaluation of an inspector was necessary, to aid the court in determining between the two opinions. Additionally, the ISA offered to implement the notification and distribution mechanism prescribed in re Pama. The ISA also suggested that 50% of the fees be paid at the end of the process, to ensure that applicants’ counsel act vigorously to implement the settlement.

At a hearing in court on 29th April 2015, it was claimed, inter alia, that the opinion filed on behalf of the applicant contained two material errors regarding two issues, in a manner that reduced the sum sued for by approx. 1.8 million NIS. Consequently, the gap between the two opinions filed by the parties’ experts narrowed, and the need to appoint an inspector diminished.

In April 2015, the court approved the settlement, and partially accepted the ISA’s position. The court accepted the ISA’s comments regarding the timing of payment of fees to applicant’s counsel, and regarding the mechanisms for distributing the settlement award. However, the court held that in the present case, there was no need to appoint an inspector. The court noted, inter alia, that it took into account in its decision the fact that the sum of the action was reduced by approx. 1.8 million NIS (so that the settlement award now constituted approx. 46% of the sum claimed). The court held that such a rate, together with the significant risks facing the applicant, strengthened the conclusion that there was, in the present case, no need to appoint an inspector.

2.4. Class Action 6395-08-07 Shapiro et al v. The State of Israel et al; Derivative Action 15430-07-12 Shapiro et al v. Dexia Israel Bank et al.

A petition to approve a settlement, consolidating two actions (a class action and a derivative action), concerning the manner in which the Local Government Treasury Ltd. (currently Dexia Israel Bank Ltd.) (hereinafter: the “Treasury”) was merged, and how Dexia Credit Local (hereinafter: “Dexia”) was transformed into owning more than 50% of the voting rights in Treasury.

In December 2012 a settlement was presented to the court for approval. Under the settlement, the respondents would pay members of the class aggregate compensation of approx. 30 million NIS. Moreover, regarding the derivative action, it stipulated that Dexia would pay Treasury 10 million NIS. However, current shareholders in Treasury filed an opposition to the settlement.

In March 2015 the State (which was also a defendant in the action) filed a reply, in which it rejected the claims raised by Treasury’s shareholders.

The State noted, inter alia, that the current shareholders in Treasury, who filed the notice, were apparently not identical to the members of the group. Thus, their interests were not necessarily identical to the latter’s interests. The State also noted, that the requirement in the settlement, that it be declared that the shares in Treasury held, or which would be held, by Dexia, are not, and were not, treasury stock, was a legitimate and justified demand. The State also mentioned that it was not an extraordinary transaction between a public company and its controlling shareholder, requiring, under Section 270(4) of the Companies Law, approval of the general meeting, and that it made sense to roll over the professional fee expenses and the remuneration for Treasury, in light of the not negligible sum it would receive in the course of the settlement.

The court approved the settlement on 13th May 2015, entirely adopting the State’s reply.

2.5. Derivative Action 14873-03-10 Rubin v. Dankner et al.; Derivative Action 7500-07-10 Alter v. Dankner et al.

This derivative action concerned a transaction between Hapoalim Bank (through a subsidiary) (hereinafter: the “Bank”) and the investment house RP Explore Master Fund (hereinafter: “RP”). In 2010, two petitions of leave were filed with the courts, which were later consolidated, against Dan Dankner and other officers. It claimed that the defendants violated the duties of fealty and care they owed the Bank, when they approved the payment of 25 million USD in compensation to RP.

In 2013, Dankner was convicted of offences related to his conduct in the abovementioned events.

In January 2015, a settlement was filed with the court for approval. Under the settlement, the officers’ liability insurer would pay Hapoalim Bank a total of six million NIS (gross). The motion to approve the settlement also stated that the compensation would be paid to the Bank in exchange for an absolute waiver of any claim or legal action relating to the matters contemplated by the motion, against the officers (including Dankner), any other third party, and RP (or its affiliates).

In April 2015 an opinion on behalf of the Banking Supervisor (hereinafter: the “Supervisor”) was filed, after being coordinated with the Ministry of Justice and the ISA, regarding the settlement. The Supervisor stated, that there was a large gap between the alleged damages caused to the Bank in the setting of the motion to approve (approx. 70 million NIS) and the award in the settlement (approx. 4.5 million NIS), and that this gap necessitated clarifying whether the settlement was fair and reasonable. In addition, the Supervisor stated that the level of fees to which the parties agreed were high, and it was doubtful whether they met the criteria laid down in re Riechart. Moreover, the Supervisor emphasised that the settlement created circumstances of res judicata vis-à-vis entities that were not parties to the proceedings.

In June 2015 the Attorney-General also filed his position regarding the settlement, in which he referred the court to several issues which, in his opinion, the court had to consider before it adjudicated the motion to approve the settlement. The Attorney-General stated that there was fault in the release awarded to Dankner, since it was inappropriate that a person who was convicted of serious offences would receive a blanket release from liability in the setting of civil proceedings regarding the deeds done intentionally and consciously. The Attorney-General also noted that he concurred with three reservations raised by the Supervisor in his position.

In July 2015, the court decided to reject the settlement, and partially accepted the positions of the Attorney-General and the Supervisor. The court noted that the main reason for which the settlement should be rejected, was the large gap between the sum sued for and the compensation awarded in the motion to approve. The court also referred to the issue of fees, and noted that since the action was a complex one, requiring considerable investment, it would not have rejected the settlement exclusively for that reason. Regarding the release given to the officers, the court noted, that the fact that the insurer was seeking to ensure that its involvement in the affair would come to an end once payment was affected, was legitimate. However, the court did not accept the release offered to RP (and its affiliate companies). In its opinion, the settlement was not supposed to block the possibility of filing legal actions against these companies, if it is proven that such actions benefited the Bank. Regarding the release given to Dankner, the court noted that no satisfactory explanation was given for the award of such a release, and that on the face of it, it appeared to be unlawful.

2.6. Derivative Action 37473-09-12 Ben Yoram v. Dankner et al.

The main concern of this derivative action, filed in 2012, was a transaction to purchase shares in Ganden Tourism and Aviation Ltd. (hereinafter: “Ganden”) by IDB Development Ltd. (hereinafter: “IDBD”), on account of which IDBD suffered damages, estimated by the derivative plaintiff to amount to hundreds of millions of NIS. The action was filed against the directors and controlling shareholders in IDBD and IDB Holdings (hereinafter: “IDBH”), claiming that these were tainted by conflicts of interests when approving the transaction.

In April 2015 the parties presented the courts with a partial settlement pertaining to some of the causes of action, and against some of the defendants (the settlement did not apply to the controlling shareholders in the Ganden Group, with regard to causes of action based exclusively on their being controlling shareholders).

In July 2015 the ISA filed its position on the settlement, stating that it did not oppose it, but that it did see fit to call the court’s attention to two issues. The first, is the large gap between the alleged damages caused to IDBD (hundreds of millions of NIS) and the award under the settlement (1,550,000 USD gross), a gap that necessitated examining whether the settlement was fair and reasonable. The second, the fees suggested for applicant’s counsel in the framework of the settlement (30% of the 1,550,000 dollars) were high, and deviated from the criteria laid down by re Riechart. In September 2015, on the court’s recommendation, the parties arrived at a new settlement, ending the legal proceedings in relation to all respondents. Under the settlement, Clal Insurance Co. Ltd. (hereinafter: “Clal”) would be joined as a respondent to the approval motion, and would be the party to bear a significant share of the payment under the settlement. According to the settlement, Clal would pay IDBD 2,850,000 USD (gross).

In October 2015 the ISA filed its position on the settlement, calling the court’s attention to several issues. The ISA repeated its claim that there was a large gap between the alleged damages caused to IDBD (hundreds of millions of NIS) and the award under the settlement (2,850,000 USD). This gap necessitated examining whether the settlement was fair and reasonable. Additionally, the ISA asked the court to determine that the settlement would exhaust the causes of action exclusively with regard to the Ganden transaction. The ISA also asked the court to examine whether the sum allotted for professional fees under the new settlement (which was reduced from 30% to 21.5%) was suitable.

In November 2015 the court decided to approve the settlement. The court partially accepted the ISA’s position. The court held that despite the large gap between the claimed damages under the filed motion to approve, and the award of compensation under the settlement, the settlement was fair and reasonable. The court accepted the ISA’s comment, and emphasised that the settlement would indeed constitute exhausting the causes of action strictly in the Ganden transaction. The court chose to approve the requested fees, since in its opinion the action was a complex one, requiring a material investment of time and large resources, and since the sums requested did not exceed customary awards.

2.7. Derivative Action 49615-04-13 Lahav v. IDB Development Ltd. et al.; Derivative Action 2380-08-13 C.F.I. Drilling Ltd. v. IDB Development Ltd. et al.

A motion to approve a settlement, consolidating two motions of leave to file derivative actions, concerning the decisions taken by the board of directors at IDB Development Ltd. (hereinafter: “IDBD”) to approve a distribution of dividends to IDB Holdings Ltd. (hereinafter: “IDBH”). The first motion, filed in April 2013 (and approved as a derivative action in November 2013), related to IDBD’s Board of Directors’ decision to approve a dividend distribution of 64 million NIS to IDBH. The applicant’s claim was that this constituted a prohibited distribution, that did not pass the profit test. The second motion was filed in August 2013. This motion related to four different dividend distributions, which IDBD affected in 2010-2011 for an aggregate of approx. 442 million NIS. The claim in the setting of this motion was, that these constituted prohibited distributions, that did not pass the profit test or the solvency test.

This motion to approve a settlement was the third in this case (the two previous settlements were not approved). Under the settlement, IDBD would receive consideration of up to 50.6 million NIS (IDBH would pay up to 23 million NIS; the directors and officers would pay [by means of the insurer] 27.6 million NIS).

In August 2015, counsel for the Attorney-General filed his position regarding the settlement, stating that he did not oppose it, but that he saw fit to call the court’s attention to the following issues: (1) All the parties’ reasoning should be reflected in the written motion to approve the settlement, and it was insufficient for them to state them orally in court, so as to afford potential contesters the possibility of expressing their positions; (2) the same rules applicable to motions to approve settlements in class actions should be applied to the proceedings to approve the settlement in the derivative action; (3) the fees of one of plaintiff’s counsel were high (could amount to 27% of the award under the settlement), and deviated from the criteria laid down in re Riechart.

In November 2015, the court approved the settlement and accepted the position and comments by counsel for the Attorney-General regarding the level of fees, and held that the rate of fees must be reduced to 6.375% of the compensation awarded in the settlement.

2.8. Derivative Action 33736-12-09 Pearl v. Maor et al.

A derivative action filed in December 2009 in the name of the Israel Leumi Bank Ltd. (hereinafter: the “Bank”) against officers and directors at the Bank. The motion claimed that by their conduct, the respondents caused the Bank damages exceeding 22 million NIS. Concurrently with filing leave to prosecute the derivative action, the applicant filed a pecuniary action with the Employment Tribunal, concerning rescission of the retirement contract he signed with the Bank several years previously. The parties attended mediation proceedings, in the course of which they reached an agreement that the plaintiff would withdraw the derivative action, and that the Bank would pay him compensation in the action he filed with the Employment Tribunal.

Correspondingly, in July 2015, application to withdraw the motion of leave to prosecute a derivative action was filed to the court. The applicant stated in the application to withdraw, that he had concluded that the respondent’s conduct was reasonable, and that prosecuting the derivative action could harm the Bank. Additionally, the applicant asked the court to refrain from ordering that the application be published, since such publicity was not necessary before the action was confirmed as a derivative action.

In September 2015 counsel for the Attorney-General filed a position on the application to withdraw, in which he stated that he wished to call the court’s attention to several issues. According to him, in the present case, there was a mixing of the collective proceedings, which were the subject matter of the approval motion, and the applicant’s private proceedings (the action he filed with the Employment Tribunal). In light of the stated difficulties, counsel for the Attorney-General suggested to hold that the group proceedings be struck out in a manner that would enable them to be filed again in the future, and that the period of limitations regarding the cause of action be extended. Counsel for the Attorney-General further stated that in light of the proceedings’ complexity, there was material significance in publishing the application to withdraw, and even suggested that the court consider the possibility to locate an alternative derivative plaintiff.

In November 2015 the court accepted the application to withdraw. The court partially accepted the position of counsel for the Attorney-General. The court held that the applicant should not be prevented from withdrawing from the derivative action, owing to the fact that the compensation he sued for in the setting of his private action was made conditional upon his withdrawing his motion of leave to prosecute the derivative action. However, in this case, publication of the withdrawal notice was to be ordered, in light of the issue’s complexity, and for the purpose of granting any person interested in filing a similar application, the possibility of perusing the application to withdraw.

2.9. Class Action 4380-08-13 C.F.I. Drilling Ltd. v. Israel Chemicals Ltd. et al

A class action, filed in August 2013, against Israel Chemicals Ltd. (hereinafter: “ICL”). The petition of leave to prosecute the class action stated that ICL did not include in its periodic reports all the information in its possession, and which it should have, according to the applicant’s claim, included, in relation events on the international potash market. The petition for leave claimed that, by its conduct, ICL caused damages estimated at billions of NIS to the shareholding public.

In August 2015 a settlement was presented to the court for approval. Under the terms of the settlement, members of the class would not receive any compensation at all, but ICL would add certain reported details regarding the international potash market. The parties also noted that in the present case, there was no need to appoint an inspector, since the settlement dealt with legal issues within the expertise of the court. Additionally, it proposed that the applicant and his counsel receive fees and remuneration totalling approx. 1.2 million NIS.

In November 2015 the Attorney-General filed his position, in which he opposed the settlement in its current form and structure. The Attorney- General’s main claim was that the proposed remedy (disclosure) did not correlate to the cause of action, and the remedy of compensation sued for. The Attorney-General’s position was that the additional disclosure did not benefit members of the class to the tune of the financial damages that it was claimed were caused to the class. The Attorney-General emphasised that there was no identity between members of the class and the current shareholders, and that for that reason the remedy of disclosure did not benefit all the members of the class. In addition, the Attorney-General’s position was, that there were grave doubts whether the disclosure itself had any value at all to the class, since it contained only simple statements, and most of it had already been disclosed to shareholders in the setting of the motion to approve the settlement. The Attorney-General further stated that remuneration and fees should not be approved for the applicant and his counsel, to the extent that the action was groundless.

Shortly after the Attorney-General filed his position, the applicant notified the court that in light of the Attorney-General’s position he decided to withdraw from the settlement.

At a hearing in court on 6th December 2015, the court noted that it agreed with the Attorney-General’s position.

By the end of the year reported, no motion to approve a different settlement had been filed, and no determination was made on the leave application.

2.10. Class Action 24499-07-13 Walter et al v. P.L.M. Properties Ltd.

A class action filed in July 2013, concerning an application for a remedy of evaluation under Section 338 of the Companies Law. The applicants claimed, that the price offered by the respondents to the public for purchasing the shares of Synopsis Ltd. in the setting of a full purchase offer, was not fair.

In July 2015 a settlement was presented to court for approval. Under the settlement, the respondents would pay a final, overall sum of 300,000 NIS (plus VAT).

In December 2015, counsel for the Attorney-General filed a short position, in which he saw fit to call the court’s attention to an important matter of principle – the need for a mechanism of notification and distribution of the compensation award. Counsel for the Attorney-General stated that the settlement did not refer to the notification and distribution mechanism, but only to the manner whereby the settlement award would be divided amongst the various parties. For that reason, counsel for the Attorney- General suggested to prescribe a detailed and clear distribution mechanism that would ensure maximal compensation for members of the class.

By the end of the year reported no determination was made on the application to approve the settlement.

C. Proceedings Filed Against the ISA

The following are details of the civil and administrative proceedings filed against the ISA regarding supervision, issues related to its activities as an administrative authority, and on other matters:

1. Civil Action 1689/08 Molkandov v. Porush, Terry and the ISA A pecuniary action against the ISA, against the person who was the ISA’s chairman at the relevant times, and the person who was, at all times relevant to the Statement of Claim, the head of the Mutual Funds Supervision Department (currently part of the Investment Department). The action claimed that the plaintiff was caused damages owing to the cancellation of an agreement he had with a fund manager, and the loss of income owing to same. The plaintiff claimed, that this occurred owing to actions taken by the ISA. Over the course of the reported year, judgement was handed down in this case, which held that the ISA or its agents acted within the ISA’s authorities at law, and therefore they had defences as claimed in the proceedings. For that reason, the court dismissed the action.

Following judgement, an appeal was filed from the judgement to the Supreme Court, in which the plaintiff petitioned to quash the verdict. On hearing the appeal, the appellate panel at the Supreme Court asked to receive a copy of the judgement from the court of lower instance (the District Court) regarding the damages caused to the plaintiff. The District Court awarded the plaintiff just 51,000 NIS. From this complementary verdict regarding the quantum of damages, both the plaintiff and the ISA filed appeals to the Supreme Court. At the date of the end of the reported year, both the plaintiff’s appeal and the ISA’s appeal are pending before the Supreme Court.

2. Civil Action 1634/06 Aviev Yuri et al v. Rosneft-Gas-Invest et al.; Civil Action 27603- 12-11 Abramovich et al v. The Israel Securities Authority et al. Civil Action 1470/06 Havitz Vladimir et al v. Rosneft-Gas-Invest et al. Administrative Petition 31652-06- 13 Havitz Vladimir et al v. The Israel Police Force et al.

Pecuniary actions filed against the Israeli Police, the Prison Service and the ISA, regarding a fraud perpetrated by Gregory Lerner. The actions were filed by approx. 560 citizens, and claimed that in the setting of the deception which Mr. Lerner perpetrated, approx. 2,500 people lost an aggregate 120 million NIS. The plaintiffs claimed, that Mr. Lerner received the monies in the setting of a public offering with no prospectus, contrary to the Securities Law. The plaintiffs had many claims against various entities. The plaintiffs’ claims against the ISA were, that the ISA knew of the violation of the Securities Law, but failed to prevent the move which lead to the damages caused to the plaintiffs, and therefore was negligent.

Over the course of the reported year, the hearing of evidence in the trial has been completed, and the summations are expected in the course of 2016.

3. Administrative Petition 34589-05-14 Kedem Group for Strengthening and Renovating Buildings Ltd. v. The Israel Securities Authority

An administrative petition filed against the ISA’s decision, that the petitioner had to publish a prospectus for the purpose of raising credit from public investors for the purposes of its ongoing operations in the field of Tama 38 Building Projects. After filing the pleadings, and oral discussions before the Court of Administrative Affairs in Jerusalem, the latter accepted the petition, and rejected the ISA’s interpretation of the term “series” in the definition of the term “Securities”.

4. Administrative Appeal 7313/04 The Israel Securities Authority v. Kedem Group for Strengthening and Renovating Buildings Ltd. An administrative appeal filed by the ISA against the decision of the Court of Administrative Affairs in Administrative Petition 34589-05-14. In the setting of the appeal, the ISA attacked the verdict of the Court of Administrative Affairs with regard to the interpretation of the term “series” in the definition of the term “Securities”, an interpretation by virtue of which the Court of Administrative Affairs accepted the petition, and held that the respondent was under no duty to publish a prospectus before raising credit from the public.

In October 2015, the Supreme Court decided on the appeal. The ISA’s submissions were accepted on appeal, the verdict in Administrative Petition 34589-05-14 was set aside. At the end of the reported year, the Kedem Group filed an application for a re- hearing of the abovementioned judgement, before the Supreme Court. The application for a re-hearing has not yet been decided on, and a decision is expected in the course of 2016.

5. Administrative Petition 7313/04 Bram Sluki & Co. Law Offices v. The Israel Securities Authority

An administrative petition filed against the ISA’s decision refusing an application under the Freedom of Information Law, not to deliver to the petitioners, reports of audits performed, in the course of 2009-2010, by the unit supervising license holders in the ISA’s Investment Department, in the setting of which the abovementioned license holders’ compliance with the requirements set down in the Advice Law was examined.

In the year reported, judgement was received rejecting the petition against the ISA, and holding that the rejection of the freedom of information application was lawful. The court held that taking account of the various considerations in favour and opposing disclosure of the information, drove the conclusion that the ISA’s position should be preferred to the information requester’s position.

6. Company Liquidation File 12321-12-13 Forum F.I.A Ltd. v. The Israel Securities Authority et al.

A motion for instructions filed to the Central District Court by the liquidators of Alpha Platinum Mutual Trusts Ltd. (In liquidation) against the ISA, officers and directors in the company, the Phoenix Insurance Co. Ltd., the company’s internal auditor, and the company’s auditing accountant.

The main submission in the motion was, that the company’s activities were exclusively based on the controlling shareholder injecting funds, with no action to ensure his commitment to the company having taken place. When he stopped injecting funds into the company, the company’s activities were sold for cheap, and it was left with debts to various parties.

The claim raised by the liquidators against the ISA, focused on the permit given by the ISA to the company, to manage a mutual trust. The liquidators submitted, that the ISA was negligent in reviewing the minimum equity requirements. But for that (denied) negligence, no license to manage a mutual trust would have been issued, and thus the company’s activities would have been avoided, and the alleged damages would not have ensued. The ISA filed a reply to the court, in the setting of which it utterly rejected the liquidators’ claims, and raised various justifications, both procedural and substantive. The other respondents’ replies to the motion were also filed to court.

By the end of the year reported, no decision had yet been taken on the motion for instructions.

7. Judicial Employment Dispute 61446-01-15 Yeal Mizrahi v. Modiin Ezrachi Ltd. et al.

Proceedings in the setting of which the ISA was sued together with Modiin Ezrachi Ltd., by an employee of the company’s, who made (denied) submissions regarding the fact that she was rejected from being a security guard at the ISA’s facilities. In the course of the reported year, the plaintiff and the ISA reached a settlement, and that settlement has received the force of judgement.

D. Proceedings of Civil Fines and Financial Sanctions under the Joint Investment Law and the Advice Law, under the Prohibition of Money Laundering Law and the Securities Law

1. Administrative Petition 27090-10-14 Petrochemical Industries Ltd. v. The Israel Securities Authority

An economic administrative petition against the ISA’s decision to impose a financial sanction of 120,000 NIS on the petitioner, owing to a violation of the duties prescribed in the Securities Law and the regulations promulgated thereunder, regarding the requisite disclosure details in providing forecast cash- flow. In April 2015, the District Court (Economic Division) rejected the petition with regard to the imposition of the financial sanction, and partially accepted the petitions with regard to the level of the financial sanction.

2. Various Appeals 40459-10-14 E. Broker Trading and Securities Ltd. v. The Israel Securities Authority

An appeal filed from the decision of the Financial Sanction Committee in the Israel Securities Authority, to impose a financial sanction of 90,000 NIS on the appellant owing to an infringement of the duty to apply, as provided for by Section 11(1) of the Prohibition of Money Laundering Order. The appellant claimed, that the guidelines regarding the length of time available to report an extraordinary action were faulty. The appellant also made other claims, including but without limitation, against the level of the sanction.

By the end of the reported year, the ISA had not yet submitted its reply to the petition. The hearing of the appeal is due to take place in the course of 2016.

E. Proceedings Related to Decisions of the Administrative Enforcement Committee under the Securities Law

1. Administrative Petition 37447-10-13 Africa Israel Industries Ltd. et al v. The Israel Securities Authority et al.

An administrative petition filed under Section 52(61) of the Securities Law against a decision by the Administrative Enforcement Committee in Administrative File 1/13 regarding Africa Israel Industries Ltd. (hereinafter: “AFI”), Abraham Novogrodski, Abraham Motola and Alon Harpaz, against charging the respondents with the administrative infringements, and in the alternative, against the severity of the enforcement measures imposed on them. In January 2015 the District Court (Economic Division) rejected the petition with regard to the petitioners’ liability for the infringements, and partially accepted the petition with regard to the enforcement measures imposed on AFI, which the court determined should be reduced.

2. Administrative Petition 56840-03-15 Gil Gruer v. The Israel Securities Authority et al.

An administrative petition filed under Section 52(61) of the Securities Law against the severity of the enforcement measures imposed on Gil Gruer by a decision of the Administrative Enforcement Committee in Administrative File 2/14 The Israel Securities Authority v. Extra Plastic Ltd. et al. In August 2015 the District Court (Economic Division) rejected the petition.

3. Administrative Petition 55314-07-15 Barak Rosen and Guy Canada v. The Chairman of the Israel Securities Authority et al.

An administrative petition filed under Section 52(61) of the Securities Law against a decision of the Administrative Enforcement Committee in Administrative File 3/14 re Barak Rosen et al, against charging the respondents Barak Rosen and Guy Canada with committing administrative violations, and in the alternative, against the severity of the enforcement measures imposed on them. In the course of the reported year, the ISA submitted its reply to the petition. The hearing of the petition is due to take place in the course of 2016.

4. Administrative Petition 43900-09-15 Upswing Capital Investments 2015 Ltd. and Moti Menashe v. The Israel Securities Authority

An administrative petition filed under Section 52(61) of the Securities Law against a decision of the Administrative Enforcement Committee in Administrative File 3/14 re Moti Menashe and Upswing Capital Ltd., against charging the respondents Barak Rosen and Guy Canada with committing administrative violations, and in the alternative, against the severity of the enforcement measures imposed on them. In the course of the reported year, the ISA submitted its reply to the petition and the petition was heard. By the end of the reported year, the parties have not yet submitted their summations. The decision of the District Court (Economic Division) on the petition is expected in the course of 2016.

4. Financing Class Actions and Derivative Actions

One of the ISA’s goals is removing barriers in the field of private enforcement, and encouraging prosecution of suitable private proceedings. The ISA seeks to implement this goal by providing tools and creating a comfortable “working environment” for investors interested in filing suitable class actions and derivative actions. This, in light of current circumstances in which the field of private enforcement of securities law is not very developed in Israel, and its extent is relatively small. One of the most important tools available to the ISA for this purpose is participating in funding securities-related class actions and derivative actions. Under Section 55C of the Securities Law, the ISA is permitted to assist in financing the costs of class actions, if it is persuaded that the public has an interest in the action, and that there is a reasonable chance that the court will grant leave to prosecute it as a class action. Moreover, under Section 205A of the Companies Law, the ISA is permitted to assist in financing the costs of derivative actions, if it is persuaded that the public has an interest in the action, and that there is a reasonable chance that the court will grant leave to prosecute it as a derivative action. It is noted, that the abovementioned authority regarding derivative actions is a relatively new power, granted to the ISA only in the framework of Amendment 16 of the Companies Law. The ISA has been making use of its power to finance class actions and derivative actions on an ongoing basis. The proceedings which the ISA is financing will be listed hereinafter.

It is noted that since the Economic Division of the District Court started to operate in 2011, and following several significant decisions in the field of class actions and derivative actions (in the field of securities law, company law and in general), one can detect a change of trend in the field of private enforcement of securities law and company law.

A. Class Actions and Derivative Actions Handled in the Course of 2015

In the course of the reported year, several proceedings which the ISA assisted in financing have ended: Two actions ended in settlement (in re Dor Chemicals; in re Kol Holdings); one action was struck out (in re Scailex Corporation); and another action was given leave to be prosecuted as a derivative action (in re Ultra Equity).

1. Class Action Against Dor Chemicals Ltd. et al

The action concerned claims that the public was misled as to the company’s real condition in the course of 2002-2004. The plaintiffs claimed, that the company presented that it was a successful company earning vast sums of money, and gave misleading positive indications, while concealing material details regarding the company’s true condition.

In September 2011, the parties to these proceedings reached a settlement, and presented it to court for approval. In October 2011, the court transferred the settlement to the inspection of an inspector. In March 2013, counsel for the Attorney-General filed his position regarding the settlement, which included reference to several principal issues. First it was claimed, there was a variance between the class, as defined in the leave motion, and the class in the settlement, and that this disparity also dramatically affected the quantum of damages. Additionally, it was claimed that publication in the newspapers was not sufficient to inform members of the class regarding the settlement, and that use should be made of information from members of the Stock Exchange to notify the injured parties. It was further claimed, with regard to the professional fees, that they should only be paid once the process of distributing the compensation concluded. On 12th May 2014, the Tel Aviv District Court (HH Justice Dr. M. Agmon-Gonen) accepted the position of counsel for the Attorney-General with regard to the manner of notifying members of the class, and laid down several conditions to approving the settlement. The parties filed a motion of leave to appeal that decision to the Supreme Court. At the hearing before the Supreme Court, and in light of the recommendation of HH President Grunis, the parties reached an agreement in the setting of which the structure of the settlement was altered. The parties agreed to amend the definition of the class and to extend it, so that the settlement would include all the causes and presentations regarding which claims were made in the leave to prosecute. Moreover, the parties agreed to increase the award of compensation to approx. 3.5 million NIS. The parties accepted the Attorney-General’s comments, and agreed that half of the fees would be paid after the settlement is executed.

In April 2015, the Supreme Court approved the settlement. The court noted that the Attorney-General’s comments assisted in shaping the settlement into its final version, with regard to the manner of defining the class and the timing for payment of the fees, which was useful to the members of the class. The court did not accept the Attorney-General’s recommendation to order the preparation of a complementary opinion on behalf of the inspector regarding the quantum of damages, but the level of compensation in the settlement was suitable in the circumstances (Leave to Appeal 4129/14; Civil Action 1185/05).

2. Class Action against Kol Holdings Ltd. et al.

A motion of leave to prosecute a class action filed against Kol Holdings Ltd., Hadaros 2012 Ltd., A.G.B. Cheborshka, Patrick Drahi, Hot Communications Systems, Stela Handler, Israel Chechik, Amos Sapir, Relly Shavit, Avraham Burstein, Jeremy Bonin, Dexter Guey, Yinon Angel, The Fishman Family Assets Ltd., Fishman Family Assets Management Ltd., Goodwill Holdings Ltd., and Yediot Communications Ltd.

At the heart of the action was the claim, that the consideration which the public shareholders received in the course of the “Hot” company merger, which led to its delisting from the Stock Exchange, was lower than the fair value of their shares, and that some of the public shareholders (the Fishman Group and Yediot Communications) received surplus consideration on account of their shares.

The plaintiffs claimed, that the controlling shareholders, the Fishman Group, Yediot Communications, and members of Hot’s Board of Directors, violated various duties to the public shareholders in anticipation of the merger, and in the course of it. The principal remedy sued for was compensating the public shareholders to the tune of the damages caused to them owing to their shares being sold at an unfair price, and in the alternative, distributing the surplus consideration given to the Fishman Group and Yediot amongst all the public shareholders. (The amount of compensation applied for, was a total of 234 million NIS; or in alternative 83 million NIS; or alternatively to the alternative 54 million NIS).

In 2014 the leave to prosecute was heard and in December 2014 the parties filed a petition to approve a settlement. The Attorney-General filed, in February and December 2015, two positions regarding the settlement (see Chapter 3 above, headed “Coordinating and Accompanying Civil and Administrative Legal Proceedings”, the clause discussing “Class Actions and Derivative Actions to which the ISA was Joined, or in Which the ISA Expressed its Position”, sub-clause (2)).

In December 2015, the court approved the settlement. Under the settlement, the shareholders in Hot whose shares were sold or converted for a right to receive monies in the setting of the merger, would be entitled to compensation amounting to 29 million NIS (gross) (Class Action 37908-11-12; Class Action 48435-11-12).

3. A Derivative Action re Scailex Corporation Ltd. et al

Leave to prosecute a derivative action was filed in the name of Scailex Corporation Ltd. (hereinafter: the “Company”) against Sani Electronics Ltd. and Ilan Ben Dov, Yahel Shahar, Yoav Biran, Regina Unger, Yehiel Feingold, Shalom Zinger and Arie Ovadia.

The action concerned the approval that the Company’s Board of Directors gave, on 27th March 2011, to distribute a dividend totalling 99,877,289 NIS to the Company’s shareholders. At the heart of the action was the claim, that officers in the Company acted to approve a prohibited distribution of a dividend, without the conditions prescribed therefore in the Companies Law being met, and in particular the solvency test.

In 2014, several hearings were conducted in the matter. In October 2015 the court decided to strike out the action following a motion from the Company’s liquidator to stay hearing the action and/or strike it out until he formulates his position regarding the actions relating to the Company (Derivative Action 41261-11-12).

4. Derivative Action Regarding Ultra Equity Investments Ltd.

For details of these proceedings, see Clause C of this chapter, discussing “Class Actions and Derivative Actions Which the ISA Decided to Assist in Financing in the Course of 2015”, sub-clause (2).

B. Pending Class Actions and Derivative Actions Which the ISA Decided to Assist in Financing in the Course of the Years Preceding the Reported Year:

The proceedings listed hereinafter are proceedings regarding which decisions in principle to finance them have been taken in the years preceding the reported year, and which are still pending. After the decision in principle to finance (or at the same time as those decisions were made), the ISA takes specific financing decisions regarding the financing of various components regarding each one of the proceedings.

1. Class Action Against Elscint Ltd. et al.

An action concerning a claim of minority shareholder oppression in Elscint Ltd., caused by the company’s controlling shareholders and officers appointed on their behalf, in a manoeuvre in which they drained the company’s coffers.

After various preliminary proceedings and hearing many preliminary claims, the hearing of the motion of leave to prosecute the class action begun in the second half of 2007, and in January 2009 the court issued its verdict and did not grant leave to prosecute the class action.

In the course of 2009, an appeal was lodged from that decision to the Supreme Court. In May 2012 the Supreme Court accepted the appeal, granted leave to prosecute the class action and returned the file to the District Court for the latter to hear it as a class action. At the end of the reported year, no decision had yet been made in the action (Civil Action 1318/99; Civil Appeal 2718/09).

2. Class Action Against Boulus Tourism and Hotels Ltd. et al.

The heart of this action, filed in 2002, were claims that the company’s prospectus contained misleading details, that there were misleading details in the company’s reports, failure to appropriately report in the setting of the company’s annual financial statements, and breaches of the duties and obligations the trustee for the company’s bondholders owed the bondholders.

In March 2012 the court partially accepted the motion of leave to prosecute against some of the defendants (those who signed the prospectus and the controlling shareholder of the issuer), for the cause of misleading detail in a prospectus, with regard to the designation of the consideration of the issue.

The plaintiff lodged an appeal from those parts of his motion that were rejected. In June 2015, the Supreme Court, with the parties’ consent, decided to return the hearing of the action to the District Court, and the plaintiff’s appeal was vacated. It is noted, that the Supreme Court approved a settlement reached by the representative plaintiff and one of the defendants (Dr. Mashor Kamil) (Civil Action 1934/02).

3. Class Action Against T.R.D. Ltd. et al.

The heart of this action were claims that the company’s investors were misled as to the company’s activities in the field of financial investments, and its exposure to risky financial instruments, whereas at the time of the IPO on the Tel Aviv Stock Exchange, the company stated in its prospectus that it dealt in dental equipment. The action was filed against the company, Israel Ramot and Zvi Davidovitch (directors and controlling shareholders), Hemi Ben Nun (a director in the company) and the accountancy firm Ziv Haft.

It is noted that in July 2010 indictments were served against the controlling shareholders (and against Miki Barzel, who advised the company) for reporting offences. At the end of the reported year, the criminal proceedings had not yet concluded.

In April 2015, the court partially granted leave to prosecute against some of the defendants (the company and the controlling shareholders) for the cause of breach of contract regarding the designation of the consideration of the issue, and for negligence. In addition, the court held that the company, its controlling shareholders, and Ben Nun, breached their duties of disclosure and reporting under the Securities Law, with regard to quarterly reports and publication of immediate reports. However, the court held that there was no causal link between the misleading detail and the damage, and therefore did not grant leave to prosecute the class action by cause of a misleading detail (against all the defendants).

In June 2015, the parties lodged appeals from that decision of the District Court to the Supreme Court. At the end of the reported year, the proceedings were pending before the Supreme Court (Civil Action 1420/07; Civil Appeal 4417/15; Civil Leave to Appeal 3800/15). 4. Class Action Against Landmark Group Ltd. et al.

Landmark is an Israeli company, whose securities were traded on the Tel Aviv Stock Exchange. The main concern of this action, was a prospectus which the company published in 2007. The plaintiffs claimed, that the prospectus was tainted by many misleading details, inter alia, with regard to two real estate assets that Landmark owned in the US, and in relation to a construction contract on that land (which was ultimately not carried out). The plaintiffs raised additional claims in the action, regarding misleading details contained in the prospectus. The representative plaintiffs claimed, that a sum of approx. 170 million NIS was raised from the public on the strength of these misleading details. The representative plaintiffs claimed, that had the correct facts been presented, the securities would not have been issued to the public by prospectus, and traded on the Stock Exchange, and in the alternative – they would have been purchased by members of the class at prices significantly lower than those for which they were issued to the public, and purchased on the Stock Exchange in the course of trading thereafter.

In December 2012, the court granted leave to prosecute with regard to the principal cause of action, having determined that the applicants met the burden imposed on them at the leave stage – to prove the existence of a misleading detail in the prospectus published by Landmark regarding a particular transaction with an American construction firm.

In February 2013, the respondents filed leave to appeal that decision to the Supreme Court.

In June 2015, the Supreme Court decided to reject the motion for leave to appeal which the respondents lodged (Leave to Appeal 995/13; Leave to Appeal 625/13), and the hearing of the action was returned to the District Court. The Supreme Court chose not to hear the substantive issues raised by the action, since it opined that the correct time to hear them would be after the entire factual grounds are laid down before the trial court. The Supreme Court stated, that the ISA’s decision to support the action was taken into consideration in its decision to reject the petition of leave to appeal filed by the respondents (Class Action 14144-05-09).

For additional details regarding the proceedings see Chapter 3 above, headed “Coordinating and Accompanying Civil and Administrative Legal Proceedings”, the clause discussing “Class Actions and Derivative Actions to which the ISA was Joined or in Which the ISA Expressed its Position”, sub-clause (1).

5. Class Action Against Standard and Poor’s Maalot Ltd. et al.

An action filed against Standard and Poor’s Maalot Ltd. (hereinafter: “Maalot”), World Currencies Ltd., a number of officers in it and its controlling shareholders, and against The Israel Leumi Bank Trust Company Ltd. (hereinafter: the “Trustee”). The main concern of the action, was an asset backed bond offered to the public by World Currencies under a prospectus dated February 2006. The bond was backed by notes issued to World Currencies by two foreign banks; some of them were backed by Lehman Brothers Bankhaus AG – a German bank which is a subsidiary of Lehman Holdings (hereinafter: “Lehman Germany”). The prospectus contained a credit rating from Maalot, which rated the bond as AAA on the local scale. The rating remained unchanged until Lehman collapsed in September 2008. Owing to which, the value of the bond dropped 44%, its credit rating was lowered from AAA to D (Default), and the German banking supervisor issued a decree prohibiting Lehman Germany from executing payments and/or receiving receipts.

The action included various claims against the defendants, and inter alia, that the issuing company did not report to the public the identity of the backing banks until very late in the day; that Maalot undertook to conduct ongoing monitoring of the rating and to update it if necessary, and therefore the rating it gave the bond in the prospectus (AAA) constituted a misleading detail; and that the trustee did not take any action to secure the company’s obligations to its bondholders. The respondents filed replies to the leave motion and the representative plaintiff filed rejoinders.

In January 2011, the plaintiff filed a petition seeking to attach an economic opinion and a legal opinion. In May 2011, the court decided to permit the plaintiff to file an economic opinion and to allow the respondents to file a counter-opinion. In 2013, the trial of evidence concluded, and in 2015, summations were filed in the case. At the end of the reported year, no decision had yet been made on the leave petition (Class Action 1383-09)

6. Class Action Against Standard and Poor’s Maalot Ltd. et al.

An action filed against Standard and Poor’s Maalot Ltd. (hereinafter: “Maalot”), Keshet Bonds Ltd. (hereinafter: “Keshet”), its directors and shareholders, and the Bondholders’ Trustee (hereinafter: the “Trustee”).

The action concerned structured bonds issued by Keshet which were traded on the Tel Aviv Stock Exchange. The funds raised by Keshet were used to purchase promissory notes from Lehman Brothers Bankhaus AG – a German bank which is a subsidiary of Lehman Holdings (hereinafter: “Lehman Germany”), which were used as assets backing the bonds. The receipts from these promissory notes served as the sole source of finance to fulfilment of the obligations to the bondholders. Lehman Brothers (hereinafter: “Lehman”) guaranteed Lehman Germany’s undertakings. An opinion by Maalot was attached to the prospectus, in which the bonds was temporarily rated AAA. The rating remained high until the Lehman Group collapsed in September 2008.

On 15th September 2008, Lehman gave notice that it was filing for bankruptcy. The same day, Lehman Germany were ordered to stop all payment transfers to Keshet. For this reason, the bond dropped at once from 75 agorot to 40 agorot per unit. Since, trading its bonds has not resumed. On 17th September 2008 Maalot lowered the rating of the bond to the lowest possible rating (D).

The Plaintiff filed an action on account of the damages they claim were caused to all the bondholders. The plaintiffs claimed, that from the end of 2007 and until September 2008 gradual, significant, events occurred, relating to the principal risk, which marked the deterioration of the Lehman Group. They claimed, that Keshet, Maalot, and the Trustee, were obliged to perform various actions and publish various reports, but failed to do so, and therefore they were in breach of their duties of disclosure, and committed the wrong of negligence to the bondholders, the wrong of deceit, breach of statutory duty, and more. In 2013, the trial of evidence concluded, and in 2015 summations were filed in the case. At the end of the reported year, no decision had been taken on the leave petition (Civil Action 1611/09; Civil Action 1697/09).

7. Class Action Against Malrag Engineering and Contractors Ltd. et al.

Leave to prosecute a class action filed in November 2011 against the controlling shareholder of Malrag Engineering and Contractors Ltd. (hereinafter: “Malrag”), directors and officers in Malrag, and its auditing accountant. The petition was filed by one of Malrag’s bondholders.

The class representative claimed that Malrag published misleading details in three of its financial statements for 2009, regarding the cash and cash equivalents in its financial statements, which fact caused damages to those who purchased the bonds and those holding them at the time. In December 2012, Malrag published reports correcting the misleading details presented in its previous reports. After publication of the rectifying reports, Malrag’s bonds sharply dropped between 30%-45%.

Following the events which were the basis for the rectifying reports which amended the misleading details, the ISA imposed a financial sanction of 488 thousand NIS on Malrag. The financial sanction was imposed after the ISA determined that Malrag failed to present a material detail in its financial statements.

In 2013, the parties completed filing their respective pleadings, and in 2014 the leave application was heard. In 2015, summations were filed. At the end of the reported year, the leave application had not yet been decided (Class Action 49602- 11-11).

8. Class Action Against Cohen Development and Industrial Structures Ltd. et al.

A leave application filed against Mr. David Cohen, Ronna Erlitzki (Cohen) (hereinafter, jointly: “Cohen”), Hanna Tadmor, Gideon Tadmor (hereinafter, jointly: “Tadmor”), the Delek Group (hereinafter: “Delek”) and Cohen Development and Industrial Structures Ltd. (hereinafter: “Cohen Development”).

The leave application was filed by “Hatzlacha” the Consumers' Movement for the Promotion of a Fair Society and Economy (hereinafter: the “Plaintiff”). The Plaintiff claimed that the purchase of Cohen Development shares from Cohen and Tadmor by Delek, in November 2011, should have been executed as a special purchase offer. Because the purchase was not completed in that way, Cohen and Tadmor obtained the control premium in Cohen Development, which also belonged to shareholders from amongst the public, and the respondents prevented the public shareholders from having the right to oppose the purchase of a controlling share by Delek, or from participating in the sale. The Plaintiff claimed, that the duty to conduct a special purchase offer arose from the fact that over the years Cohen and Tadmor held shares in Cohen Development separately, and that was also what was reported to the public. Therefore, until the purchase of the shares by Delek from Cohen and Tadmor, no one held more than 45% of the shares in Cohen Development, and according to Section 328 of the Companies Law, Delek was required to conduct a special purchase offer when it first crossed that threshold. In the alternative, even if the claim regarding a duty to conduct a special purchase offer is rejected, and it is held that Cohen and Tadmor held shares in the company jointly over the years, the Plaintiff claimed that that constituted a violation of the reporting duty, since until closely before the sale of the shares to Delek, the public were not informed that Cohen and Tadmor hold the shares in Cohen Development jointly.

The remedies for which the Plaintiff petitioned was transforming the shares, so long as they are held by Delek, into treasury stock (this remedy was requested on account of the principal cause of action), additionally to compensation on account of the control premium, of which they were unlawfully robbed.

In April 2014, the District Court accepted the leave application against the Cohen and Tadmor families for the cause of unjust enrichment, and rejected the leave application regarding the other causes of action – breach of the duty to conduct a special purchase offer, breach of the statutory duty, and breach of the reporting duty. Moreover, the District Court rejected the leave application against Delek under all causes of action.

In June 2014, the class representative lodged an appeal from the decision of the District Court, in which the Supreme Court was motioned to grant leave to prosecute the action as a class action with regard to all the causes of action which appeared in the leave application, and against all the respondents. In September 2014, Cohen and Tadmor lodged an appeal from the District Court’s decision to accept the leave application for cause of unjust enrichment. At the end of the reported year, the proceedings were pending before the Supreme Court (Class Action 2484-09-12; Civil Appeal 4154/14; Civil Appeal 6316/14).

9. Derivative Action Regarding Pangaea Realty Ltd.

An application of leave to prosecute a derivative action, filed regarding Pangaea Realty Ltd. (hereinafter: “Pangaea”). The leave application included claims against Barak Rosen and Assaf Tuchmayer and against B.W.B. Madaph 15 Ltd. which they owned.

At the heart of the action was the claim that the controlling shareholders in Pangaea violated their duty of fealty to it. In brief, the plaintiff claimed, that the controlling shareholders misled members of the Board of Directors regarding details of a particular transaction and how worthwhile it was, so that they could secure the deal for themselves. The plaintiff further claimed, that the controlling shareholders acted in conflict of interests, contrary to the company’s best interests, for their own personal interest and prevented profits thereby from being gained by the company. The principal remedy sued for, was to compensate the company to the tune of the profits which were expected from executing the transaction, or, in the alternative, transferring the rights in the transaction to the company.

In October 2013 the District Court accepted the leave application, and leave was granted to prosecute the action as a derivative action.

In December 2013, the company filed a motion for a re-hearing of the leave application, under Section 41(e)(2) of the Courts Law, and a petition to disqualify HH Justice Keret-Meir, who decided the leave application. The motion was denied, and was appealed to the Supreme Court (Civil Appeal 461/14). In January 2015, the Supreme Court allowed the appeal, and held that HH Justice Keret-Meir should be disqualified from sitting on the panel that would hear the re-hearing.

In November 2015, the parties presented the court with a petition to approve a settlement. At the end of the reported year, no decision had yet been taken on the petition to approve the settlement (Derivative Action 20136-09-12; Derivative Action 55970-12-13).

10. Class Action Against Pinros Holdings Ltd. et al.

Leave to prosecute a class action filed against Pinros Holdings Ltd., Mordechai and Uri Winkler, and all the directors who served on Pinros’ Board of Directors at the relevant dates relating to the events described in the leave application.

The class representative claimed that the controlling shareholders and directors deprived the minority shareholders of their rights, in failing to do enough to prevent the company’s shares from being listed on the Stock Exchange’s maintenance list. Moreover, the class representative claimed that at the relevant period, the controlling shareholders took actions that exacerbated the maintenance problem.

In March 2013, leave was granted, and the action was approved as a class action. In 2014 the trial of evidence began, and in 2015 additional hearings of evidence took place. By the end of the reported year, no decision had yet been taken on the class action (Class Action 7477-10-11).

11. Derivative Action Concerning Discount Investment Corporation Ltd. et al.

Application of leave to prosecute a derivative action filed in the matter of Discount Investment Corporation Ltd. (hereinafter: “DIC”) against Nochi Dankner, Gideon Lahav, Eliyahu Cohen, Avi Fisher, Niv Ahituv, Yitzhak Manor, Zvi Livnat, Haim Gavrieli, Zehava Dankner, Dori Manor, Shaul Ben Zeev, Rafi Bisker, Mark Shimmel and Yair Orgler.

At the heart of the action was the claim that DIC’s Board of Directors’ decision to purchase control of the “Ma’ariv” newspaper was economically unreasonable, lacking any financial or business logic, was not in the company’s best interests, did not serve the company’s purposes, and it was clear that it would cause the company very significant damages. The plaintiffs claimed, that the company’s Board of Directors breached their duty of care to the company with regard to taking the abovementioned decision, and with regard to the additional investments in Ma’ariv. The principal remedy sued for was restitution of the investment funds to the tune of 370 million NIS.

In August 2015, the court granted leave. The court mentioned that in their decision to approve the Ma’ariv deal, the directors, prima facie, acted impetuously. The court rejected the respondents’ claim, that the Ma’ariv deal was not a very significant transaction as far as DIC was concerned, and therefore there was no justification for the Board of Directors needing a fuller grasp of the facts before approving the deal. At the end of the year reported, the legal proceedings are in the stage of hearing the derivative action itself (Derivative Action 10466-09-12).

12. Derivative Action Concerning Atiya Group Ltd. et al

An application of leave to prosecute a derivative action filed in the matter of Atiya Group Ltd. (hereinafter: “Atiya” or the “Company”), against Atiya’s controlling shareholders, its former controlling shareholders, directors and other “doormen” (the accountants, internal auditors and appraiser). At the heart of the application for leave, was the claim that the controlling shareholders, who purchased control of Atiya in exchange for merging two companies with realty assets into the company, made misrepresentations to the company and the public regarding the purchased companies, thus causing Atiya losses in the dozens / hundreds of millions of NIS. In light of which, the Company’s organs and shareholders approved a transaction which was different from the one which really took place, and thus the transaction had been not lawfully approved. The leave application further claimed that officers in Atiya and its doormen, breached the duty of care imposed on them, and that had they properly discharged the duties imposed on them, those transactions, which were not executed in the company’s best interests, would have been prevented.

In June 2015, the court partially granted leave against some of the defendants. The court accepted the action against Yaron Yini and Batya Cahana (who served as directors in the Company at the relevant time) regarding a loan issued to Verge Living Corporation, which was a transaction with a controlling shareholder that was not approved as such; against Upswing Ltd., regarding the sum transferred to it in the setting of the loan to Verge Living Corporation; and against Moran Atias (who served as a director in Atiya at the relevant time) – regarding sums the Company paid TWG, which was a transaction with a controlling shareholder that was not approved as such. After the court granted leave as abovementioned, the proceedings to hear the derivative action itself began (Derivative Action 35114-03- 12).

At the end of 2015, an application for a re-hearing was filed with regard to Moran Atias, on behalf of both parties. At the end of the reported year, no decisions had yet been taken on those motions.

13. Class Action Against Negev Ceramics Ltd. at al

Application of leave to prosecute a class action, filed against Negev Ceramics Ltd. (hereinafter: “Negev”), Africa Israel Industries Ltd. (hereinafter: “AFI”), Avraham Motola, Avraham Novogrodski, Alon Harpaz, Hanna Paier, Yaakov Goldman, Tzachi Fischbein and Menashe Sagiv.

The application concerned compensation for shareholders in Negev, on account of damages, which it was claimed were caused to them as a result of an under-priced sale of their shares, because they were misled in the setting of a full purchase offer of Negev shares from 15th January 2012 (hereinafter: the “Purchase Offer”).

At the heart of the action was the claim, that in the setting of the specifications for the Purchase Offer, and before the Purchase Offer was completed, Negev shareholders were not told material facts relating to the negotiations taking place at that time between Negev and Olympia Tile International, which, at a later stage, led to a ceramics export deal. That deal was signed on 24th May 2012, approx. four and a half months after the Purchase Offer was published. The class action was based on findings made by the Administrative Enforcement Committee in the administrative file filed on the same issue against Negev.

In July 2014, the District Court granted leave following a procedural agreement reached by the parties. Currently the legal proceedings are in the stage of hearing the class action itself, and at the end of the reported year no decision had yet been taken in it (Class Action 50656-11-13; Class Action 42475-11-13)

14. Derivative Action Regarding Pasifica Holdings Ltd. et al

Application of leave to prosecute a derivative action filed in the name of Pasifica Holdings Ltd., against various officers in the company. At the heart of the action was the claim, that the respondents were negligent to the company when approving transactions to purchase two parcels of land in Galați, Romania, and eventually the company paid 5.25 million Euros without receiving anything in return. The applicants claimed, inter alia, that in hindsight, it transpired that the agreement to purchase the two plots were not valid under Romanian law; that the vendor apparently was not the owner of one of the plots; and that the second plot was sold by the vendor to a third party.

In opposition, the respondents’ main claim, was that they were given letters of indemnity and release, relieving them of responsibility and liability for the damages which were allegedly caused to the company as a result of the Galați transactions, and that for that reason the company had no cause of action against them. Additionally, the respondents claimed that in light of the appointment of a new Board of Directors at the company after the application was filed, the company was no longer in a conflict of interests regarding the issues in the action, and since the Board of Directors opined that filing the action was not in the company’s best interests, filing a derivative action was no longer possible.

In April 2013, the District Court granted leave, and held that the existence of the letters of indemnity and release did not mean that chances of succeeding in the action against the respondents were low, or that the appointment of a new Board of Directors cures the corporate governance failings at the company. This decision was taken after the parties reached a procedural agreement, according to which, the court would only adjudicate these questions at the leave application stage.

The defendants filed leave to appeal the District Court’s decision to the Supreme Court, and in December 2013, the Supreme Court rejected the motion of leave to appeal, and held that it found no cause to interfere with the District Court’s decision.

In 2014, the trial of evidence in the derivative action itself began, and at the end of the year reported no decision had yet been taken in the matter (Civil Action 11266- 07-08).

15. Class Action Against Babylon Ltd. et al Application for leave to prosecute a class action filed against Babylon and its officers, claiming that the respondents concealed vital information from investors regarding the risk factors to which the company was exposed, regarding the system of agreements it had with Google, and regarding significant negative developments which occurred in the company’s businesses over the course of the relevant period of time, in connection with its relationship with Google. The applicant claimed, inter alia, that as a result of the reports and misleading presentations, the company’s share traded at a value higher than its true value, and as a result of the gradual disclosure of the material information which was concealed, the share price dropped to a low after publication of the company’s financial statements on 18th February 2013.

On the other hand, the respondents claimed that the company’s reports and the actions of its officers were all done in compliance with the prescriptions of the Securities Law, and the regulations promulgated thereunder. They claimed, that the leave application reflected misunderstandings of the principles underlying Babylon’s business model, a lack of understanding of the relationship between Babylon and Google, a lack of understanding of the market in which Babylon operates, a lack of understanding of the risk factors concerning Babylon, and mistaken determinations pertaining to the company’s activity, and businesses.

In 2014, document disclosure took place. In 2015, the trial of evidence began in the case, and at the end of the year reported, no decision had yet been made in the matter (Class Action 33491-06-13).

16. Derivative Action Regarding the Israel Corporation Ltd. et al

Application of leave to prosecute a derivative action filed in the name the Israel Corporation Ltd., against Zim Integrated Shipping Services Ltd., Prof. Gideon Langholtz, Oded Dagani, Zehavit Cohen, Michael Briker, Elad Millennium Investment Ltd. and Idan Ofer.

The leave application concerned the Israel Corporation’s engagement with Zim’s debt restructuring plan, which constituted an extraordinary transaction with an interested party, and the approval of the transaction by an independent committee of the Board of Directors, appointed by the board of the Israel Corporation to formulate the debt restructuring plan and conduct the negotiations between the Israel Corporation and Zim. The leave application stated, that the abovementioned approval was given contrary to the decision of the general meeting of shareholders in the Israel Corporation, and despite the fact that the condition precedent for the Israel Corporation to enter into the debt restructuring arrangement, did not materialise.

The Israel Corporation’s general meeting resolved, that a condition precedent to its engagement in the debt restructuring plan, was that the shares which the Israel Corporation would receive in the setting of the restructure would be “clear” of the transferability limitation imposed by virtue of the Golden Share which the State held in Zim. The applicant claimed, that in practice, the transferability limitation by virtue of the Golden Share was not abolished, but was only changed following legal proceedings conducted between Zim and the State. The respondents’ main claim, was that the decision of the Board of Directors regarding the condition precedent being met so that the restructuring could be executed, in light of the changes affected to the Golden Share, was within the authority given to the committee by the resolution of the general meeting, and corresponded to the language, purpose and logic of the condition precedent. Moreover, the respondents claimed that the decision was at the very heart of the business discretion given to the committee of the board.

In 2014, the trial of the leave application concluded. In 2015, document discovery took place, and the parties submitted their summations. At the end of the year reported, no decision had yet been taken on the leave application (Derivative Action 628-08-14).

C. Class Actions and Derivative Actions which the ISA Decided to Assist in Financing in the course of 2015

In the year reported, the ISA decided to assist the financing of two class actions and three new derivative actions.

In total, together with the actions which the ISA decided to finance in previous years, at the end of the year reported, the ISA was assisting in the financing of 20 actions.

1. Derivative Action Regarding Growth Investment House Ltd. et al

Application of leave to prosecute a derivative action, filed in 2014, in the name of Growth Investment House Ltd. (hereinafter: the “Company”), against Messrs. Mordechai Menashe, Yair Podim, Yaron Yini, Chen Lavon, Avraham Peretz, Yehuda Bar and Eran Mazor (directors and officers in the Company).

The principal claim at the heart of the leave application, was that the respondents caused the company to enter into “Empty” transactions, in which the controlling shareholders had a personal interest, in a manner that was contrary to the provisions of the Companies Law, and without obtaining the approvals required thereby. Thus, the applicant claimed, the respondents were negligent, violated their duties to the Company (including the duty of care and the duty of fealty applicable to them). The transactions in issue were such whereby the Company purchased certain rights from Shemen Oil and Gas Resources Ltd. (hereinafter: “Shemen”). The applicant claimed, that these transactions required approval under the procedure prescribed by Section 275(a) of the Companies Law, for the following reasons: (a) The controlling shareholders in the Company held shares in Shemen, and in the circumstances, without an additional investment in Shemen, their holdings in Shemen would have been prejudiced; (b) Mr. Eitan Eldar received high brokerage fees in the setting of these transactions, and companies affiliated with the chairman of the Company’s Board of Directors and the CEO, who had control of the Company at the relevant time, affected in the two years preceding the Shemen transaction, a series of significant monetary transactions with Eldar, in a manner that constitutes material ongoing business relations. The principal remedy sued for was compensating the Company on account of the damages caused to it as a result of these transactions, for an aggregate of approx. 20 million NIS. The respondents’ main claims, were that in the circumstances the controlling shareholders’ holding of shares in Shemen did not create a personal interest for them, since the Company’s Board of Directors was not told that the transaction was designed to “save” the controlling shareholders’ investment, and since the Board of Directors were told that Shemen could have raised funds in another way. Additionally, they claimed, also the ties with Eldar did not create a personal interest, since it was a relationship with no “uniqueness or irregularity”.

In the year reported, several trial hearings were conducted, and by the end of the year reported no decision had yet been taken on the leave application (Derivative Action 7541-12-14).

2. Derivative Action Regarding Ultra Equity Investments Ltd. et al

Application of leave to prosecute a derivative action filed in the name of Ultra Equity Investments Ltd. (hereinafter: “Ultra”) by its external directors against Messrs. Yaron Yini, Mordechai Menashe and Sagie Ben Yishai (directors at the company) (hereinafter: the “Yini Group”); Ruth Palmon, Amit Schnitzer and Ilan Georgy (independent directors at the company); and Yosef Yerachmiel Gurwitch, Meir Gurwitch and M.M.G. Business Ltd. (hereinafter: the “Gurwitch Group”).

The claim at the heart of the action, was that the external directors in Ultra did not know what the legal composition of the company’s Board of Directors was, owing to a dispute regarding the results of a general meeting which took place in April 2015. The external directors claimed that despite the dispute which erupted regarding the results of the general meeting, which could affect the composition of the company’s Board of Directors, no one appealed to the courts to clarify the outcomes of the general meeting, or was willing to provide an official legal opinion on the matter. The principal remedy requested was a declaration by the court as to the lawful composition of Ultra’s Board of Directors.

The Yini Group’s claims, in brief, were that the results of the general meeting were obtained lawfully and according to the company’s documents; if the Gurwitch Group believed that a flaw befell the voting process and/or the results of the general meeting, it could have acted itself to rescind the resolution, for instance by filing an action with the courts; the derivative action proceedings were not suitable to the current case, since it adversely affected Ultra.

On the other hand, the Gurwitch Group claimed that the outcomes of the general meeting were received unlawfully and contrary to the provisions of the invitation summoning the general meeting sent to the company’s shareholders. Its position was that had the count of votes been carried out lawfully, the results of the general meeting would have been overturned.

In July 2015, the court granted leave and noted, inter alia, that there was nothing to prevent a derivative action from being filed by external directors, since their function is to protect the public interest, in a public company; the fact that the external directors expressed no express opinion on the substance of the disagreement, did not preclude the courts from granting leave to prosecute; the Gurwitch Group prima facie met the burden imposed on it, and proved that the declared results of the general meeting did not reflect the true outcomes (and for this reason it must be held that the proposed resolutions raised at the general meeting had passed).

In November 2015, with the parties’ consent, the derivative action was accepted (pursuant to the decision in the leave to prosecute application, which was given in July 2015) (Derivative Action 31402-05-15).

In December 2015, the court ordered that each one of the external directors should be remunerated to the tune of 10,000 NIS. The court further awarded fees of 100,000 NIS to counsel, for filing and conducting the action.

3. Class Action Against Elad High Plateau Acquisition INC.

Application of leave to prosecute a class action filed in 2013, against Elad High Plateau Acquisition INC. The action was for a remedy under Section 338 of the Companies Law.

The principal claim at the heart of the action, was that the consideration paid for shares in Elad Canada INC. (hereinafter: “Elad Canada”) in the setting of a full purchase offer, was less than the shares’ fair value. The main dispute between the parties, related to the question of whether the appraisal performed on Elad Canada, should have taken into account the fact that the company would continue to profit also from real estate enterprises that would arise not only from the projects which were known at the time of the purchase offer, but also from future projects. The principal remedy sued for, was to compel the defendant to pay the plaintiff and the other shareholders, whose shares were purchased in the forced sale, additional sums.

In April 2015, the court granted leave to prosecute, and held, inter alia, that the class representative met the initial burden necessary to grant leave, in the least with regard to his claim in principle. This claim was that the value appraisal performed on Elad Canada, should have assumed that the company would continue to profit also from real estate enterprises arising not only from the projects which were known at the time of the purchase offer, but also from future projects. The court also noted, that the claim that future business opportunities that did not exist at the time the appraisal was conducted, should not be attributed any weight, and conflicted with Supreme Court precedents relating to the manner in which appraisals should be performed on a company that is a going concern, according to the Discounted Cash- Flow (DCF) method.

The defendant filed, in June 2015, a petition for a re-hearing of the decision to grant leave to prosecute the action as a class action (Civil Action 9714-07-15). In December 2015, the court rejected the petition for a re-hearing, and noted, inter alia, that there was no room to interfere with the court’s decision to rely on the position of the class representative and his experts; also substantively, the method of evaluating a company that is a going concern, as presented by the class representative’s experts, was reasonable; the defendant failed to produce positive evidence pointing to the fact that Elad Canada’s projects were temporary projects only, and that the company had no intention of continuing to operate also after they concluded. The legal proceedings are currently in the stage of hearing evidence in the class action itself. At the end of the reported year no decision had yet been taken on the matter (Class Action 44884-03-13).

4. Derivative Action Regarding Financitech Ltd. et al

Application of leave to prosecute a derivative action filed in the name of Financitech Ltd. (hereinafter: “Financitech”) against Messrs. Moshe Haba, Tova Pinto, Zvi Pearl and Yaakov Dayan (directors at the company from the end of 2008 and through to July 2009) (hereinafter: “Defendants 1-4”); and Avraham Dan, Rinat Avivi, Zion Shitrit and David Amar (directors at the company from August 2009 and thereafter) (hereinafter: “Defendants 5-8”).

The main claim at the heart of the action, was that the defendants, who served as officers in Financitech at various times, breached their duties of care to the company, when they refrained from realising assets (a parking lot and hotel), pledged in favour of the company, for the purpose of settling loans that were not repaid to the company on time. The principal remedy sued for, was compensating the company for the damages caused to it as a result of the fact that the assets were not realised at an earlier date.

The defendants claimed, in brief, that the Business Judgment Rule (BJR) applied to their various decisions relating to non-realisation of the assets, and for that reason, the court was not supposed to examine them substantively. Their position was, also substantively, that the decisions they took were reasonable in the circumstances, at the date they were considered.

In May 2015, the court partially granted leave against Defendants 1 – 4 (regarding the omission of not realising the lien over the hotel). The court held that Defendants 1 – 4 could not avail themselves of the BJR defence regarding the failure to realise the liens over the parking lot and hotel at the beginning of 2009. However, the court distinguished the defendants’ conduct regarding the failure to realise the assets. Its position was that Defendants 1 – 4 were negligent and acted unreasonably, only with regard to the omission of not realising the lien over the hotel.

Leave to prosecute was granted in full against Defendants 5 – 8 (regarding the omission of not realising the liens over the hotel and the parking lot). The court held that Defendants 5 – 8 could not avail themselves of the BJR defence regarding the failure to realise the liens over the parking lot and hotel. Moreover, the court held that Defendants 5 – 8 were negligent and acted unreasonably in not realising the assets.

The proceedings are currently at the stage of hearing the action in the derivative action itself (pre-trial). At the end of the year reported no decision had yet been taken in the matter (Class Action 13663-03-14).

5. Class Action Against the Jewish Colonial Trust Ltd.

Application of leave to prosecute a class action filed in 2015, against the Jewish Colonial Trust Ltd. (hereinafter: the “Company”). The principal claim at the heart of the action, was that the Company’s affairs were being conducted in a manner that oppressed the shareholders. The applicant claimed that the oppression arose, inter alia, from the fact that, for many years, the Company was not carrying on any real business activity, aside from a passive holding of 5% of the shares in the Israel Leumi Bank (hereinafter: the “Bank”), but that on the other hand, it had a large Board of Directors, and high levels of management and general expenses. The applicant’s position was, that the ordinary shareholders could not influence the Company’s dealings, because of a unique capital structure, on account of which there was disparity between ownership and control. He claimed that the outcome of the oppression, was that the value of the shares in the Company was significantly lower than what it should have been. The principal remedy sued for, was division of the Bank’s shares held by the Company and/or an any other decree that would remove the oppression.

The Company claimed, in brief and inter alia, that its shareholders were not oppressed for the following reasons: The number of members of the Board of Directors was in accordance with the company’s articles of association; management and general expenses were reasonable; the Company distributed higher dividends to its shareholders than those it received from the Bank; its holding of the Bank was not passive (it was actively involved in its operation); it had another field of activity (solar energy), and it was examining additional investment avenues; the shareholders were caused no damages, since they purchased their shares from the outset at a discount (and the other shareholders purchased their shares for Zionistic reasons and not for profits).

In the year reported, several trial hearings were conducted. At the end of the reported year, no decision on the leave application had been taken yet (Class Action 1570-01-15).

5. Tenders and Contracts

The Israel Securities Authority, as a statutory corporation, is subject to the Tender Duty Law 5752-1992, and the regulations promulgated thereunder. Pursuant to duty, the ISA published seven tenders in 2015, on various matters and subjects, such as information systems, translation services, maintenance equipment, and more. Following these tenders, the ISA contracted with the winning bidders.

The Legal Counsel Department advises all the ISA’s tender proceedings and contracts, and a representative of the Legal Counsel serves as the legal adviser to the ISA’s Tender Committee.

6. Public Questions and Complaints

In the reported year, approx. 1,100 public questions and complaints were handled, as compared with approx. 1,300 in 2014.

The passing year was characterised by many public questions and complaints relating to trading on the Stock Exchange, including with regard to unsupervised investments in the field of Trading Platforms, and computerised investment management (such as robotic trading). Moreover, and similarly to the previous year, this year there were many public questions and complaints regarding the Advice Law, the conduct of public companies and reporting corporations, and the behaviour of the capital market in general.

Questions and complaints are filed by various entities, which include: individuals operating in the capital market, both as investors and as portfolio managers or investment advisers; lawyers representing individuals or reporting corporations operating in the capital market; individuals interested in reporting irregularities or problems in the capital market in general, or in one of its branches, or who have been harmed by these; external entities, such as government or other entities referring various parties to the ISA; various media outlets, such as journalists; students, research institutes and various organisations seeking information, research, and data about the capital market.

The public sends in questions and complaints on a variety of issues, which include lateral subjects pertaining to the ISA’s activities, the activities of reporting corporations and the Tel Aviv Stock Exchange and its members; subjects relating to the conduct of investment advisers and portfolio managers; requests to examine suspicions relating to trading on the Stock Exchange; lateral subjects regarding the operation of mutual funds and exchange traded notes; requests for information on the ISA’s activity or the activities of those whom it supervises in the capital market. Other issues include requests from official parties or private persons to receive information regarding the capital market. These requests are for the most part handled under the Freedom of Information Law.

6.7. The International Affairs Department

A. General

The International Affairs Department operates to implement the ISA’s strategy to integrate the Israeli capital market into globalisation processes in general, and global cooperation efforts established by supervision and enforcement authorities in the field of securities in particular.

The International Affairs Department is charged with the international aspects of the ISA’s work. These include, contacts with international supervisory bodies, international organisations and foreign securities’ commissions, and signing memoranda of understandings to cooperate with these authorities and entities.

Developing the market was defined by the ISA as a central goal of the multi-annual strategy in the setting of the road map. A central aspect of developing the market is promoting the status of the Israeli capital market in the world. The International Affairs Department is charged also with this task.

The Department pursues this goal‎ in‎ two main ways‎ :

First,‎ harmonizing Israeli securities law with exiting legislation in developed countries, while adjusting it -- as far as possible -- to ‎the ‎local ‎regulatory ‎infrastructure. ‎Organizations‎ such as the International Securities Authorities Organization -- IOSCO (hereinafter -- IOSCO) strive to create uniform international policies and rules, to be adopted by its member entities. ‎In this regard, the International Affairs Department serves as a knowledge base regarding global markets and regulatory frameworks, and reflects this knowledge in outlining and implementing central projects on the ISA’s agenda.

Second, establishing international collaboration processes between supervision and enforcement entities in the field of securities. In‎‎ this context, the ISA cooperates extensively with foreign authorities, which are party to the multi-lateral cooperation agreement for information ‎exchange ‎and ‎enforcement ‎pursuant ‎to ‎the ‎IOSCO ‎Agreement. ‎This‎ ‎agreement ‎ allows ‎ for ‎ exchange ‎ of ‎ non-public ‎ information ‎ between ‎ authorities, ‎ as ‎ well ‎ as ‎ mutual ‎ assistance in implementing enforcement ‎activities.

Additionally, the International Affairs Department advises and assists the ISA staff regarding international aspects of various decisions and regulatory initiatives, utilising the experience, knowledge and understanding of the department’s staff regarding international markets and foreign law. Moreover, the department reviews and analyses legislative initiatives at foreign authorities which could affect the local market.

B. Highlights of Activity in 2015 1. Participating in International Forums

a. Activity in the setting of IOSCO

The International Organisation of Securities Commissions (IOSCO) is the leading forum for international cooperation between securities regulators. It has 205 members from 115 nations worldwide. The ‎ organization ‎ draws ‎ up ‎ uniform ‎ international policies‎ and‎ ‎rules, which‎ are‎ ‎adopted ‎by its‎ member‎ ‎organizations. The‎ ‎ IOSCO’s ‎principles ‎have ‎gained ‎international ‎recognition ‎as ‎the ‎leading ‎criteria ‎for ‎ financial analyses ‎ and ‎ assessments ‎ by ‎ global ‎ financial ‎ institutions, ‎ such ‎ as ‎ the International ‎ Monetary ‎ Fund, ‎ as ‎ well ‎ as ‎ the ‎ basis ‎ for ‎ financial ‎ legislation. ‎ ‎ The‎ organization sets the agenda amongst its members – primarily financial regulators and stock ‎exchanges.

During the reporting year, the department participated in the following committees and meetings, as part of its activity in IOSCO:

 The European Regional Committee (ERC) - in 2012, the Israel Securities Authority was accepted as a full member of the ERC, in lieu of its membership in the Africa Middle East Regional Committee. Since then, the ISA plays a significant and active part in the Committee's discussions and meetings, through the International Affairs Department's staff members.

 Meetings ‎of ‎the ‎MMOU ‎Screening ‎Group: ‎Since‎ joining ‎this ‎forum ‎as ‎a ‎member ‎ in ‎ 2007, the‎ ISA‎ has been tak‎ ing an‎ ‎ active role‎ in‎‎ the‎ screening‎ process‎ ‎ for entities‎ wishing‎ ‎ to ‎join ‎the ‎IOSCO ‎agreement. The‎‎ forum actively discusses the legal infrastructure of candidates in light of the strict cooperation‎ principles‎ outlined‎ by‎ the‎ IOSCO.‎

This year, the Committee continued to address the important issue of expanding the powers under the IOSCO agreement, and is engaged in drafting a new, enhanced agreement. The ISA, by agency of the International Affairs Department, takes an active part in formulating the ideas for using enhanced enforcement powers for international collaboration.

 Committee 4 (C4), – A committee for enforcement issues and exchange of information under the auspices of the IOSCO Agreement: The ISA, by agency of the International Affairs Department, takes a very active part in the committee’s discussions. The department is party to projects such as proposals to interpret the agreement on various issues of enforcement and exchange of information. Amongst the projects which were on the committee’s agenda this year, were publishing a report on the credible deterrence project and publication of a report on the adaptation of the IOSCO Agreement to assisting in investigation of cyber risks.

 Committee 5 (C5), C5 – A committee dealing with investment management issues: The ISA, by agency of the International Affairs Department, is active in this committee, which discusses central themes in the international arena pertaining to investment management, and collective investment schemes – CIS. Over the course of the year, the ISA has taken an active part in the committee’s discussions and answered several of the committee's questionnaires, which serve as the basis for writing professional reports as part of projects under the Committee's purview.

 Committee ‎ 6 (C6) ‎ – A committee dealing with credit rating agencies: The International Affairs Department is a party to the working process to regulate supervision of credit rating agencies in Israel, and participates in this committee to obtain an updated picture of international developments in the field. In the setting of its membership of this committee, the department participated in the process of updating the IOSCO Code of Conduct Fundamentals for Credit Rating Agencies, the final draft of which was published in March 2015. The department also participates in other projects on the committee’s agenda.

 The Assessment Committee: The ISA is a member of the Assessment Committee, which processes and updates international securities standards developed by IOSCO. These standards currently include a system of 38 principles, ‎ which ‎ serve ‎ as a‎ ‎ comparative ‎ key ‎ to ‎ proper ‎ conduct ‎ by ‎ security ‎ regulators. ‎ In‎ addition, the Committee conducts assessments of securities authorities, which‎ ‎ are members‎ of‎ ‎ the ‎ IOSCO. ‎ ‎ These assessments (country reviews) examine whether the principles have been implemented, in accordance with the methodology developed by the organization.

 Committee 1 (C1) - A committee dealing with accounting‎ issues:‎ The‎‎ ISA takes part, through its Corporate Finance Department, in the setting of an accountancy, audit and disclosure working group, which discusses the most important subjects in these fields, in the international arena.

 Committee 8 (C8) – A committee dealing with retail investors: This year the ISA, by agency of the Spokesman Department, has joined this committee, the main functions of which include setting the organisation’s policy with regard to financial education of retail investors, and advising the IOSCO Board regarding them, as well as implementing policy related to them. b. Activity within the OECD

The ISA, by agency of the International Affairs Department and in conjunction with the Ministry of Justice, represents Israel as a member of the OECD’s Corporate Governance Committee. Over the course of the year, the committee completed updating and amending the organisation’s corporate governance principles, and their adaptation to the changes in the markets in recent years, as well as changes to the regulatory framework. The principles were adopted by the organisation in 1999 and were amended in 2004. Recently, an updated version of them has been published, and they serve as an international standard for policy setters, investors, companies, shareholders and other entities world-wide.

The ISA’s representative has been chosen to continue to serve on the Committee’s Bureau. The bureau operates with the chairman of the committee, and participates in planning and setting the agenda for meetings and prescribing working plans for the committee. The bureau comprises of ten representatives out of 60 committee members.

Additionally, the department assists in the workings of the OECD Convention on Combating Bribery of Foreign Public Officials. At the beginning of 2015 an inspection committee on behalf of the organisation conducted a visit. The ISA’s representatives met with members of the inspection committee, and answered their questions, in accordance with the materials they were given.

The inter-ministerial steering committee, which was established in the setting of the process of joining the organisation, continues to operate and formulate working plans to coordinate Israel’s activity vis-à-vis the organisation. The ISA, via the International Affairs Department, is a member of the steering committee and actively participates in its discussions.

2. Enforcement Cooperation and Exchange of Information

The‎ International Affairs Department attributes great significance to integrating the ISA in securities related cooperation amongst supervision and enforcement entities, as an essential means of achieving the ISA’s enforcement objectives. A growing number of investigations conducted by the ISA require obtaining information from, and performing actions in, countries outside of Israel. In order to attain optimal results, the Department cooperates with foreign authorities which are parties to the IOSCO Agreement.

Being party‎ to‎ the‎ IOSCO‎ ‎agreement is‎ one of ‎the ‎most ‎significant ‎components of‎ the‎ ISA's‎ ‎ enforcement ‎activity. Presently,‎‎ more than one hundred authorities are party to the IOSCO MMoU, including some of the world's leading economies , such as the U.S., Canada,‎ the‎ UK,‎ France, ‎Germany, ‎Japan, China,‎ ‎Brazil, India,‎ and‎ ‎Australia.

Main ‎points ‎and parties‎ of‎ ‎the IOSCO‎ ‎MMoU:

1) Mutual assistance and exchange of information between authorities shall be for the purpose of enforcement and supervision of the laws and regulations of the‎ requesting‎ ‎ authority. ‎‎ Assistance is to include the gathering, seizing and transferring of information and documents to foreign authorities, as well as assisting in investigations and gathering testimonies from alleged violators of the securities laws of the requesting authority's state.

2) Cooperation between the authorities will be conducted subject to the limitation of local law applicable to each authority.

3) Assistance will, inter alia, be given to investigate and enforce laws related to the following subjects:

a. Inside information, market manipulation and false reporting;

b. Registration, issue, offer or sale of securities, and the reporting requirements related thereto;

c. Market intermediaries, which includes licensed or registered investment advisers, collective investments schemes, brokers, dealers and transfer agents;

d. Markets, stock exchanges, and clearing, and settlement entities.

The agreement‎ ‎bears no‎ ‎expiration date,‎ but‎ ‎each Authority‎ may‎ ‎terminate it‎ ‎at ‎any ‎time by‎ ‎ submitting a‎ 30‎ -days ‎prior notice‎ .

Assistance and Foreign Investigation Requests between the ISA and Foreign Commissions

Requests for assistance coming‎ from‎ foreign‎ authorities‎ ‎ and assistance‎ requests‎ ‎ from ‎ the ISA‎ to‎ ‎foreign authorities‎ are‎ handled‎ by‎ ‎the ‎ISA's International‎ ‎Affairs ‎Department. ‎The‎ majority of requests for information and assistance were made directly between the ISA and another securities authority which is a signatory to the agreement, and in such cases where the other authority is not a signatory to the IOSCO agreement– via ‎ the International‎ Department‎ at‎ ‎ the State‎ ‎ Attorney’s ‎ Office, ‎ under the Law of Legal Assistance among Countries ,1968. ‎

As part of handling assistance requests, the ISA's investigators conduct face-to-face interrogations abroad, and foreign investigators conduct face-to-face interrogations in Israel.

In 2015, the ISA handled 31 incoming requests for assistance from foreign authorities pursuant to the IOSCO agreement, of which four were requests to conduct Fit and Proper reviews. Additionally, the ISA sent two requests for assistance to foreign authorities.

3. Signing Cooperation Agreements

Signing a memorandum of understanding with the Gibraltarian Commission regarding AIFMD

In June 2015, the ISA signed a memorandum of understanding with the Gibraltar Financial Services Commission, implementing the Alternative Investment Fund Managers Directive (AIFMD) guidelines concerning consultation, cooperation and exchange of information regarding supervision of funds and fund managers. We note, that in July 2013, the Israel Securities Authority signed memoranda of understandings on the same subject with various securities regulators in Europe, and in June 2015, Gibraltar joined the list of nations who are signatories to the AIFMD agreement. (For a list of the signed memoranda of understanding see the ISA’s website).

4. Structural Changes to the Tel Aviv Stock Exchange

The Stock Exchange is a private limited liability company which is not permitted to distribute its profits to its members, and there is complete identity between the Stock Exchange’s ownership, and the right of access to trading.

The recent drop in trading volume over the last few years has led the chairman of the ISA to appoint a committee for Increasing Trading Competition and Committee for Encouraging Market Liquidity on the Stock Exchange On the basis of this committee’s key recommendation, regarding changes to the ownership structure of the Stock Exchange, the ISA is promoting through the International Affairs Department and Supervision over the Secondary Market and Trading Platforms Department, a demutualization of the Stock Exchange. The core of the model is to switch from a partnership model to a for-profit model, so as to sever the connection - as far as possible - between ownership and membership, while minimizing the conflict of interests between managing the Stock Exchange and the various interests of all the parties active on the Stock Exchange. In this procedure, the ISA cooperates with the Stock Exchange’s management, as well as with other regulators. The International Affairs Department was responsible, inter alia, for the international aspects. The proposed model relies on experience accumulated in world markets, and the research involved examining the world's leading trends, both through independent research and by obtaining information from foreign regulators.

The structural change is designed to achieve the following objectives: Turning the Stock Exchange into a more efficient and competitive entity than it currently is, capable of truly competing with stock exchanges from all over the world and with trading platforms in Israel and overseas; expanding the membership of the Stock Exchange and making it more accessible to a larger number of parties; laying down the solid and necessary infrastructure for future strategic cooperation with foreign stock exchanges, the operation of additional stock exchanges in Israel and so that the Stock Exchange itself may raise capital; strengthening the standing of the Stock Exchange as a vital infrastructure component to the activity of the Israeli capital market and economy, while expanding its operation. 5. Amending Chapter I2 of the Securities Law

Cooperation between the ISA and foreign authorities is prescribed by Chapter I2 of the Securities Law. Chapter I2 was enacted in the year 2000, in the setting of Amendment 19 of the Law, in the background of signing the memorandum of understanding (MoU) with the U.S. SEC. The amendment was designed to regulate the implementation of the MoU and facilitate its execution and that of future cooperation within it. Currently, the ISA is a party to dozens of MoUs with foreign authorities, and cooperation with them constitutes an important facet in positioning the capital market in Israel as an advanced and developed market; in drawing in foreign investment into Israel; and in the enforcement capabilities of the local capital market (in light of the reciprocity of the MoUs). This, in addition to the memorandum of understanding that regulates multi-lateral cooperation in enforcement of securities law, under the auspices of IOSCO.

These days, legislation processes to amend Chapter I2 are being advanced to adapt it to the changes of recent years, both in local law and in the international cooperation efforts. The proposed amendments clarify that assisting a foreign authority in performance and enforcement of its securities law, includes also assisting on the supervision level, and not only that of enforcement. Additionally, they are designed to adapt the powers granted to the ISA to provide foreign authorities with assistance, to the changes that have occurred over the years. 6. Mutual Recognition

In July, the European Securities and Markets Authority (ESMA) published an opinion recognising Israeli regulations regarding the contents and form of a prospectus under the Securities Law. This recognition updates the statement ESMA published in this matter in 2011, and was formulated after an assessment process which the ISA and ESMA conducted following amendments to European Prospectus Directive (EC/2003/71) and the regulations promulgated thereunder, as well as changes to Israeli regulation.

According to ESMA’s decision, one will be able to file an Israeli prospectus, with a list of additional items, in EU countries, for the purpose of listing an Israeli company on a European stock exchange, under the cooperation with European regulators. The extent of additional disclosure required depends on the type of issue, that is to say, whether it is an issue of shares, an issue of rights to shares, an issue by a small or medium sized enterprise (SMEs) or a company with reduced market capitalisation, as those terms are defined in the European Directive. Under European Law, an SME is defined as a company that meets two of the following three conditions: (1) The (average) annual number of employees is less than 250; (2) total balance does not exceed 43 million Euro; (3) Annual net turnover does not exceed 50 million Euro. A company with a reduced market capitalisation is defined as a company listed on a regulated market with a market capitalisation less than 100 million Euro. For the sake of comparison, a small corporation is defined in the Securities Regulations (Periodic and Immediate Reports)-1970, as a corporation with a market capitalisation less than 300 million NIS, which is not listed on the Tel Aviv 100 Index or the Tel Aviv Index of the Rest 50, or which does not have bonds with a par value exceeding 200 million NIS.

In the course of implementing ESMA decisions, the ISA acts, by agency of the International Affairs Department, vis-à-vis the UK Financial Conduct Authority (FCA), as well as other European authorities, to promote agreements that would facilitate Israeli companies’ access to new markets, create additional circles of foreign investors, and enable foreign issuers to enter Israel.

Concurrently, the department operates vis-à-vis European regulators to promote recognition of regulation regarding ongoing reporting duties applicable to listed companies. This step will complete the move and make it easier for Israeli companies to be listed on European stock exchanges, as well as for European companies to be listed on the Tel Aviv Stock Exchange. 7. Learning Delegations

As ‎ part ‎ of ‎ ISA’s ‎ effort ‎ to ‎ achieve ‎ harmonization ‎ with ‎ securities ‎ legislation ‎ in ‎ developed ‎ countries and in order to update on financial trends, the Department initiated several study visits abroad, pursuant to the ISA's needs

This year, the department organised a learning delegation to the US, designed to broaden knowledge relating to algorithmic trading and trading platforms. Representatives of the Investigations, Intelligence and Market Surveillance Department, the Research, Development and Strategic Economic Consulting Department (“the Economics Department”) and the Stock Exchange and Trading Platforms Supervision Department participated in the study delegation on behalf of the ISA. Delegation members met with regulatory entities and other parties, including the US SEC and representatives of the leading stock exchanges in the US. 8. Strengthening Cooperation with Foreign Authorities and Foreign Entities

Welcoming a learning delegation from the Central Bank of Russia – A learning delegation from the Central Bank of Russia arrived in Israel for the purpose of studying the field of supervising trading platforms. Over the course of the visit, representatives of the Department for Supervision over the Stock Exchange and Trading Platforms presented the regulatory framework applicable to trading platforms, and various topics related to the subject were discussed. 9. The International Monetary Fund (IMF)

In July 2015, the IMF conducted a visit of a working team in Israel (Article IV). Various subjects were discussed at the IMF’s request, amongst which was a review of the condition of the Israeli capital market. 10. International Trade Agreements

The ISA acts in conjunction with the Ministry of Economy, the Capital Market Division and the Bank of Israel, to draft understandings in the setting of the Trade in Services Agreement (TISA) initiative. Approx. 50 nations are signatory to this agreement, amongst which are the US and the nation states of the EU. This initiative is being led in Israel by the Ministry of Economy. Over the course of the year, several inter-ministerial discussions took place, in which the ISA was represented by representatives of the International Affairs Department.

In addition, the department participates in discussions with the Ministry of Finance concerning a new investment accord – undertaking not to discriminate against foreign investors in Israel. In the setting of these discussions, the Chief Economist Office in the Ministry of Finance, examined adopting a new model of investment agreements, involving an extensive international obligation regarding foreign investments and investors, which would include, inter alia, a promise not discriminate against them, subject to a list of exceptions. Representatives of the department participated in the work of mapping the limitations on foreign investments and investors, and represented the ISA’s position at the discussions.

Representatives of the department also represented the ISA’s position in negotiations with Panama, conducted by the Foreign Trade Administration in the Ministry of Economy, before signing a free trade area agreement. The agreement is expected to take effect towards the end of 2016. 11. The Department’s English Website

Improving the department’s English language website, updating it and adding content.

12. XBRL

Adapting the taxonomy of reporting fields in the MAGNA site to the updated IFRS, and transition to XBRL to support that taxonomy. The department is party to execution of the project together with the Information Systems Department and the Corporate Finance Department. 6.8. Information Systems Department A. General

The Information Systems Department has seven employees; some of its functions are performed by outsourcing. The department’s functions include development and maintenance of information systems, hardware and communications’ infrastructure for the ISA, for the purpose of performing the duties of its managers and employees, and according to the approved annual working plans. The department participates in setting the ISA’s IT strategy, and implements it. In some cases, the department operates following requests issued by the other departments, and in some cases, the department identifies needs, being familiar with the other departments, and instigates projects designed to meet those needs, and provide them with IT based solutions.

1) Development and maintenance of the following Information Systems: The Archiving System, email, task management, diaries and contact lists; the ISA’s website; investigation Information Management System (“AGATHA”) used by enforcement personnel; the electronic filing system (“MAGNA”), used by all those operating in the capital market who need to file reports, the public at large, and the ISA’s staff; the operational system to coordinate information relating to issues the ISA is charged with – data regarding corporations, mutual funds, investment advisers and portfolio managers, exchange traded notes, trading platforms, credit rating agencies, trading data, trading supervision, additional data used by the Research Department and accounting information; the BI System to detect trading irregularities; YAEL – for secured email sending; human resources; employee performance reviews; attendance sheets; salaries; search; internal portal; the system for electronic voting at general meetings by the public who hold securities in publicly traded companies (“Cap-Vote”); and other designated systems.

2) Hardware, middleware, software, and information and cyber security: Purchasing PCs and maintaining them as well as relevant shelf software; purchase and maintenance of servers; the internal communications network and external communications’ lines, which includes lines to internet providers and a line connecting the offices in Jerusalem to the offices in Tel Aviv which enables full information sharing across all systems at the different sites; information security for all systems; telephony communications, telephone lines and switchboards; operating and providing service for printers; supply and installation of spendable equipment of all types, and more.

B. Highlights of the Activities in 2015 1) Electronic Filing – MAGNA

The electronic filing project is an information system for receiving and distributing, over the internet, a range of reports required from entities subject to the ISA’s supervision: Corporations, mutual funds, investment advice companies, portfolio management companies, investment marketing companies, exchange traded notes, and underwriters. The project is designed to harness the power of electronic communications and the internet, in service of the investing public, and the entities subject to the ISA’s supervision. The system handles all types of reports, including: Prospectuses, annual reports, interim reports, immediate reports, reports of changes in the holdings of interest parties, reports concerning private allocations, purchase offer specifications, and reports of conflicts of interests in corporations. Furthermore, the system also handles prospectuses, immediate reports and monthly reports from mutual funds, forms for portfolio management companies, monitoring reports, periodic reports, reports of exchange traded notes’ underlying assets, and more.

The aims of the project are to provide the public at large with immediate access to public information, to distribute information equally, to increase the efficiency of supervision of the reliability of information, and to provide new tools for analytic analyses.

From the day on which the system has been fully operational (November 2003) and through to the end of 2015, thousands of authorised signatories have registered on the system, and 1,071,832 different reports were received, of which 82,263 in the year reported alone. These reports reach staff at the ISA automatically through the filing site. The public reports were automatically distributed by the distribution site, and were distributed to the Stock Exchange and commercial information distributors. Every day thousands of web surfers enter the distribution site at www.magna.isa.gov.il, were one can view various reports issued by the abovementioned entities, as well as processed reports of the data.

The project is a world leader, and is based on the most up to date and advanced technologies. The project provides technological solutions to complex questions, amongst which is the unique identification of those reporting, and information security. The project has also won several prestigious information systems’ prizes.

The system has greatly contributed to the ISA winning, for the ninth consecutive year, first prize in the “Available Government” competition, which the Ministry of Finance conducts amongst all government ministries and public entities, in the field of computerised public service.

In the course of the year reported, a long list of improvements has been carried out on the system, amongst which are: developing and installing new versions, and adapting reporting forms to ongoing legislative changes; developing the ability to report to additional entities; improving the reporting mechanism; technological upgrades. All these changes and improvements are tried and tested before they enter service. Furthermore, meeting the service level of the SLA (Service Level Agreement) vis-à-vis an external vendor has also been tested. This year, 9 versions were tested and executed, including 236 changes to the system, of which 71 were new forms. The following is a table summarising the MAGNA activity in 2015

Summary of Data for 2015 Quantity Annual reports on MAGNA 82,263 Volume of reports for 2015 39.6 GB Exclusively public reports on MAGNA - annual 64,153 Exclusively non-public reports on MAGNA - annual 18,110 Reports on MAGNA – annual – Corporations in Israel 48,174 Reports on MAGNA – annual – Dual listed corporations 3,067 Reports on MAGNA – annual – Fund management companies 21,779 Reports on MAGNA – annual – Trustees 275 Reports on MAGNA – annual – Investment advice companies 203 Reports on MAGNA – annual – Portfolio management companies 2,917 Reports on MAGNA – annual – Banks as employers of advisers and 595 investment managers Reports on MAGNA – annual – Underwriting companies 120 Reports on MAGNA – annual – Purchase offers 126 Reports on MAGNA – annual – Trustees for bonds 159 Reports on MAGNA – annual – Investment marketers 444 Reports on MAGNA – annual – Trading platforms 1,017 Reports on MAGNA – annual – Exchange traded notes managers 3,367 Reports on MAGNA – annual – Credit rating agencies 20 Active forms on MAGNA 604 Forms for reporting corporations in Israel 150 Forms for dual listed corporations 28 Fund management company forms 108 Trustee forms 17 Investment advice company forms 30 Portfolio management company forms 36 Forms for banks as employers of advisers and investment managers 18 Underwriting company forms 25 Purchase offer forms 11 Bond trustee forms 11 Investment marketer forms 30 Trading platforms forms 48 Exchange traded notes forms 76 Credit rating agency forms 16 Active signatories in the system (valid) 2,261 Personal MAGNA – Active users 1,752

Main Activities in the Year Reported

(3) Infrastructure upgrades

In light of the advances in technology, and new software and infrastructure products which have come to market, about two years ago, development began of the third generation MAGNA. This year the department upgraded the LDAP servers, and some of the communications and information security components, thus concluding the development of the 3G. Moreover, the stage of distributing the new component to the reporting public has also concluded. Additionally, changes were performed to support new browser versions (IE10).

(4) New entities

Concurrently with the legislative changes, this year dozens of additional report forms were completed on the MAGNA for use by new supervised entities: Credit rating agencies and bond trustees. The latter also commenced actual reporting over the course of the year. The expectation is that the credit rating agencies will begin reporting in the course of 2016.

(5) Projects

In the year reported, the development of new projects in the MAGNA environment has been completed: Adapting the distribution site to smartphone viewing; shortening the length of delay time for publication of MAGNA reports delayed at the discretion of the Stock Exchange; adapting the reporting fields’ taxonomy to the updated IFRS standard, and changing the XBRL language to support that taxonomy – a project being carried out jointly with the Corporations Department and the International Department; adapting MAGNA meetings’ forms, to support the integrated voting system (see Clause 12); development of an improved mechanism for loading data onto forms; improving the search capabilities on the MAGNA distribution site to locate reports of one company on another.

(6) MAGNA administration

Another field of activity in the setting of the MAGNA is the system’s administration and handling of reporters and authorised reporters, which includes those seeking the ISA’s approval to become authorised reporters. This year, more than 2,000 forms for appointment and removal of reporters, or requests for extending certificate validity, have been handled; registration of 97 new entities has been carried out, and 114 forms to update the personal details of reporters have been handled. Over the course of the year, 32 entities have changed their names, and 193 entities updated their details in the MAGNA. Similarly, hundreds of letters were sent at the ISA’s initiative to corporations owing to incompatibilities in the reported data (such as incorrect I.D. numbers), and hundreds of other letter were sent to companies for failure to comply with legal prescription regarding the minimum number of authorised signatories in a corporation. Additionally, the department has handled several cases of terminating corporations that are no longer reporting corporations, and has improved data in the field of interested parties, and provided answers to questions from reporting corporations. 2) Archiving System and Computerized Office

This system enables archiving internal and external documents of all types, which includes documents arriving by email and fax, as well as scanned paper documents. The system enables locating and reconstructing any document according to type, fixed parameters, or free text searches.

The system is one of the most vital tools in the ISA’s workings, and serves as a repository for the electronic filing system for archiving and reconstruction of documents sent by reporters, some of which are also distributed to the public (see Clause 1 above); AMIGO – archiving the news received from the media websites; Human Resources system for archiving various employee documents; the Book-keeping system for archiving orders. Moreover, the system also has the customary computerised office management functions: Internal and external email, task management, diary, contact lists and workflow. The system, which includes many unique developments, is based on the Lotus Notes Domino product. Main Activities in 2015

(1) Interface adaptations

In the year reported, existing interfaces with information systems that were updated over the course of the year were refined, and in particular the administration interface connected to management of the integrated voting system (see Clause 12). Moreover, the interfaces to the TEHILA payment system, to the Ministry of Finance, and an international information provider, were also upgraded. Additionally, the interface with MAGNA was adapted to handling early release of delayed reports.

(2) New Applications

This year, an internal system for management and sharing information at the Corporations Department was completed. The system documents the treatment officers gave to legal issues, accountancy matters and general concerns vis-à-vis supervised entities, and enables the department’s staff to monitor the information, manage it, and reconstruct it for purposes of ongoing work, and providing consistent answers.

Similarly, a mechanism that enables interface and receiving trading data from an overseas information provider was also completed this year (see Clause 14).

(3) Upgrades and Ongoing Management

In the year reported, the system’s end user stations’ software was upgraded to version 9, which possesses superior and improved capabilities.

3) Operational Computerised System

Over the course of the reported year, development and maintenance of the operational system, which includes most of the information about the issues which the ISA handles, continued apace: Data concerning corporations, mutual funds, investment advisers and portfolio managers, trading data, exchange traded notes, and data used by all the ISA’s employees. In the year reported, 254 requests for tweaks and improvements of the system were implemented.

Main Activities in 2015

(1) A new tender for maintenance and operation of the system

a. Reviewing the departments’ needs and requirements, and technological tests;

b. Preparing and publishing a tender for an entity that will maintain the system.

(2) Upgrading and changing the system’s infrastructure to new technology

The following applications were upgraded: Corporations, meetings, mutual funds, investments – audit and evaluation, corporation prospectuses, purchase offers, interested parties / officers, quarterly / periodic reports, external directors, economic research, underwriters, and accounting.

(3) Applications for the various units

a. The Exchange Traded Notes’ Unit – expanding the model for supervision of exchange traded notes;

b. Trading Platform’s Unit – development of a mechanism for handling payment of license application fees, and annual fees;

c. The Investment Adviser Supervision Unit – development of reports;

d. The Mutual Fund Supervision Unit – creating new mechanism and refining existing monitoring reports;

e. Completing the upgrade of the ISA’s forms on TEHILA;

f. Creating the infrastructure to receive data relating to credit risks, credit spreads (CDS), index prices and index components, from an international information provider.

4) Informative Website

Over the course of the year, the department continued to update the ISA’s website (www.isa.gov.il) on an ongoing basis, with new relevant content: Information about the ISA; information about laws and regulations enacted over the course of the year; news and publications; updated lists of the entities supervised by the ISA; and FAQs received over the course of the year. In 2015, approx. 5,000 requests to upload content pages and files were handled.

Main Activities in 2015

Over the course of this year, the website was adapted to support smartphones, and a unique app was developed for such devices. Additionally, a mechanism enabling presentation of detailed information concerning exchange traded notes on the website was developed. Moreover, the English language website was upgraded, and adapted from both the perspective of its appearance, and from that of content, to match the level of the Hebrew website. Like with the MAGNA, the website was also adapted to surfing with Windows 10. 5) The Central Intelligence System – AMIGO

The central intelligence system is a computerised system to manage information and knowledge, which has abilities in the following fields: Locating items of information from different sources; collecting the information and importing it into the system either cyclically-automatically, or by initiated action; searching for objects in all the information items collected from the various sources; producing information; archiving items of information in the ISA’s archives; management and distribution of the raw or processed information to other employees at the ISA via the ISA’s email. 6) Systems for Investigations Department

(1) Forensic Computing The advanced forensic computing system at the Investigations Department, was created several years ago, and has entirely proven itself. The improved efficiency of the department’s working is clear and patent, in almost every file containing large quantities of information and documents seized, in the course of the investigation. The system includes a server and storage space, together with advanced search and reconstruction software, which enables duplicating a lot of electronic information, as well as searching it. This year another upgrade was performed, and advanced new software packages purchased, to meet the new needs, and the rise in the complexity level of the information received in the course of investigations.

(2) Upgrading AGATHA

At the request of the Investigations Department, and jointly with its staff, the department participated in characterisation and concentration of the needs, and preparing a detailed design of a new information system, in place of the existing 15- year-old system. Over the course of the reported year, the development of the upgraded system was completed as planned, and it includes a new database, re- written application, changes to the working processes and improvements to information security. The system is used by staff at the ISA’s Investigations, Intelligence & Market Surveillance Department in managing the intelligence and investigation processes, which includes management of the entities and types of intelligence information.

(3) Recordings

This year, the department began assisting the Investigations Department with recordings which take place in the course of investigations. In 2016, the issue will be completely transferred to the responsibility of the Information Systems Department, and it will handle servers, storage systems, and end-user equipment.

7) The Forms and Payments System

Forms for the ISA, developed and operated by TEHILA, are used by various sectors of the public for contacting and paying the ISA in a wide range of issues. Over the course of the year, close to 15 thousand forms, as well as payments running to 6.7 million NIS, were transferred through the system.

The system transfers the forms completed by the users online, as well as the payments, to the ISA’s internal information systems, the payments are charged and processes automatically, and in real time. These data are presented to users (with a personal PIN number) over the ISA’s website, and enable them to receive accurate and reliable information about the status of their requests.

Over the course of the year, changing all the forms to a new technology that facilitates, inter alia, completing the forms, and affecting payments, with the use of smartphones, has been completed. In addition, mechanisms of dynamic forms were introduced. That is to say, the form’s data arrives straight from the ISA’s computers, and are updated in accordance with user information, after identification.

8) BI Trading Irregularities System The system was launched in 2009, and contains trading data and other data related to trading on the Tel Aviv Stock Exchange. The system is based on the most advanced technologies and perceptions existing today globally in the field of Business Intelligence (BI). The aim of the system, is to confirm or refute irregularities, as far as possible, automatically, thus enabling the ISA’s staff to handle events which are clearly unexplained irregularities.

In the year reported, the Bank of Israel was given access to the ISA’s BI System, user software was upgraded to OBIEE11, the backup system was replaced, and trading data from overseas information systems were introduced (see Clause 14). In addition, new versions of the system were developed and assimilated, which include, inter alia, new types of irregularities, new index calculations at the transaction level, and many other applications for the Intelligence Team and the Investment Department.

9) Knowledge Management – Search Tools

The information and knowledge used by the ISA’s employees – originate from the ISA’s information systems, external information sources and from employees. To improve the ability to locate the information, and in particular documents, stored in the various systems, a search system that locates documents in the intra-organisational databases, and in a number of information sites to which the ISA has access, was established.

This year, the department continued to maintain the system, and integrated new data bases and documents from all the ISA’s sources (internal and external documents, documents coming from MAGNA, etc.), into it. Moreover, the development of an advanced new generation of search tools was completed. Launching the new system is planned for the first quarter of 2016.

10) Knowledge Management – Internal Portal

As part of the project of information management at the ISA, the department launched an internal portal, which enables ISA employees simple and convenient access to the information they require, from all ISA systems. The portal has two separate and interlocking aims: Enhancing management, sharing and free-flow of organisational information connected to the Israel Securities Authority’s professional content; creating a uniform “desktop” for ISA employees, that enables immediate and convenient access to the information and tools available to them.

Over the course of the reported year, the department developed two systems in the framework of the portal: The “read and sign” system that enables transferring a message to employees and ensuring that they read and signed the message, and a system that performs an interface to the organisational Active Directory (AD), which synchronises user profiles. In addition, a Data Recovery (DR) site was established for the system, for use as an alternative site in the event that the primary site fails.

11) Human Resources Systems

This year, the department maintained the human resources system and improved its interfaces to ancillary systems, such as the employee attendance system. In addition, the department maintained and improved the system for management of the employee performance review process, and connected it to the ISA’s "Single Sign On" (SSO) mechanism. 12) Integrated Voting System

Further to the ISA’s decision to establish a system that enables voting at meetings over the internet, as they are reported in the MAGNA, a voting site was created in the MAGNA system. Through this site, any person holding securities may, after passing a secured identification process, vote over the internet on the topics on the agenda of a meeting (as they were reported on the meeting invitation forms in the MAGNA) of the companies in which he invests.

As part of the voting system, the ISA operated a secure email system (YAEL) from the ISA to the companies and their authorised agents. In the setting of which, any authorised person can access (using a token, issued by an approving entity) a designated site, in which he can reconstruct correspondence he received from the ISA. In the year reported, 4,139 messages were sent through the system. The YAEL System currently has 1,845 active users, who regularly access the inbox site. In the year reported, the system was adapted to support Windows 10 and the IE11 Browser.

The voting system transfers, via the YAEL System, the results of the internet-based meeting, to every company, a short while before the meeting begins.

This year, legislation was completed which prescribes the system’s commencement date as 17th June 2015, and indeed it was launched on that date. In addition, the Finance Committee stipulated that bond meetings be included in the system commencing on 17th November 2015. At that date, support for such meetings was indeed added (which also includes meetings not convened by the company, but by the bond trustee). This year, 824 meeting voting boxes were opened. 13) Information System to Supervise Trading Platforms to Own Account

With the advancement of legislation empowering the ISA to supervise these entities, the ISA decided to establish an information system that would support supervision of Trading Platforms. The system will receive trading data, cross-reference sources, and present a clear picture of the activity in the platform. Over the course of 2015, the department completed the process for the tender to execute the project: Preparing and publishing the request for proposal document (RFP) for the public tender, comparing bids and recommending a winner. Selecting the winning vendor, and beginning to develop the system, is expected in 2016.

14) Interface to incorporate Overseas Trading Data

In light of the growing need that ISA departments have to obtain trading data from capital markets overseas, the department initiated a project for an interface with an external information provider, to assimilate these data into the ISA’s internal systems: The operational system, the BI system and the system for supervising trading platforms to own account (see Clause 13). The project included advanced technological solutions, and use of sophisticated tools to execute the necessary interfaces. The platform was launched in 2014, and this year new mechanisms to receive the information were built, and the interfaces to the internal systems completed.

15) Book-keeping System Over the course of the year, the department continued to support the book-keeping unit and the Acquisition and Organisation Unit, which includes executing improvements to the systems they use, and the AVIV System in particular. The AVIV System is used by the book- keeping unit in book-keeping, payment and receipts management, and registration and payment based on data received in the interfaces from the logistics system. Moreover, the system supports the acquisition process, inventory management and contract management at the ISA, managing the accounting books, budgetary management, payment and receipts management, fixed asset ledger, inventory management, and contract management. This year, the ancillary systems were upgraded for automatic receiving of foreign exchange rates and bank statements.

Over the course of 2015, more than 1,000 entries were executed in the system, thousands of commands were issued to it, and 1,500 orders were produced. 16) Infrastructure – Servers, Communications, End-user Stations, and Information Security

Over the course of the year reported, the department improved the computing infrastructure, and the information security infrastructure at the ISA. Amongst the important topics addressed, one can name the following:

(1) Upgrading the server hardware and storage equipment at both ISA sites. The central storing system was significantly increased, and old servers were replaced.

(2) Assimilation of a SIEM System was completed, which system accumulates, monitors and manages information security events on the ISA network.

(3) Activities to assimilate the SOC system had begun, which system analyses the information, and enables reacting to events suspected as information security events.

(4) A security system for internal communication components was assimilated, detecting anomalies in network traffic, and warning of security-related suspicious events.

(5) Upgrading and massively extending the virtual environment at the ISA, which enabled a massive transition of physical servers to new advanced and economising technology.

(6) Testing advanced MDM systems, to improve the defences, security and efficiency of smartphones possessed by ISA employees, had begun. Assimilating the product is expected to take place in 2016.

(7) The organisational FW servers were upgraded and extended; these prevent external infiltration into, and hacking of, the ISA’s computers.

(8) An IPS and “laundering” system for incoming mail was purchased and assimilated, which increases the levels of protection of email and internet.

(9) Ongoing maintenance of all systems, updating procedures and monitoring levels of service provided to internal and external users.

(10) Continuing to replace all old PCs and printers with new computers, operating systems and printers. (11) The department is a member of the committee to ensure response to cyber threats and continuity of financial systems’ infrastructure functionality, and has participated in cyber-related exercises.

(12) Preparations have begun in anticipation of receiving ISO 27001 for information security. The activity focuses both on the technological plain, and in writing and implementation protocols.

These activities, mainly in the field of infrastructure upgrades and information security, will also continue into 2016.

6.9. Administrative Enforcement A. General 1. The Purview of the Administrative Enforcement Department

Administrative Enforcement

The administrative enforcement mechanism established under the Administrative Enforcement Law, runs parallel to criminal enforcement. This mechanism was introduced in 2011, and 2015 was its fourth year of being implemented. The administrative cases are conducted before an Administrative Enforcement Committee which has six members, and its discussions are in panels of three. Two committee members serve as chairmen of the panels, and are employees of the Israel Securities Authority. It is noted, that according to policy set by the ISA’s chairman, the presiding tribunal members are not appointed from existing ISA staff, and in the setting of the ISA, they carry on that single function. The Minister of Justice is the person appointed at law to select the other four members, two of whom are jurists, experts in securities law and company law, and two hail from the capital market and the field of finance.

The administrative proceedings are instigated by decision of the chairman of the ISA, against persons suspected of committing administrative violations of the three laws which the ISA is charged with enforcing. The Administrative Enforcement Department serves as the administrative prosecution unit in the ISA, and recommends to the chairman whether to instigate administrative proceedings. The department drafts administrative statements of case, on the basis of materials from administrative inquiries transferred to it from the Investigations, Intelligence & Market Surveillance Department. Moreover, the department drafts administrative statements of case in suitable cases, also on the strength of evidence transferred to it from the District Attorney’s Office, from closed criminal files.

After instituting the administrative proceedings, the Administrative Enforcement Department runs the prosecution case on behalf of the ISA before the Administrative Enforcement Committee. The Enforcement Committee is also authorised by the Advice Law to hear proceedings of license revocation or suspension, due to the reliability flaw of an individual license holder.

Under the Administrative Enforcement Law, the chairman of the ISA has the authority, with the approval of a panel of the Administrative Enforcement Committee, to enter into an enforcement arrangement with a suspect, instead of conducting a criminal investigation, administrative inquiry, or administrative proceedings before the Administrative Enforcement Committee. The Administrative Enforcement Department formulates the administrative enforcement arrangements, and represents the chairman of the ISA in the negotiations with the violating entities and vis-à-vis the Administrative Enforcement Committee panel, when applying to approve an enforcement arrangement.

Financial Sanctions

Parallel to the administrative proceedings before the Administrative Enforcement Committee, securities law permits an administrative process of imposing a financial sanction (hereinafter: “Simple Proceedings Financial Sanction”). An internal three-member committee headed by the chairman of the Israel Securities Authority is charged with the Simple Proceedings, and the other two members are members of the plenum. These financial sanctions are imposed on supervised entities that commit securities violations and violations under Chapter 4 of Part D of the Companies Law, and after they are collected by the ISA, they are transferred to the State Treasury. Aside from which, the ISA has also been empowered to reduce the level of the financial sanction according to the causes, and at the rates, prescribed by the Securities Regulations (Reduction of Financial Sanctions), 5771- 2011.

The Administrative Enforcement Department is charged with coordinating and managing the Simple Proceedings Financial Sanctions. Moreover, it is responsible for coordinating and managing the financial sanctions imposed under the Prohibition of Money Laundering Law, which prescribes that the chairman of the Israel Securities Authority is in charge of supervision and enforcement of that law, with regard to non-bank members of the Stock Exchange, and portfolio managers.

Legal Proceedings Pertaining to Administrative Enforcement Proceedings

Under the securities laws an administrative petition may be filed with the Economic Department of the District Court of Tel Aviv, both against decisions of panels of the Administrative Enforcement Committee, and against the ISA, following imposition of Simple Proceedings Financial Sanctions. Moreover, the decisions of the Financial Sanctions Committee under the Prohibition of Money Laundering Law, are appealable to the Magistrate’s Court. The Administrative Enforcement Department is involved in responding to these types of petitions and appeals. In the setting of which work, staff from the department work jointly with the Tel Aviv District Attorney’s Office – Civil Department, to draft the replies and various documents necessary in the proceedings.

2. Highlights of Activities in 2015

A. Handling Administrative Cases – Over the course of 2015, 11 administrative cases crossed the desk of the Administrative Enforcement Department, and in four administrative enforcement proceedings were instituted. In two of these, statements of case were filed with Administrative Enforcement Committee panels, for various violations, and in the two others, requests to approve administrative arrangements made with the violators, were filed before statements of case were filed. In one of the last two, a request to approve an administrative enforcement arrangement was filed with regard to one of the violators, and with regard to the others, the case is still open. In the second case, two requests to approve administrative enforcement arrangements were filed with regard to the respondents in the case.

Of the other files being handled, preparations for administrative enforcement proceedings have been completed in the last days of this year in three cases, and they are expected to be launched in the course of January 2016; one file was closed; and three others are being prepared. Another, which landed on the department’s desk at the end of 2014, was remitted for completion of the administrative investigation. In total, this year, two statements of case were filed and five requests to approve enforcement arrangements.

B. Imposition of Financial Sanctions – In the course of 2015, 14 financial sanctions were imposed in total: Nine on entities supervised under the Securities Law and Companies Law, four on entities supervised under the Advice Law, and one on a fund manager under the Funds Law. In addition, nine additional cases are in various stages of imposing financial sanctions.

C. Administrative Petitions – In the course of 2015, the department was involved in four administrative petitions against decisions of the panel of the Administrative Committee, in one petition against the ISA’s decision to impose a Simple Financial Sanction, and in one administrative appeal from the decision of the Sanctions Committee under the Prohibition of Money Laundering Law.

D. Internal Enforcement Programs – In the course of 2015, the department continued to provide answers to questions referred to it on matters of internal enforcement, and to meet field entities in the setting of “round table” meetings, which staff conducted with the compliance officers at banks and institutional investors. Individual meetings also took place with different parties in the market dealing with internal enforcement.

3. Highlights of Actions Planned for 2016

a. The Administrative Enforcement Department is expected to handle 8-10 administrative cases from those that cross its desk, whether as filing statements of case and conducting full proceedings, or by way of enforcement arrangements, as appropriate.

b. The department will continue to fully coordinate all stages of imposing financial sanctions.

c. The department will continue to handle pending administrative petitions and other administrative petitions if such are filed.

B. The Department’s Activity in the Passing Year 1. Administrative Enforcement

Table 24: Distribution of administrative files opened in 2015 Type of violation No. of Cases Securities fraud (wash trades) 1 Use of inside information 1 Lacking / Misleading reports 1 Sale of restricted securities 1

Extract of the decisions of the Administrative Enforcement Committee

The Administrative Enforcement Committee published, over the course of the year, decisions in five fully conducted administrative cases, and two enforcement arrangements.

Administrative Enforcement Proceedings

a. Administrative File 2/14 The Israel Securities Authority v. Extra Plastic Ltd., Rami Mandola, Yehiel Teitelbaum, Gil Gruer, and CPA Gabby Shechter On 9th April 2015, the decision of a panel of the Administrative Enforcement Committee in Administrative File 2/14 The Israel Securities Authority v. Extra Plastic et al, given on 9th February 2015, was published. The decision stated that the chairman of the board and controlling shareholder Rami Mandola, the company’s CEO and director Yehiel Teitelbaum, and the CFO Gil Gruer (hereinafter, jointly: the “Respondents”), all officers in the company, were responsible for commission of two violations concerned with including misleading details in two financial statements, which the company filed with the Israel Securities Authority and to the public, under sub-section (4) of Part C of the Seventh Schedule to the Securities Law. The cases of the company and the company’s auditor, CPA Gabby Shechter, ended with, separate, enforcement arrangements, and were approved by the panel (see the 2014 Report, clauses (f) and (g), pages 167-169).

The panel imposed a financial sanction of 200,000 NIS on Mandola, a suspended financial sanction for the same amount, and barred him from serving as a senior officer in a supervised entity for a period of six months; Teitelbaum was barred from serving as a senior officer in a supervised entity for a period of one year; Gruer received a financial sanction of 150,000 NIS, a suspended financial sanction for the same amount, and was barred from serving as a senior officer in a supervised entity for a period of six months. The panel, in imposing these measures, was lenient with the Respondents: Regarding Mandola, the panel took account of his clean past record and his contribution to the public, as well as his significant investment in advancing the company and his actions to stave off its collapse; regarding Teitelbaum, the panel took into account personal circumstances, and his having to lean on the accounting knowledge of others in the company, on whom he erroneously relied; with regard to Gruer, it took into account his personal circumstances, and his devotion to the company and his sincere efforts to rehabilitate it.

It is noted that the Respondent Gruer filed a petition to the Economic Department of the District Court against the decision of the panel of the Administrative Enforcement Committee, with regard to the enforcement measures. This petition was dismissed by Justice Ruth Ronen by decision dated 19th August 2015.

The facts of the case were that Extra Plastic took a loan worth 25 million NIS from Mercantile Discount Bank at the beginning of June 2011. The loan was made conditional upon the provision of sureties. The loan funds were placed in a deposit at the lending bank, and according to the agreement with the bank, Extra Plastic could not use the loan funds until the sureties demanded by the bank were completed. The company signed a letter of undertaking to the bank, which included various sureties which the company was required to provide as a condition to releasing the deposit, and it stated that the company was obligated to provide these within 60 days, failing which, the bank could call the loan up for immediate resettlement, from the monies of the deposit. However, the company failed to provide all the sureties in time, and therefore could not use the loan funds. Despite this fact, and notwithstanding the stipulations, in the second and third quarter financial statements for 2011, the Respondents classified the deposit as a current asset, in the setting of the cash and cash equivalent section, and not as a noncurrent asset, as they should have. On the other hand, the Respondents classified the loan as a long term liability, when they should have classified it as a short term liability. These actions contravened accounting standards, and were misleading. In addition, the note related to the deposit was partial and lacked clarity, and material information regarding the conditions and stipulations applicable to the loan, and the limitation on the use of the deposit, were lacking from it. The Respondents, led by Mandola, were involved in taking the loan out from the bank, and were aware of the terms and conditions of the letter of undertaking, and the limitation on the use of the loan funds. Teitelbaum and Gruer even signed the letter of undertaking, and Gruer even participated in drafting the unclear note. Moreover, all three Respondents signed the misleading financial statements.

In reviewing the elements of the violation, the panel held, that it did not need the expert opinion of an accountant to determine the materiality of the misleading details as the reasonable investor would view them, and the evidence before them, such as the testimonies of the Respondents themselves, was sufficient. The panel held that classifications of the deposit and loan were information which an investor necessarily considers when taking an investment decision, and that such information reflects directly on the company’s liquidity conditions, and its ability to meet its up and coming obligations. The panel added and emphasised that not every detail that management and the company view as insignificant, is necessarily insignificant to the reasonable investor. The panel held that the accounting classification was a misleading detail, as was the vague note.

The Committee panel added and determined, that with regard to the element of “included”, any person who signed, and in this way in practice approved a document – should be viewed as having “included” the information in it in the document, even if another person drafted the document for him. As to the element of negligence, the panel held that the CEO and CFO had central positions regarding ensuring the accuracy of financial reporting and full disclosure. Also the chairman of the board in this case, who was an active chairman with accounting and financial expertise, had as high a level of liability as the CEO and CFO. The panel held that, in the circumstances described above, all three failed to meet the standards expected of reasonable officers. Thus, they should have known that their actions would mislead a reasonable investor.

The Enforcement Committee panel rejected the claim that the respondents relied on professionals, since none of the respondents contacted any expert to clarify the correct accounting classification, and none pointed to any efforts on his behalf to rely on a professionally prepared opinion. Moreover, the respondents’ claim that the ISA in this case was enforcing selectively, was also rejected, and the Committee’s panel reiterated case law, that only rarely will the court accept a claim of selective enforcement, since that claim prejudices the presumption that administrative authorities do not conduct themselves irregularly, and the presumption that they act with judgement. b. Administrative File 3/14 The Israel Securities Authority v. Barak Rosen, Assaf Tuchmeir and Guy Kende

On 3th August 2015, the decision of a panel of the Administrative Enforcement Committee in Administrative File 3/14 The Israel Securities Authority v. Barak Rosen, Assaf Tuchmeir and Guy Kende, given on 16th June 2015, was published. The decision, by majority of votes, stated that the respondents Barak Rosen, the controlling shareholder and CEO of Israel Canada (T.R.) Ltd. (hereinafter: the “Company”), and Guy Kende, its CFO, were responsible for including misleading details in an immediate report, a violation under Sub-Section (4) of Part C of the Seventh Schedule of the Securities Law. The majority opined that no liability should be imputed to the respondent Assaf Tuchmeir, a controlling shareholder and chairman of the company’s board, owing to a lack of sufficient evidence of his involvement in commission of the violation. The minority also opined that Barak Rosen was responsible for commission of the violation, but believed that also the respondent Tuchmeir should be viewed as liable, without imputing liability to the respondent Kende.

The panel imposed a financial sanction of 250,000 NIS on Barak Rosen, a suspended financial sanction for the same amount, and barred him from serving as a senior officer in a supervised entity for a period of nine months. Guy Kende was subjected by the panel to a financial sanction of 150,000 NIS, a suspended financial sanction for the same amount, and a suspended sanction of being barred from serving as a senior officer in a supervised entity for a period of four months. The panel, in imposing these measures, took a lenient view of the innovativeness and precedential nature of misleading a board of directors as a basis for misleading the investing public, and also took a lenient view of the determination of the tenure limitation period on Rosen, being vital and significant to the company, so as to mitigate the harm done to it, and to the public investing in it.

This decision was published before the passage of 60 days as required by the Securities Law, from the date of the decision and until the date of its publication, owing to publications in the media, which caused the reporting of it by the company, and enclosed the decision of the panel itself. It is noted, that respondents Rosen and Kende have petitioned the Economic Division of the District Court against the panel’s decision, and to date, that petition is still pending.

The facts of the case were, that on 1st May 2012, the company published an immediate report pertaining to a meeting of the company’s Board of Directors that took place the previous day. At the meeting, discussions were held of the right of first refusal which the company had under a boundary agreement, to which its controlling shareholders, respondents Rosen and Tuchmeir, were committed to contracting in a real estate transaction to purchase land next to the Mandarin hotel in north Tel Aviv. The controlling shareholders, who also had private real estate business affairs, had a personal right to contract in the transaction, only if the company chose to exercise the right of first refusal, given to it, as abovementioned, under the boundary agreement. Rosen is the one who conducted the negotiations to purchase the land, and by his initiative the deal was put before the board for discussion. Rosen also presented the deal, and after that left the meeting and did not attend the discussions. Tuchmeir did not participate in the meeting at all. Kende was at the meeting, participated in presenting the deal to the board, and also left before the vote. The board was unanimous in refusing the controlling shareholders’ offer to purchase the land. The board was presented with misleading and lacking details, which caused vagueness as to the complete picture regarding the transaction, and its terms and conditions, the main ones of which were – presenting the land as speculative agricultural land, expected to yield income only in the remote future; presenting the deal as a deal that is not suited to the company’s characteristic activity; misleading presentation of the issue of how the deal was to be financed; failure to present immediate marketing and sale activities of units of the land, and the negotiations for their sale, before the board meeting, which could evidence the nature of the planned transaction and the financing possibilities embodied in it. These misleading details were included in the board’s decision to reject the deal, and thus “seeped” into the immediate report that called the public’s attention to that decision. Moreover, the immediate report itself contained additional misleading details in the description of the deal. Respondents Rosen and Tuchmeir appeared as having electronically signed the immediate report, as authorised signatories on behalf of the company. Kende, as authorised to sign electronically, transmitted the report to the Israel Securities Authority. The report draft was sent to Rosen and Kende for perusal, and Rosen even made comments, and the wording of the report was consequently amended.

The panel held, by majority vote, that in reviewing the misleading details, one had to apply the “Mosaic Theory”, the theory that matters must be view completely and collectively, and in circumstances of many details in the background of a violation or offence, the materiality of each detail should not be examined on its own, but rather the aggregation of details are what creates the complete picture, because the significance stems from its completeness. In the circumstances, the panel found that the details of the report in question were material to the investing public.

Another question which the case raised, related to the mutual relations between misleading the Board of Directors, and misleading the public. The majority held that a person who conveys material information which requires an immediate report under the law which a supervised entity is subject to, knows, or must know, that the information in the report is intended for the investing public, and to the extent that it contains a misleading detail, as defined at law, it will mislead the public and crystallise the including of a misleading-detail violation in the report. It was further held, that the purpose of the reporting duty – which spans both a transaction adopted and a transaction rejected – is to enable the reasonable investor to examine the decision making process at the company, and supervise it and prevent the controlling shareholders from abusing it. This means, that the respondents Rosen and Kende should have ensured that the misleading details they delivered at the meeting, would not be included in the report. In general, the panel held that the transaction’s description given to the Board of Directors by Rosen, was negligent, and pointed to his tendency to present it as not attractive. Kende was imputed with liability in light of his involvement in presenting the transaction to the Board of Directors, and preparing the immediate report, and in light of his refraining from performing any examination of the data which he conveyed to the Board of Directors regarding the financial issues, which he was charged with being the company’s CFO. As for Tuchmeir, the panel held that sealing a report by an electronic signature executed by an authorised signatory, creates a factual presumption that he consented to the statements in the report, and verified the veracity of its contents. However, this presumption may be rebutted by the signer, who can refute it with his evidence. The panel, by majority, exempt Tuchmeir from responsibility and liability for commission of the violation, because he proved to the requisite degree that he was not involved in the matter, thus refuting the abovementioned factual presumption.

The panel rejected the respondents’ defences in equity, and held that the ISA, and only the ISA, is sovereign to decide against whom, and to which proceedings, it directs its cases, whether to the criminal sphere or the administrative one, provided that the administrative proceedings in itself rely on a sufficiently solid factual grounding. c. Administrative File 5/14 The Israel Securities Authority v. Orian Atiyas

On 16th September 2015, the decision of a panel of the Administrative Enforcement Committee in Administrative File 5/14 The Israel Securities Authority v. Orian Atiyas (hereinafter: the “Respondent”), given on 14th July 2015, was published. In the decision, the panel held that the Respondent was responsible and liable for commission of four violations of sale of securities to the public without prospectus, by way of selling shares subject to a lock up period (hereinafter: "Blocked Shares") in the course of trading on the stock exchange, under sub-section (1) of Part C of the Seventh Schedule to the Securities Law.

The Enforcement Committee panel imposed on the Respondent a financial sanction of 36,000 NIS, and a suspended financial sanction for the same amount. The panel took a lenient view of the lacking legal regulation regarding implementation of the lock up rules, and noted that this case was the first enforcement action for such a violation. In setting the relatively low financial sanction, approximately equal to the sum the Respondent profited from the violation, the panel mainly took into account the Respondent’s dire financial straits.

In this case, the violator contravened the prohibition, prescribed by Section 15C of the Securities Law, of executing a re-sale of securities, without a prospectus, on the stock exchange, securities which were issued in a private placement and were blocked for a six-month period. The facts of the case were, that at the end of 2011 the Respondent traded securities, but not from his own account, but rather from the bank account of a friend, which was made available to him. Through this account, the Respondent purchased packages of blocked shares from a private company called Upswing Capital Ltd. (hereinafter: “Upswing”). The shares which Upswing held, which it obtained by means of a private allocation, were sold to the Respondent while they were under a six months’ lock up period by virtue of the Securities Law. The Respondent purchased the shares through Moti Menashe, an acquaintance of his, and a senior person at Upswing, over-the-counter, at prices which were lower than the market price. After they were purchased, the respondent sold them on the stock exchange at the market price, which was higher than the purchase price. Before each purchase, the Respondent signed written declarations to Upswing, in which he confirmed by his signature that he was aware of the sale limitations applicable to the shares.

The Respondent performed four rounds of, over-the-counter, purchase and sale of Blocked Shares on the stock exchange, in four publicly traded companies. The overall volume of sale was approx. 10 million par value Blocked Shares, and from the profits gained in his friend’s account, Atiyas received a 20% cut, amounting to approx. 36,400 NIS.

The panel, in its decision, made several important determinations regarding the prohibition of selling Blocked Shares, its nature, purpose and implementation. The panel reviewed the legal infrastructure prescribing the lock up rules, and emphasised their importance and purpose – the need to prevent by-passing the duty to offer and sell shares to the public by means of a prospectus the publication of which is approved by the ISA, which may be committed by the unordinary measures legally permitting an offer to the public without a prospectus, such as in a private allocation.

The panel further held that the lock up rules are not personal, meaning to say that they apply both with regard to the offeree and with regard to the person who purchased from the offeree, and so on and so forth, for the entire lock up period. On the other hand, there was no prohibition from selling securities over- the-counter, if the seller informs the buyer that the shares are blocked.

The panel opined that the legal regulation was lacking. The law did not regulate the manner in which the seller must inform the buyer that the shares are blocked, in a way that could establish liability for a violation or offence. The lack of regulatory rules regarding monitoring the blockage of the shares throughout the lock up period, adversely affected the efficacy of the lock up rules, and the realisation of the purpose of the prohibition, and also prejudiced the ability to enforce them. The panel recommended that the ISA initiate regulation of the matter by legislation. d. Administrative File 6/14 The Israel Securities Authority v. Moti Menashe and Upswing Capital Ltd.

On 12th October 2015, the decision of a panel of the Administrative Enforcement Committee in Administrative File 6/14 The Israel Securities Authority v. Moti Menashe (hereinafter: the “Menashe”) and Upswing Capital Ltd. (hereinafter: “Upswing”), given on 12th August 2015, was published. In the decision, the panel held that Menashe and Upswing were responsible and liable for commission of violations of sale of securities to the public without a prospectus, by way of selling Blocked Shares in the course of trading on the stock exchange, under sub- section (1) of Part C of the Seventh Schedule to the Securities Law.

The Enforcement Committee panel imposed on the Respondents financial sanctions: On Menashe, a sum of 100,000 NIS, and a suspended financial sanction for the same amount; on Upswing, a sum of 150,000 NIS, and a suspended financial sanction for the same amount. In setting the level of the financial sanction, the panel took a severe view of the scope of the violations – total sales were approximately 16 million par value of Blocked Shares – and took into account considerations of deterrence and prevention of damage. On the other hand, the panel took a lenient view of the fact that regulation of the lock up rules was lacking, and the fact that the enforcement action was a precedent. Moreover, the panel took into account the Respondents’ lack of profits, Menashe’s personal circumstances, and the company’s claims of financial difficulties.

It is noted that Upswing and Menashe filed administrative petitions with the Economic Division of the District Court against the decision of the panel of the Administrative Enforcement Committee, and at the time this report went to print, the petition was still pending.

This case was the second case in which the Israel Securities Authority handled a violation of the law prohibiting sale of Blocked Shares on the stock exchange. As noted in Administrative File 5/14 Atiyas, above, the panel reiterated the lock up rules, the duty to publish a prospectus and the limitation to it. The panel noted that with regard to the lock up rules the market was marching down “the path less taken”, referring to the lack of relevant provisions and regulations, and repeated its recommendation that regulation of the matter be enacted.

The facts of the case were, that in April 2013 Upswing was allocated approx. 55,440,000 shares in Ilui Finance Ltd. (hereinafter: “Ilui”), in a private allocation, to settle a shareholders’ loan which the company forwarded to Ilui, a public company skeleton, a short while after purchasing control of it, in July 2011. Under the lock up rules, the shares were completely blocked for a period of six months from the allocation date. At the same time, in the setting of an agreement to sell control of Ilui, signed by and between Upswing and Final Algo Trade Ltd., Ahuva Brand (hereinafter: “Brand”) and Limor Cohen (hereinafter: “Cohen”), Brand and Cohen purchased approx. 27 million par value and 13.5 million par value, respectively, of shares in Ilui, from Upswing. Some of these shares were blocked, and Brand and Cohen signed a written declaration that they acknowledged that the shares were blocked, and the limitations flowing therefrom.

The first violation was attributed to Menashe and Upswing, and concerned the sale by Upswing, by agency of Menashe, of Blocked Shares in Ilui to Brand, as a jumbo deal in the course of trading on the stock exchange. The panel held that that type of deal was a transaction on the stock exchange, and thus the abovementioned blocking rules applied to it. The other four violations concerned sale by Brand and Cohen, on the stock exchange, of the Blocked Shares which they purchased from Upswing, as abovementioned. These violations were attributed exclusively to Menashe, and not to Brand and Cohen. Despite the fact that Menashe did not actually sell the shares, he was found liable for these violations on the basis of the doctrine of commission through another, borrowed from criminal law. This was owing to the fact that Menashe provided Cohen and Brand with certificates of “release” freeing the Blocked Shares which he sold them on behalf of Upswing. These relied in good faith on the certificates, and sold the shares on the stock exchange, when in fact the shares were still blocked. The panel held that there was nothing to prevent the doctrine from applying in administrative proceedings, and in particular when the perpetrator is aware and not only negligent, that his actions will cause the other to perform the prohibited deeds. The Committee panel held that in this case the requisite elements to apply the doctrine to Menashe were established. It is common for a seller to transfer liability for a breach of the lock up rules to the purchaser by causing the latter to sign a declaration acknowledging that the securities are blocked, and that he must act with them according to the lock up rules at law. The panel noted, that that custom was not sufficient to secure correct handling of blocked securities. Moreover, the panel rejected the respondents’ claim, that the shares in Upswing’s possession at the time of sale were not only the shares it held, but also the shares held by the other controlling shareholders who jointly controlled Ilui with it. Therefore, so the respondents claimed, when examining the number of Blocked Shares in the company’s possession, one should have taken into account all the shares of the controlling block as one whole. The panel held, that joint control does not imply joint holding of shares. To prove that Menashe was entitled to block the shares that were not held by Upswing, he had to prove that he received license to do so, or that he was given particular consent to block, with regard to each transaction. The panel held that he failed to prove these facts. e. Administrative File 4/14 The Israel Securities Authority v. Jerusalem Technology Investments Ltd. – and in its previous name Daniel B.S. Holdings Ltd., Shmuel HaCohen and Zvika Ben Porat

On 17th November 2015, the decision of a panel of the Administrative Enforcement Committee in Administrative File 4/14 The Israel Securities Authority v. Jerusalem Technology Investments Ltd. (hereinafter: the “Company”), and in its previous name Daniel B.S. Holdings Ltd., given on 17th September 2015, was published. In the decision, the panel held that the Company, the chairman of its Board of Directors and the controlling shareholder, Shmuel HaCohen, and the Company’s CEO and controlling shareholder, Zvika Ben Porat (hereinafter, jointly: the “Respondents”), were responsible and liable for including a misleading detail in an immediate report which the Company had published, under Sub-Section (4) of Chapter C of the Seventh Schedule of the Securities Law. The panel exempt the Respondents from liability for an earlier reporting violation attributed to them, as will be set forth hereinafter. The panel imposed on the Company a financial sanction of 400,000 NIS on account of the second violation, and a suspended financial sanction for the same amount. Moreover, it was ordered to formulate an internal enforcement plan within a year. HaCohen received a financial sanction of 150,000 NIS and a suspended financial sanction for the same amount, and a suspended sanction of being barred from serving as a senior officer in a supervised entity for a period of one year. Ben Porat received a financial sanction of 100,000 NIS, a suspended financial sanction for the same amount, and a suspended sanction of being barred from serving as a senior officer in a supervised entity for a period of nine months. The panel, in imposing these measures, took a severe view of the Respondents’ overall conduct, which was continual, also including their conduct regarding the first violation notwithstanding the fact that it exempted them from liability for it. On the other hand, the panel took a lenient view when only imposing a suspended prohibition of tenure, of the fact that HaCohen and Ben Porat were relatively new players on the stock exchange, and chose to refrain from exacting the full punitive measures at law to prevent over-deterrence and thus creating a fear of entering the public arena. It further considered the Company’s dependence on them in light of its activities as an investment company. As for the Company, its dire financial straits were also considered.

The facts of the case were, that the Company was the result of a merger between two companies, one was a skeleton company: Daniel B.S. Holdings Ltd. (hereinafter: “Daniel”), and the other was the private company: Jerusalem Technology Investments Ltd. (hereinafter: “JTI”). The main thrust of the merger agreement was transferring JTI’s operations to the public skeleton company, which changed its name, as abovementioned. It is noted, that in the relevant period, the skeleton company Daniel was traded on the maintenance list. In the setting of the merger transaction, signed in April 2013, and put for the approval of Daniel’s organs in late May 2015, JTI’s shareholders purchased control of Daniel by way of an issue of Daniel’s shares to them, concurrently with their transferring their shares in JTI to Daniel. Moreover, the shares of the previous controlling shareholders in the Company were purchased by the Respondent HaCohen in the setting of the transfer of control. After the merger, the Respondents HaCohen and Ben Porat were the controlling shareholders in Daniel, which owned JTI outright.

On 3rd June 2013, the previous controlling shareholders in Daniel resigned from its management, and in their place HaCohen and Ben Porat were appointed. That very day, the Company published a report that the merger transaction was completed, in which it informed the ISA and the public that the “conditions precedent to completion of the transaction had materialised” (hereinafter: the “Transaction Completion Report”). In another immediate report from the same day, the Company gave notice that the shares were swapped as described above (hereinafter: the “Allocation Report”), and noted in it that the “securities were fully paid for, and the consideration was fully received”. The previous controlling shareholders in Daniel signed these reports as their last act in the setting of their positions with the Company, and after doing so, immediately resigned. The Transaction Completion Report and the Allocation Report failed to mention that shares in three portfolio companies that were amongst JTI’s assets, were not actually transferred to the latter concurrently with the merger, as agreed, and therefore were not in the Company’s possession. The value of the assets which were not transferred was, cumulatively, approx. 10 million NIS, a third of the declared value of the Company according to an appraisal. Had that information been known, the Stock Exchange would not have agreed to take the Company off the maintenance list, since it would not have passed the minimum capitalisation necessary to be relisted and traded. On 10th July 2013, the Company published an amending report, in which it reported that the previous reports notwithstanding, the shares in the two portfolio companies had not yet been transferred by the required date, as was expected prior to completion of the deal (hereinafter: the “Amending Report”). But, in that report, the Company did not disclose the fact that also the shares of a third company had not yet been transferred by that date to the Company’s holding. The Respondents HaCohen and Ben Porat signed that report.

The Administrative Enforcement Committee panel held with regard to the Transaction Completion Report and the Allocation Report, that these contained material misleading details, in that they created the misrepresentation that the Company had met the conditions for exiting the maintenance list. However, the panel exempt the Respondents from liability for reasons of selective enforcement, since it believed that the ISA should also have prosecuted the previous controlling shareholders, who were negligent when they signed the Company’s reports without checking them, and taking all reasonable measures to ensure the reliability of the information they received from HaCohen and Ben Porat. Moreover, the panel opined that it was difficult to view the Respondents as having “included” a misleading detail in these reports, since they did not sign them, and were not officially officers when these were filed.

The panel further held, that also the Amending Report lacked material information regarding material parameters of the deal, which had not materialised by the date of the report of its completion, however, in this regard the Respondents could be viewed as liable for the violation. In this regard, the Respondents claimed that the information was not material. The panel did not accept that claim, simply for the reason that the Stock Exchange decided to suspend trading in the Company’s shares when it discovered the partial transfer of portfolio companies to the Company. Moreover, the Respondents’ involvement in the Amending Report was not in any doubt, which included the component of including the abovementioned misleading detail.

Enforcement Arrangements

(a) Administrative File 1/15 The Israel Securities Authority v. Yoash Trokman

On 5th July 2015, a panel of the Administrative Enforcement Committee approved the Enforcement Arrangement between the chairman of the Israel Securities Authority and Yoash Trokman (hereinafter: “Trokman” and the “Respondent”), signed on 4th May 2015. The Enforcement Arrangement was signed instead of filing a Statement of Claim and instigating full administrative enforcement proceedings on account of the commission of violations. In the setting of the Enforcement Arrangement, Trokman admitted the facts and commission of manipulation violations under Section 54(A1)(2) of the Securities Law, and agreed to imposition of a financial sanction of 200,000 NIS, to be paid in 25 equal instalments.

Trokman was an investor in securities and a day trader. The Enforcement Arrangement attributed performance of 555 wash trades with a total value of approx. 3.05 million NIS, in various securities, in the course of the period between 1st March 2011 and 27th November 2014. In these transactions, Trokman simultaneously sold and purchased, by means of two accounts under his control, accounts in which he was the only person who acted: one account in his name, and one account in his mother’s name, over which he had a power-of-attorney. The Respondent used to sell and purchase the securities between his accounts, alternately, and in short time gaps, varying from several seconds to several minutes. In doing so, the Respondent influenced the price of the securities in the course of trading on the stock exchange, in that a majority of the trades raised the price of the securities and some of them lowered it. Moreover, the Respondent also influenced trading volumes, since he acted with illiquid securities.

The panel of the Administrative Enforcement Committee approved the Enforcement Arrangement, and held that in the circumstances, the ISA’s decision to enter an Enforcement Arrangement contract was preferable to conducting proceedings, and was in tune with the public interest. The panel reiterated pervious decisions of the Committee’s panels, according to which, influence may be expressed in changing the price of a security, or preventing any change to the price of a security, or indirectly, by influencing the volume of trading. The panel noted, that the sum of the financial sanction imposed on the Respondent in the Enforcement Arrangement was at the lower bar of punitive measures. However, the panel did not believe that the ISA was exceptionally lenient with the Respondent, and accepted the Committee’s stance in previous cases, according to which, as a general rule, the Committee should adopt enforcement arrangements – while reviewing their reasonableness and noting the relevant punitive considerations. The panel noted, in mitigation, that the Respondent had confessed, as well as the fact that he took full responsibility at an early stage of the proceedings, thus contributing to saving precious public resources, and improving the efficiency and efficacy of the process. It is noted, that the panel did not take account of personal circumstances, as these were not supported by evidence.

(b) Administrative File 3/15 The Israel Securities Authority v. Eliyahu Kirstein

On 26th November 2015, a panel of the Administrative Enforcement Committee approved the Enforcement Arrangement between the chairman of the Israel Securities Authority and Eliyahu Kirstein (hereinafter: “Kirstein” and the “Respondent”), signed on 10th September 2015.

The Enforcement Arrangement was signed instead of filing a Statement of Claim and instigating full administrative enforcement proceedings on account of the commission of violations. In the setting of the Enforcement Arrangement, Kirstein admitted the facts and commission of three administrative violations of sale of blocked securities on the stock exchange, contrary to sub-section (1) of Part C of the Seventh Schedule of the Securities Law, shares allocated to him in consideration of his professional services, by a company to which he provided consultancy services. In the setting of the Enforcement Arrangement, Kirstein was subjected to enforcement measures amounting to a financial sanction of 45,000 NIS. In a separate decision, dated 9th December 2015, the panel decided, that the financial sanction could be paid in 15 equal instalments.

The Respondent was active in the capital market, and was a consultant in the field of investment banking and underwriting, through a company he jointly owned with his partner. According to the Enforcement Arrangement, the Respondent acted alone in the company. The Enforcement Arrangement attribute to the Respondent a sale of approx. 433,685 par value Blocked Shares, in three different periods: June-September 2014; September- November 2014; January-February 2015.

A panel of the Administrative Enforcement Committee approved the Enforcement Arrangement, noting that contracting by way of an Enforcement Arrangement reflected carrying out suitable policy, providing an answer to the public interest in enforcement, since Enforcement Arrangements save time and resources, and at the same time contribute to deterrence and save the violator from any delay of justice.

The Committee panel opined, that this case was different from the two previous cases concerning sale of blocked shares, because the Respondent sold shares on the stock exchange which were allocated to him as an offeree in a private allocation, and thus to him as one who undertook personally to abide by the blocking limitations, contrary to the previous cases, in which the violation of the lock up rules was perpetrated by someone who received the blocked shares from an offeree. In light of which, in the panel’s opinion, the fear that the law was unclear did not manifest in this case, since the lacuna in the legislative arrangements pertained to implementation of the lock up rules when shares changed hands. Given that, and in light of his experience and mastery of the capital market, one would expect the Respondent to fully understand the blocking limitations applicable to the securities he received, as well as the advantages that would ensue from breaking them. Moreover, the Respondent was in practice aware that he was selling shares subject to an absolute lock up period. The panel took a severe view of these issues. On the other hand, the panel noted several considerations in mitigation, such as the volume of Blocked Shares he sold, which was significantly smaller than the volume of Blocked Shares sold in previous cases, the Respondent’s admission and the fact that he took full responsibility already at an early stage of the proceedings, a lack of prior violations, and extraordinary personal circumstances related to a close relative’s medical condition. On balance, the panel believed that even though the level of the financial sanction was at the lower end of the bar for enforcement, it was within the bounds of reasonableness, and therefore that the arrangement should be approved. Legal Proceedings Relating to Decisions of the Administrative Enforcement Committee

(a) Administrative Petition 37447-10-13 Africa Israel Industries Ltd. et al v. The Israel Securities Authority et al.

An administrative petition filed under Section 52-61 of the Securities Law, against the decision of a panel of the Administrative Enforcement Committee in Administrative File 1/13 concerning Africa Israel Industries Ltd. (hereinafter: “AFI”), Avraham Novogrodski, Avraham Motola and Alon Harpaz. The petition was filed against the Respondents being held liable for commission of administrative violations, and in the alternative, against the severity of the punitive measures imposed on them (see the 2013 Report). The petitioners submitted claims both against the factual findings made by the panel, and against the panel’s legal conclusions. On 2nd August 2014, the Economic Division of the District Court (HH Justice Ruth Ronen) issued a decision on two preliminary questions (see the 2014 Report). On 28th January 2015 the court rejected the petition with regard to the Respondents’ liability for the violations, and partially accepted it with regard to the punitive measures imposed on AFI, and reduced those.

The facts of the case were that on 24th May 2012 a large scale ceramics deal was signed between Negev Ceramics Ltd. (hereinafter: “Negev”) and a Canadian distribution company, Olympia Tiles International (hereinafter: “Olympia”). On 15th January 2012, AFI made a purchase offer to acquire the shares in Negev held by the public, thus transforming it from a publicly traded company to a private one. At the same time, advanced negotiations were taking place for the abovementioned deal between Negev and Olympia. The information relating to the negotiations was material information, and AFI should have reported it in the purchase offer specifications. Additionally, the purchase offer to the public, made while concealing the information from it, constituted a violation of use of inside information by AFI. The Administrative Enforcement Committee attributed those violations to AFI and AFI’s CEO, Avraham Novogrodski.

A second affair concerned an administrative violation of misleading the Israel Securities Authority. This violation was committed in the setting of correspondence between AFI and the ISA, regarding the immediate report of the deal, in that two letters which AFI sent included misleading details regarding the commencement of the negotiations between the parties. The Administrative Enforcement Committee imposed responsibility and liability for that violation on AFI, Novogrodski, Motola and Alon Harpaz, AFI’s CFO.

The punitive measures imposed by the Committee were financial sanctions in the following amounts: AFI – 5 million NIS; Novogrodski – 400,000 NIS; Motola – 150,000 NIS; Harpaz – 75,000 NIS.

The court decided that owing to the nature of the proceedings, which were an administrative petition, and in light of the purpose of the administrative proceedings, as expressed in the Securities Law, the District Court should only narrowly interfere with the findings of fact, and should only do so when there is a patent error or significant deviation from the boundaries of reasonableness. The court accepted the findings of fact made by the panel in this case, because at the time that AFI published the purchase offer for Negev’s shares to the public, negotiations for a material deal were being conducted between Negev and Olympia. The court found that with regard to the months preceding the purchase offer, in the course of it, and even after it, until the deal was signed, there was an unequivocal, continuous and vigorous discourse between agents of the two companies. Thus refuting the petitioners’ claims, as if nothing happened between Negev and Olympia until the deal was signed in May 2012. In light of which, the court held that the letters sent by the AFI Group and its senior officers to the Israel Securities Authority in reply to a demand for a clarification the ISA requested of them, were misleading, in that they stated that the negotiations between the companies only began in May 2012.

The court rejected the central contention in the petition, that the committee erred when applying the probability-magnitude test when examining the question of whether the information regarding the negotiations which Negev conducted with the Canadian firm Olympia when publishing the purchase offer in January 2012, was inside information. The court adopted the probability-magnitude test, and held that it should be preferred to the second test, adopted by some of the previous judgements in this matter, which is the test of the agreement in principle. The court held that information regarding negotiations in anticipation of a deal could be significant in the reasonable investor’s investment decision, and as a consequence, cause a significant change to the price of the securities, even before it reaches the advanced stage in which the parties agree on all the material details of the agreement, including the price of the transaction. The issue concerned a transaction with significant potential to the company, owing to a significant profit or loss reflected by it, or owing to its strategic importance. In examining the impact of the event on the company, not only quantitative indicators (such as profitability) should be considered, but also qualitative indicators.

The court also made important determinations concerning administrative proceedings. One principle is that the reliability of witnesses may be determined on the strength of written documents and affidavits, without hearing their oral testimony. Another is that in an administrative investigation there is no right against self-incrimination. However, the absence of that right is balanced by the law’s prescription, that nothing said in the course of an administrative investigation may be used against the violator in criminal proceedings for the same action.

As for the sanctions imposed by the committee, the court held that interfering with punitive measures must be limited, and the court would not lightly interfere with the administrative sanction imposed by the Administrative Enforcement Committee. The court would interfere only if a material error befell the committee’s decision. In this case, the court opined that AFI’s punishment should be more lenient, and reduced the financial sanction imposed on it from 5 million NIS to 4 million, because it viewed the violation of use of inside information and the violation of including a misleading detail in the purchase offer specifications, to be two violations that were bound with one another, and in fact constituted “the same deed”.

(b) Administrative Petition 56840-03-15 Gil Gruer v. The Israel Securities Authority et al

The petitioner Gil Gruer filed an administrative petition under Section 52-61 of the Securities Law, against the severity of the punitive measures imposed on him in the setting of Administrative File 2/14 The Israel Securities Authority v. Extra Plastic Ltd. et al (see highlights of the decision in Clause (a) above). On 19th August 2015, the Economic Division of the District Court (HH Justice Ruth Ronen) rejected the petition. The court clarified its ruling regarding the limited interference it shall exact on the findings of fact which a panel of the Administrative Enforcement Committee made. The court clarified that it would not relate in a petition against the severity of the punitive measures imposed, to claims regarding the petitioner’s liability. The court held that it would not interfere with the sanctions imposed by the Administrative Enforcement Committee, so long as they did not exceed the boundaries of reasonableness, and there was no legal error in the panel’s decision; such interference should not be made possible, and the court should not encourage it. Moreover, the court accepted the panel’s conclusion that the violation related to a very material and important issue, since it concerned including a misleading detail regarding a matter that reflected on the liquidity of a company that issued bonds to the public. The court confirmed that the decision of the Administrative Enforcement Committee, according to which a company’s CFO should reasonably ensure that the company’s financial statements be prepared according to accounting principles, and not be in error with regard to material details which were important to a reasonable investor, was reasonable. The court further confirmed that, in the circumstances, the petitioner’s position as CFO was a relevant issue when examining the severity to be attributed to his deeds.

(c) Administrative Petition 55314-07-15 Barak Rosen and Guy Kende v. The Israel Securities Authority et al

The petitioners Barak Rosen and Guy Kende filed an administrative petition under Section 52-61 of the Securities Law, against the decision of the Administrative Enforcement Committee in the setting of Administrative File 3/14 regarding Barak Rosen, Assaf Tuchmeir, and Guy Kende, against holding the petitioners liable for commission of the administrative violation, and in the alternative, against the severity of the punitive measures imposed on them.

At the time this report was sent to print, the petition was still pending.

(d) Administrative Petition 43900-09-15 Upswing Capital Investments 2015 Ltd. and Moti Menashe v. The Israel Securities Authority An administrative petition filed under Section 52-61 of the Securities Law, against the decision of a panel of the Administrative Enforcement Committee in Administrative File 6/14 concerning Upswing Capital Ltd. and Moti Menashe. The petition was filed against holding the petitioners liable for commission of the administrative violations, and in the alternative, against the severity of the punitive measures imposed on them.

At the time this report was sent to print, the petition was still pending.

2. Financial Sanctions

In 2015, 14 financial sanctions were imposed: nine financial sanctions under the Securities Law and/or the Companies Law, four financial sanctions under the Advice Law, and one financial sanction under the Fund Law.

Table 25: Financial sanctions imposed under the Securities Law and/or the Companies Law Violator’s Name Sum of fine Section violated 1 P.C.B. Technologies 108,696 NIS Violation of Sections 239(a) and Ltd. 363a(b)(10) of the Companies Law – absence of two external directors for a period exceeding 90 days 2 Adri-El Israel Assets 35,836 NIS Violation of Sections 239(a) and Ltd. 363a(b)(10) of the Companies Law – absence of two external directors for a period exceeding 90 days 3 Protologics Ltd. 41,040 NIS Section 94(a) of the Companies Law – no chairman serving on the board for a period exceeding 60 days. 4 Holdindes Natural 9,761 NIS Sections 95(a) and 121(c) of the Resources Ltd. Companies Law – controlling shareholder serving as both CEO and chairman of the board without the approval of the general meeting as required at law, for a period of approx. five months 5 E.L.D. Advanced 22,500 NIS Section 239(a) of the Companies Law – no Logistics external directors serving for a period Developments Ltd. exceeding 90 days 6 Widemed Ltd. 30,780 NIS Section 36 of the Securities Law and the provisions of Regulations 7 & 39 of the Reporting Regulations – delay in filing periodic financial statements for 2014 and for Q1 of 2015. 7 W.T.P. Israel (Product 12,240 NIS Section 36 of the Securities Law and the Waste) Ltd. provisions of Regulation 7 of the Reporting Regulations – delay in filing periodic financial statements for 2014. 8 Jobokit Holdings Ltd. 14,040 NIS Section 36 of the Securities Law and the provisions of Regulation 8B(a) of the Reporting Regulations promulgated thereunder – a small corporation’s failure to attach a very significant evaluation to the periodic report for 2014 9 Hanna Mor Holdings 28,675 NIS Section 36 of the Securities Law and the Group Ltd. provisions of Regulation 10(b)(14) of the Reporting Regulations – failure to attach a forecast cash flow to the financial statements for Q3 of 2014.

Table 26: Financial sanctions imposed under the Advice Law Violator’s Sum of Section violated Name fine 1 Harry 36,196 Violation of the provisions of the Advice Law and the Regulation ‎ Sapir NIS of ‎ Investment ‎ Advice, Investment ‎ Marketing ‎ and ‎ Investment‎ Investme Portfolio Management‎ Regulations‎ (Reports)‎ 5772-2012 nt Managem In the course of an audit conducted by the Israel Securities ent Ltd. Authority at the company, two violations of the Advice Law and the Client Reporting Regulations were discovered in connection with managing a client’s portfolio: no written agreement existed as well as no process to explore the client’s needs. Violations were also discovered in connection with details a company must include in its quarterly reports to its clients. 2 Israel 750,000 Violation of the provisions of the Advice Law, and the Leumi NIS Registration Regulations promulgated under it, pertaining to Bank Ltd. exploring client needs.

In the course of an audit conducted by the Israel Securities Authority at the bank during Feb-Jul 2014, violations were discovered that evidence irregular conduct on behalf of the bank in implementing lawful prescriptions. The audit uncovered faults and failings in the bank’s computerised advisory system, which caused faulty execution of the process of exploring client needs and documenting it, faulty performance of the process of exploring client needs by advisors at the bank, and faulty documentation of the advice actions provided by the advisors. 3 Meitav 71,597 Violation of Section 28(b) of Dash NIS the Regulation‎ of‎ Inv‎ estment Advice‎ , Investment Portfolio Marketing and‎ Investment‎ Portfolio‎ Management‎ Law‎ 5755‎ - Managem 1995 ent Ltd. At a meeting with two investment marketers at the company, the marketers presented yield data relating to investment portfolios managed by the company, contrary to the provisions of Section 4 of the directive regarding presentation of yields of managed portfolios to those who are not the owner of the portfolio under management, and publication of the yields. 4 Tamir 44,699 Violation of Section 28(b) of Fishman NIS the Regulation‎ of‎ Investment‎ Advice‎ , Investment Investme Marketing and‎ Investment‎ Portfolio‎ Management‎ Law‎ 5755‎ - nt 1995 Managem ent Ltd. At a meeting with two investment marketers at the company, the marketers presented yield data relating to investment portfolios managed by the company, contrary to the provisions of Sections 3 & 4 of the directive regarding presentation of yields of managed portfolios to those who are not the owner of the portfolio under management, and publication of the yields.

Table 27: Financial sanctions imposed under the Funds Law Violator’s Name Sum of fine Section violated 1 Menora Mutual 52,668 NIS Violation of Section 72(a) of the Funds Law Funds Ltd. and Regulation 20-BB of the Joint Investment Trust Regulations (Reports), 5775-1994

A fund manager was late in reporting an error occurring at a member of the Stock Exchange in classifying the tax of the fund under his management.

Legal proceedings relating to financial sanctions under the Securities Law, the Companies Law and the Prohibition of Money Laundering Law

(a) Administrative Petition 27090-10-2014 Israel Petrochemical Industries Ltd. v. The Israel Securities Authority

The petitioner company filed an administrative petition against the ISA’s decision to impose a financial sanction of 120,000 NIS, under Section 52R of the Securities Law. The financial sanction was imposed owing to a violation of Section 36 of the Law and Regulations 10(b)(14)(A1)(1) and 10(b)(14)(A1)(2) of the Reporting Regulations, in that in the Board of Directors’ report for Q1 of 2013, disclosure of forecast cash flow was absent.

On April 30th 2015, the court rejected the petition regarding the imposition of the financial sanction, and partially accepted it with regard to the size of the fine. The judgement stated, inter alia, that the company violated the regulation in that the information which the investors had was incomplete, and they could not themselves review the manner of exercising the Board of Directors’ discretion in examining the reasonableness of the data before it, as the enactor of the regulations intended them to be able to do. It further held, that the fact that the company erred in interpreting the regulations did not absolve it from liability for the violation, since the violation does not require any mens rea on behalf of the violator. A further determination in the judgement, was that the financial sanction proceedings were designed, as a general rule, for instances in which the alleged violations were clearly violations, and not those which required more extensive factual investigation. However, clear violations could take place also in matters given to judgement and discretion, provided that the anomalous judgement was clear and unequivocal.

The court ordered that the financial sanction be reduced by 30% from the original sum imposed, since these were early proceedings of violating the regulation, and in light of the fact that the violation was rectified by the company.

(b) Various Civil Appeals 40459-10-14 E Broker Trade and Securities Ltd. v. The Chairman of the Israel Securities Authority

An appeal was filed from the decision of the committee to impose a financial sanction of 90,000 NIS on the petitioner company, under Section 14 of the Prohibition of Money Laundering Law, 5760-2000, owing to violations of Sections 11 and 13 of the Prohibition on Money Laundering Order (Identification, Reporting and Keeping Records Requirements by Stock Exchange Members for the Purpose of Preventing Money Laundering and Financing of Terrorism) 5770-2010, and Regulation 4 of the Prohibition on Money Laundering Regulations (Means and Dates for Filing Reports by Banking Corporations and the Entities Outlined in the Third Schedule to the Law, with the Database) 5762-2002 – violations relating to the ongoing monitoring duty and the reporting duty. At the end of the year reported, the appeal was still pending.

6.10. Criminal Enforcement A. General 1. The Purview of the Securities Department in the District Attorney’s Office

The Securities Department in the Tel Aviv District Attorney’s Office (Taxation and Economics) is a designated department the main role of which is prosecuting files investigated by the Investigations, Intelligence & Market Surveillance Department. It has wide ranging and general authority to indict, and it focuses on white collar crime perpetrated in the capital market. The department possesses skills and expertise in securities law violations; expertise in handling cases of securities fraud in general, and trade on the stock exchange in particular. Moreover, it also handles cases which have diverse accountancy and economic aspects. The department has this year accompanied the investigation of a bribery case with significant public interest, the Siemens – Electricity Co. case, and prior to filing the indictment in this case, hearings of the defendants took place at the District Attorney’s Office.

2. Highlights of Activities in 2015

In 2015, the department has conducted an extraordinary number of cases before various judicial instances. Inter alia, three prominent cases of securities fraud – perpetrated through real transactions – were conducted before the Economic Division of the District Court. The Manofim case against Ben-Zaken and Eldar was heard by HH Justice Rosen, and ended with convictions and severe punishments of three years’ incarceration for the main defendants; the Psagot and IDB files were heard by HH Justice Kabub, and are currently awaiting judgement43. Concurrently, for several years now, some complex mega-cases have been prosecuted, Bulus and Noga, and these ended this year with convictions and incarcerations. The main defendants in these cases robbed the coffers of the public companies under their control, doing so while perpetrating many offences. In both cases, the incarceration sentences imposed, were influenced by the significant passage of time between the commission of the offences and the verdict.

Aside these cases, others are still being prosecuted and have not yet ended, some complex cases of corporate offences in public companies – Shahar HaMillennium, T.R.D., and Julex – in which serious crimes and reporting offences are being attributed to the defendants. Furthermore, this year, the principal defendants in the Fox case, Alon Wagner and Danny Bracha were convicted of insider trading offences. Wagner was sentenced to incarceration, despite the fact that in this case too, his sentence was affected by the passage of time. Moreover, the defendant Ilan Morgan was convicted on two indictments, with the commission of many offences of fraudulently obtaining from his clients, and other offences, and was sentenced to a lengthy spell of incarceration. Similarly, Shimon Yamin was convicted and incarcerated for offences of fraudulently obtaining from his clients and other offences, on account of exploiting his customers to purchase securities and unlawfully receiving commissions.

Moreover, the portfolio manager Michael Gavish was convicted and sentenced to a lengthy period of incarceration for his fraudulent activity perpetrated between accounts belonging to several of his preferred clients and the client account of the late Mr. Dov Lautman, RIP.

Guy Maman and Yitzhak Cohen, defendants in separate cases, were portfolio managers at Migdal and Amitim Provident Funds, financial entities that manage investors’ monies, were convicted for committing securities fraud and criminal offences while exploiting the institutional activity for personal gain, through fictitious accounts. They were both sentenced to lengthy incarceration. In both cases, the owners of the fictitious accounts were also prosecuted, for participating in commission of the offences. The Yitzhak Cohen case involved cooperation between the investigative arms of the ISA and the Tax Authority, and the indictment included an income tax offence for the evasion from tax due to income yields regarding the profits gained by securities’ fraud, instead of the capital gains tax paid originally. The defendant confessed to the crimes. The District Court encouraged the approach of the investigative units of the different disciplines cooperating to bring the offenders to justice. The approach of increasing enforcement was also reflected by the inclusion of money laundering offences in securities’ cases, where this approach is justified.

In some of the cases plea bargains were reached at the defendants’ request, immediately after indictments were served, and in others, they were formulated upon defendants' requests in the course of trial. In a significant number of these cases, plea bargains were reached after witnesses were heard, and even after the defendants were cross-examined, with no significant reduction of work load from the department’s efforts. Some of the plea

43 In July 2016 the Tel Aviv District Court (HH judge Kabub) ruled in favour of the prosecution and convicted the defendants Mr. Nochi Dankner and Mr. Strom in all the offences. bargains involved merely amending an indictment, in a manner that made it easier for the defendants to confess, and in some, a limited reduction or discount of the punishment was agreed on, taking into account the stage which the proceedings had reached, and the circumstances of the case. When reaching plea bargains the department takes into consideration the principles of punishment relevant to economic offences, the public value of a voluntary confession of a defendant and its contribution to the finiteness of the criminal proceedings and efficiency of criminal enforcement.

This year, in addition to the first instance judgements, four judgements on appeal were also handed down by the District Court and the Supreme Court. In the setting of these cases, important precedents were laid down. In the Abojan case, an insider trading case, determinations were made on several matters of principle, including: Adopting the “Expectation” test to determine the date on which information becomes “inside information”, thus determining that the significance of the information, has an impact upon the timing of the consolidation of inside information; discussion and examination of the benefit accrued to the defendant from perpetrating the insider trading offence, analysing the issue of the theoretical profits and the manner of calculating the profits gained by the defendant, analysing the distinction between an “opinion” and “inside information” with regard to Section 52D of the Securities Law, conviction on the strength of circumstantial evidence, and more. In the Peled Givoni case, in which judgement was handed down shortly after 2015, precedents were set on subjects of theft by misappropriation, corporate governance, identifying a controlling shareholder, economic punitive measures, and more. In other cases, trends in economic punishment were discussed, including levels of fines and the “in lieu of fine” component.

To contribute to the efficacy of complex investigations conducted by the Investigations, Intelligence & Market Surveillance Department, this year, complex investigations were supported by the District Attorney’s Office. Accompanying the investigations in the Siemens – Electricity Co. case and the Bramli-Kela Fund case, facilitated efficient progress of the cases at the stage of drafting the indictments.

3. Highlights of Activities Planned for 2016

This year the department will have to conduct its court cases and at the same time advance new cases investigated. The department will strive to find a balancing point between the cases presented at court, and the files being prepared for indictments.

Additionally, the department will continue to promote integrated economic enforcement, including seizures and forfeitures, to generate real deterrence in the capital market.

The department will continue to strengthen the professional training of its prosecutors. B. The Department’s Activities 1. Indictments

Following investigations conducted by the ISA, the Securities Department in the Tel Aviv District Attorney’s Office (Taxation and Economics) filed four indictments in 2015.

(1) In January (Tevet 5775) An indictment against Ilan Morgan was filed with the Economic Division of the District Court in Tel Aviv, attributing him a list of serious offences amongst which were fraudulent inducement, aggravated obtaining by fraud, and money laundering offences. According to the indictment, Morgan purchased shares of inactive and empty Canadian companies founded by him – Prudential and Global Capital, for clients of the Apollo Investment House he owned. The shares were traded on the Frankfurt Stock Exchange, and sold to clients from Morgan’s private accounts. Morgan presented to the clients and to the portfolio manager in Apollo, forged documents, while concealing his affiliation to these companies. In doing so, Morgan caused Apollo's clients significant financial losses, while on the other hand, he pocketed hundreds of thousands of Euros. The indictment further claimed that despite the limitation imposed on him, owing to a criminal case being prosecuted against him at the same time before the Magistrate’s Court, Morgan concealed from the Israel Securities Authority the fact that he was an officer at Apollo, and made misrepresentations to the ISA, according to which he had no involvement with the companies.

Morgan was ordered to stay under house arrest, and since he failed to comply with the terms that were imposed on him, he was arrested a short while after the indictment was filed.

(2) In January (Tevet 5775)

An indictment against Yitzhak Cohen was filed with the Economic Division of the District Court in Tel Aviv. Cohen, the manager of the Share Division in “Amitim – The Veteran Pension Funds” was attributed commission of the following offences: Securities manipulation under Section 54(a)(2) of the Securities Law, two counts of aggravated obtaining by fraud under Section 415 of the Penal Law, an offence of fraud and breach of trust in a corporation under Section 425 of the Penal Law, and an offence under Section 3(a) of the Prohibition of Money Laundering Law. Together with Cohen, the indictment attributed to his sister and brother-in-law, Keren and Joseph Garchikov, jointly committing an offence of fraud and breach of trust in a corporation, and an offence of money laundering. In the setting of a plea bargain, the indictment was amended: Charges against Keren Garchikov were dropped, and Joseph Garchikov was charged with aiding and abetting fraud and breach of trust in a corporation, and with an offence under Section 3(b) of the Prohibition of Money Laundering Law. Moreover, in the setting of the amendment, a tax charge was added against Yitzhak Cohen, for offences under Section 220 of the Income Tax Ordinance. According to the facts of the indictment, Cohen harnessed Amitim’s accounts, in which pension savers’ funds were managed, for the benefit of generating profits for himself and his family, in that before executing a purchase of shares for Amitim, Cohen purchased the same shares to his own account. After executing massive purchases for Amitim’s accounts, Cohen sold the same shares for a higher price, in many instances directly into Amitim’s savers’ accounts, through purchases made by him as well. Cohen performed this activity in breach of the trust laid in him, adversely affecting savers’ funds, and influencing the price by deception. Aside from which, Cohen did not report his securities income to the Tax Assessor, as required. Joseph Garchikov also failed to report Cohen as a beneficiary in an account, and permitted Cohen to act from his account and to withdraw the profits of the deception, even though he knew that Cohen was not permitted to hold and purchase securities for himself, and he, moreover, also benefited from the profits himself.

(3) In February (Shvat 5775)

An indictment was filed against Guy Maman, and his friend Yuval Peleg, with the Economic Division of the Tel Aviv District Court, attributing them offences of giving and taking a bribe under Sections 290-291 of the Penal Law, jointly committing offences of securities manipulation under Section 54(a)(2) of the Securities Law, obtaining by fraud under Section 415 of the Penal Law, breach of trust in a corporation under Section 425 of the Penal Law, and money laundering offences under Sections 3(a) and 3(b) of Prohibition of Money Laundering Law. According to the indictment, Guy Maman, who was a portfolio manager at Migdal Pension Funds, and thus a public servant, acted jointly with his friend Yuval Peleg to perpetrate hundreds of fraudulent transactions between Migdal’s accounts and Peleg’s private accounts. In doing so, they generated profits for their own benefit, while Maman was under a conflict of interests, abused his control and knowledge by virtue of his position at Migdal, and concealed his activities from Migdal and his affiliation to Peleg’s accounts. Peleg allowed Maman to use his accounts for the deception, funded the activity, and transferred half of the profits to Maman, while concealing Maman’s affiliation to the accounts.

(4) In December (Kislev 5776)

An indictment was filed against Ido Nisentzvaig and Yaakov Barzilai, former order executors at Excellence’s trading room, with the Economic Division of the District Court in Tel Aviv, attributing to them hundreds of offences of theft by a licensee under Section 393 of the Penal Law, hundreds of offences of securities manipulation under Section 54(a)2 of the Securities Law, offences of registering a false entry in the books of a corporation, fraud and breach of trust in a corporation and money laundering. Nir Sharabi and Gal Ehrlichman were charged together with Nisentzvaig and Barzilai with offences of registering a false entry in the books of a corporation, fraud and breach of trust in a corporation, and money laundering. According to the indictment, Nisentzvaig and Barzilai opened fake bank accounts in the names of their friends, Sharabi and Ehrlichman, and used them to perpetrate fraudulent activity between the fake bank accounts and Excellence’s client accounts, which were under their control. By means of the fraudulent activity, which involved hundreds of wash trades and matched orders, Nisentzvaig and Barzilai stole approx. 480,000 NIS from clients.

2. Files Closed in 2015

In the year reported, the Securities Department closed five investigation files, of which one was conditionally closed – the Delek Real Estate case.

Delek Real Estate

In August (Av 5775) a conditional agreement was signed to conclude proceedings with Hilel (Ilik) Rozanski and Delek Real Estate Ltd. As detailed in the agreement, the parties agreed on the following facts: Rozanski was at the relevant times the CEO of Delek Real Estate, and its subsidiaries. Over the course of January 2009, Rozanski approached the surveyor who conducted the fair value evaluation (hereinafter: "FVE") of one of the company’s main assets – holdings in 130 parking lots in the UK – for the purpose of its financial statements for 2007. Rozanski asked the surveyor to prepare a new FVE of the parking lots for the company’s financial statements for 2008. The surveyor gave Rozanski a first estimate, according to which the new FVE is expected to be lower than the one received the year before. Rozanski tried to convince the surveyor that the new FVE should not be reduced. Having failed to do so, Rozanski contacted a different firm of surveyors, and asked them to issue an FVE for 2008, which would be as close as possible to the FVE of 2007. The new firm provided the FVE as requested, and it was attached to the company’s financial statements for 2008.

In 2009 the Israel Securities Authority preformed an inspection of Delek Real Estate’s financial statements. One of the conclusions of the inspection was that the 2008 FVE was not reasonable. Simultaneously, Delek Real Estate contacted the ISA with a request to approve a prospectus which referred to the 2008 financial statements. In the process of reviewing the prospectus by the ISA, Rozanski was questioned as to the reasons the firm of surveyors was changed between 2007 and 2008. Rozanski replied that the previous surveyors could not perform the 2008 FVE due to time constraints. To allay the staff’s concerns, Rozanski knowingly failed to disclose to the ISA the material facts that led to the replacement of the surveyor, and failed to inform the ISA that the first surveyor he addressed informed him of an expected reduction in the new FVE of the parking lots, and the fact that the surveyor refused to prepare an appraisal to match the value requested by the company.

In the setting of the arrangement, it was agreed that the District Attorney’s Office would not serve an indictment regarding Rozanski and Delek Real Estate. Rozanski pledged to pay a sum of 720,000 NIS, and undertook not to serve as a senior officer in a supervised entity for a period of eight months. Delek Real Estate pledged to pay a sum of 1,080,000 NIS.

3. Criminal Files Pending before the Courts

At the year’s end, the following cases were pending before the courts:

1. 22 criminal trials at first instance44, of which 15 had ended with judgement and in 12 sentencing has been passed;

2. 25 appeals in appellate courts before the District Court and the Supreme Court.

4. Judgements at First Instance

Over the course of the year, 15 judgements were handed down in courts of first instance:

(1) Ilan Morgan – Criminal Case 16048/09 and-

(2) Criminal Case 32220-04-15

In March (Adar 5775) Ilan Morgan was convicted as part of a plea bargain following his confession. The Economic Division of the District Court (HH Justice C. Kabub) consolidated Morgan's two cases into the amended indictment. On the first indictment, Morgan was attributed offences of aggravated obtaining by fraud, an

44 Two indictments were filed against Ilan Morgan. offence of theft by an authorised person, managers’ and employees’ offences, offences of breach of trust and fraud in a corporation, offence of Money Laundering. Morgan recruited investors from the Jewish Ultra-Orthodox community, promising them extraordinary and unrealistic yields of 24%-36% per annum. Morgan presented false presentations to the investors, according to which the investments were risk free, backed by guarantees amounting to the full sum of the investment, and supervised by a lawyer and an accountant. In practice, the promises had no grounding in reality, and were merely intended to deceive the investors. The second indictment attributed serious offences to Morgan, amongst which were fraudulent inducement, aggravated obtaining by fraud, and money laundering offences. According to the indictment, Morgan purchased, for clients of the Apollo Investment House which he owned, shares in inactive Canadian companies – Prudential and Global Capital – which he was standing behind. These shares were traded on the Frankfurt Stock Exchange, and sold to clients from Morgan’s private accounts. Morgan presented to the clients and to the portfolio manager in Apollo, forged documents, and concealed his affiliation to those companies from them. In doing so, Morgan caused the clients significant financial losses, while he himself gained hundreds of thousands of Euros. The indictment further claimed, that Morgan concealed the fact that he was an officer in Apollo from the Israel Securities Authority, despite the limitation imposed on him, owing to a criminal case being prosecuted against him at the same time in the Magistrate’s Court, and he provided the ISA with false presentations, according to which he had no involvement with the companies. In the setting of the plea bargain, Morgan pleaded guilty to another indictment filed in 2009. Morgan was sentenced to 68 months’ incarceration, a fine of 25,000 NIS or two months’ incarceration instead, and compensation of two million NIS.

(3) David Oron (Ya’ad) – Criminal Case 62657-07-14

In March (Adar 5775) the Economic Division of the District Court (HH Justice C. Kabub) sentenced David Oron. Oron was convicted as part of a plea bargain in which he admitted to one count of aggravated obtaining by fraud under Section 415 of the Penal Law, one count of fraud and a breach of trust in a corporation under Section 425 of the Penal Law, and one count of falsely reporting under Section 36 of the Securities Law. Oron was the controlling shareholder of a public company – Ya’ad Industrial Representatives Ltd. - and was its actual manager in the relevant years. Oron ordered two managers in the company to transfer approx. one million NIS from the company’s accounts, while falsely presenting to them that the sum will be invested in an investment house. In practice, the sum was transferred to a currency service providing company, which in turn transferred it directly to Oron. The sum was repaid to the company about four months after these events, following an investigation by the company’s auditors in anticipation of publishing the financial statements for Q2 2009. Oron further confessed to ordering Ya’ad’s CEO to transfer a sum of about 115,000 NIS to an interested party in Ya’ad, in anticipation of a vote at a shareholders meeting, to approve a transaction in which Oron had a personal interest. The court stated that the deeds for which Oron was convicted were at the high bar of severity as far as violating the norms required by proper corporate governance. The court sentenced Oron to eight months’ incarceration, a suspended incarceration sentence, and a fine of 5,000 NIS (owing to financial dire straits). The defendant appealed his sentence to the Supreme Court. The Supreme Court, due to an agreement between the parties, based on new information re Oron’s personal situation, decided to reduce the incarceration to five months, to be served behind bars.

(4) Omer Levavi (Kim-Nir) – Criminal Case 1050-09

In April (Iyar 5775) the Tel Aviv Magistrate’s Court (HH Justice A. Porag) sentenced Omer Levavi, after he was convicted for the following offences: Theft by a manager under Section 392 of the Penal Law, managers’ offences under Section 424 of the Penal Law, aggravated obtaining by fraud under Section 415 of the Penal Law, breach of trust in a corporation under Section 425 of the Penal Law, registering false entries in a corporation’s documents under Section 423 of the Penal Law, and reporting offences under Section 53(a)(4) of the Securities Law. Levavi, who was one of the controlling shareholders in Chim-Nir and served as the CEO of the Chim-Nir Group’s overseas subsidiaries, was convicted of misappropriating the funds of a public company and withdrawing hundreds of thousands of USD from the public company’s account, for his own private needs, concealing the withdraws by falsely and fraudulently classifying them in the company’s financial statements, so that it appeared as if these were deposits withdrawn from the company’s account in the ordinary course of business. The monies stolen were worth approx. one half of the public company’s equity at the time. The court sentenced Levavi to 17 months’ incarceration, a suspended sentence, and a fine of 700,00o NIS or one year in jail in lieu thereof. Both the verdict and the sentence were appealed by the parties to the Tel Aviv District Court.

(5) Michael Gavish – Criminal Case 4130-09

In June (Sivan 5775) the Tel Aviv Magistrate’s Court convicted the portfolio manager Michael Gavish on a long list of offences of theft by an authorised person, securities fraud, false reporting, and forgery. The offences were committed when Gavish was the portfolio manager for the late Dov Lautman, RIP. Gavish was convicted for executing hundreds of round-tripping transactions between Lautman’s accounts and the provident funds belonging to the Mizrahi-Tefahot Bank, and Meretz Investment’s suspense account. All the transactions were for prices that generated a profit for the suspense account, and losses for Lautman and the provident funds, and at the end of each day, Gavish attributed all the profitable transactions from the suspense account to several preferred clients. Additionally, Gavish was convicted for securities fraud, in that he perpetrated dozens and hundreds of transactions in the shares of Formula Vision, between Lautman’s various accounts, aimed to raise the price of the share. Moreover, on the last day of each month, Gavish used to rig the price of the share by purchasing a large quantity in aggressive buying at inflated prices into Lautman’s accounts. In this way Gavish presented to Lautman that his accounts were yielding high profits. As a result of the fraud, Formula Vision shares became the major security held in Lautman’s accounts, and to conceal that fact, Gavish sent forged reports which misrepresented the true holdings of Lautman's accounts, and falsely indicated that the accounts were holding less shares than they really have.

In September (Tishrei 5776) the court sentenced Gavish to five years’ incarceration, a suspended sentence, and a fine of 150,000 NIS.

(6) Simon Yamin – Criminal Case 47264-11-13 In June (Sivan 5775) the Economic Division of the District Court (HH Justice C. Kabub) sentenced Simon Yamin. Yamin was convicted, as part of a plea bargain, for dozens of aggravated counts of fraudulently obtaining, and receiving unlawful incentives in connection with portfolio management under the Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law. Yamin’s confession was given at trial, after a mediation process. Yamin, the CEO and controlling shareholder of a portfolio management company named Etgarim, admitted that from 2008 to 2011 he purchased securities for his clients in eleven separate instances, while receiving unlawful commissions in the total sum of about 1.25 million NIS, without his clients’ knowledge. In two instances Yamin obtained the unlawful commissions by paying the sellers of securities a higher price, directly from his clients’ account. Yamin was further convicted of presenting misrepresentations to his clients, and causing them to purchase securities in a limited partnership “Cinema Movie Investment Trusts”. Yamin concealed from his clients the fact that in consideration of the purchases they executed, and with no pecuniary investment on his behalf, he received ownership of the private company that managed the partnership, and a list of benefits, amongst which were partnership securities and rights to future profits in it. The court sentenced him to 22 months’ incarceration, a suspended incarceration sentence, a fine of 75 thousand NIS, and compensation for the injured parties in the sum of 500 thousand NIS. The court further ordered three private companies owned by Yamin – Etgarim Finance, Etgarim Pensions, and Forecast – which were also convicted of fraudulently obtaining and of receiving unlawful incentives in connection with portfolio management, to pay fines worth 75 thousand NIS in total. Yamin has appealed the sentence to the Supreme Court.

(7) Alon Wagner – Criminal Case 21548-06-10

In July (Tamuz 5775) the Tel Aviv Magistrate’s Court convicted the portfolio manager Alon Wagner for offences of insider trading originated from an insider (Section 52d). The inside information related to negotiations conducted in November 2004 between the fashion house Fox and Mamorand, a private company owned by Lev Leviev, relating to setting up a joint chain of stores in Russia, and Leviev’s investment in Fox. Wagner was also convicted of offences under Sections 4(a) and 4(b) of the Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law, 5755-1995. Wagner, on several occasions, purchased Fox's shares worth 427,225 NIS for himself and his clients, following information he received from Nadav Greenspan, who conducted the negotiations on behalf of Mamorand.

Danny Bracha, was also convicted of an offence of insider trading originated from an insider (Section 52d). Bracha, who was a portfolio manager, received inside information relating Fox's and Memorand's negotiation from Ravit Tal, Fox's CEO secretary. Following this information, Bracha purchased Fox’s shares in the sum of 102,000 NIS for his clients. Bracha was acquitted of an offence attributed to him relating to an earlier purchase. Ravit Tal and her father, Yitzhak Frenkeltal, were acquitted of the offences attributed to them, because of doubt. In January (Tevet 5776) the court sentenced Wagner to seven months’ incarceration, a suspended sentence, and a fine of 120,000 NIS. Bracha was sentenced to four months’ incarceration to be served as community service, a suspended sentence, and a fine of 15,000 NIS. (8) Ronen Efraim Crystal (Julex) – Criminal Case 40610-12-09

In September (Elul 5775) the Magistrate’s Court (HH Justice M. Barak-Nevo) convicted Ronen Crystal, on his own confession – in the setting of a plea bargain – for the following offences: Theft by a manager under Section 392 of the Penal Law, aggravated obtaining by fraud under Section 415 of the Penal Law, two counts of fraud and breach of trust in a corporation under Section 425 of the Penal Law, two counts of managers’ offences in a corporation under Section 424 of the Penal Law, and 4 reporting offences under Section 53(a)(4) and Regulation 36 of the Securities Regulations (Periodic and Immediate Reports) and the controlling shareholder regulations.

Crystal’s confession was given at the trial stage. According to the amended indictment, Crystal, who was the controlling shareholder in a public company named Julex, began in May 2008, to unlawfully withdraw about 3.5 million NIS from the company’s accounts, for his on private needs, some by cheques drawn on the company’s accounts and some by wire transfers from the company’s accounts to his own accounts, or to the accounts of persons close to him. Additionally, the defendant secured financial guarantees worth 4.1 million NIS from the company, on account of financial obligations he was supposed to bear personally, and not out of the company’s funds, concealing this from officers in the company. The defendant also failed to report the money withdraws and the issue of the guarantees. The sentencing hearing was fixed for February 2016.

(9) Guy Maman – Criminal Case 10571-02-15

In September (Elul 5775) Guy Maman was convicted, on his own confession – in the setting of a plea bargain – for the offences of taking a bribe under Section 290 of the Penal Law, multiple counts of securities manipulation under Section 54(a)(2) of the Securities Law, multiple counts of aggravated obtaining by fraud under Section 415 of the Penal Law, and money laundering offences under Sections 3 and 4 of the Prohibition of Money Laundering Law. Maman admitted that he managed the share portfolio in the Migdal pension fund account, and enjoyed the status of a public servant. Maman confessed that he worked jointly with his friend Peleg to execute hundreds of fraudulent transactions between Migdal’s accounts with which he was trusted, and Peleg’s private accounts, and further admitted that he was in a conflict of interests, which he concealed from his employers at Migdal, and that he abused his position in Migdal, as well as Migdal’s purchasing power, to perpetrate those fraudulent transactions. According to his confession, he received half of the profits of the activity in Peleg’s account, inter alia, by means of a new Jeep purchased for him, the financing of family vacations, wire transfers and the use of a credit card from the account. Maman admitted that through these transactions, he and Peleg pocketed profits of more than 10.9 million NIS. Maman was sentenced to 44 months’ incarceration, a suspended sentence, and a fine of 500,000 NIS.

(10) Amitay Mazliach – Criminal Case 64963-12-14

In October (Tishrei 5776) the Magistrate’s Court (HH Justice L. Margolin) convicted Amitay Mazliach, on his own confession – in the setting of a plea bargain – on an amended indictment. He was convicted of committing theft by a licensee under Section 393 of the Penal Law, aggravated obtaining by fraud under Section 415 of the Penal Law, and two counts of fraud and breach of trust in a corporation under Section 425 of the Penal Law. Mazliach, a former trader in the foreign securities trading room at the investment house Excellence Nesua, used to execute securities transactions into the concentration account, per his own discretion, and without instructions from clients. After which, and according to the outcomes of the transactions, Mazliach attributed the transactions to various accounts, so that profitable transactions were attributed by him to an account in the name of persons close to him, and loss making transactions were attributed by him to accounts of various company clients. In doing so, Mazliach generated profits of about 120,000 NIS in his crony’s accounts, and losses amounting to about 440,000 to accounts belonging to the company’s clients. The sentencing hearing was fixed for March 2016.

(11) Jacky Ben Zaken et al (Manofim) – Criminal Case 4312-10-13

In November (Heshvan 5776) the Economic Division of the District Court (HH Justice D. Rosen) passed sentence on Jacky Ben Zaken and Eitan Eldar, after they were convicted on seven counts of securities manipulation under Section 54(a) of the Securities Law and Section 29(b) of the Penal Law, an offence of conspiracy to commit a crime under Section 499 of the Penal Law, and one count of obtaining by fraud under Section 415 of the Penal Law. Manofim Finances Ltd., in which Ben Zaken was a director, and Arena Capital, a company owned by Eldar, were each convicted of seven counts of securities manipulation under Section 54(a) of the Securities Law, and one count of severe fraud under Section 415 of the Penal Law.

According to the court's findings, Ben Zaken and Eldar conspired to fraudulently influence the price of Manofim’s shares, by purchasing Manofim shares in the course of trading on the stock exchange, with the aim of causing the share to be eligible to be included in the Tel Aviv 100 Index at the relevant date for updating that index in November 2010. In the setting of the conspiracy, Eldar was responsible for purchasing Manofim shares in the course of trading on the stock exchange in order to raise the share price, and Ben Zaken was charged with locating a person that would purchase Manofim’s shares from Eldar in the course of the activity, thus providing Eldar with the funds he needed to continue his activities. As a consequence of the defendants’ fraudulent plan to raise the price of the share, the price of Manofim’s shares indeed went up, and it meet the criteria for inclusion in the Tel Aviv 100 Index. The court held, that the defendants perpetrated the offence of severe fraud, in that they secured the Stock Exchange’s approval for inclusion on the index in concealment of their fraudulent activity.

Coincidentally, the court acquitted Zvi Kolenbrener, a capital market trader, for reasonable doubt. The court held that Kolenbrener was aware of the fraudulent conspiracy and even aware of the part he was designed to play in it, but he did not act as agreed, since he sold the shares he was holding instead of participating with Eldar in the purchasing actions designed to raise the price of the share. The court further acquitted Eldar and Kolenbrener, for the benefit of doubt, of another offence, in which they were charged with fraudulent actions with the Manofim share, in the period between the notice that it was expected to be included on the Tel Aviv 100 Index, and the date it was actually so included. In the sentence, the court held that the gravity of the defendants’ actions flowed from the fact that they “prejudiced the activities of public institutions, such as pension and savings funds, which manage monies on behalf of a large public, funds running into the many hundreds of millions of NIS, funds belonging to innocent citizens placing their trust in savings funds, for security in harsh times, and for the purpose of securing their future when they retire at old age.”

The defendants Eldar and Ben Zaken were each sentenced to 36 months’ incarceration, a suspended sentence, and a fine of 250,000 NIS. The court imposed a fine of 250,000 NIS on each of Manofim Finances and Arena Capital. An appeal was filed regarding the fines, which is still pending before the Supreme Court (Criminal Appeal 8900/15). Appeals filed to the supreme court by The defendants Ben Zaken and Eldar are also pending.

(12) Yitzhak Cohen – Criminal Case 5398-01-15

In December (Tevet 5776) the Economic Division of the District Court (HH Justice C. Kabub) passed sentence on Yitzhak Cohen, after he confessed, in the setting of a plea bargain, and was convicted for many offences of securities fraud, aggravated obtaining by fraud, fraud and breach of trust in a corporation, an offence under Section 3(a) of the Prohibition of Money Laundering Law, and offences under Section 220 of the Income Tax Ordinance. The court also sentenced Adv. Joseph Grachikov, Cohen’s brother-in-law, who was convicted for aiding and abetting fraud and breach of trust in a corporation, and a money laundering offence, also in the setting of a plea bargain. In the period relevant to the indictment, Cohen perpetrated fraudulent actions with the accounts at “Amitim – The Veteran Pension Funds”, an entity at which he was the manager of the share division. The framework of the activity was such, that before he would purchase shares for Amitim, Cohen would purchase the same shares, at a lower price, into private accounts under his control. Later, after the share price had risen as a consequence of the massive purchases of those shares into Amitim’s account, he sold the shares from his private account at the higher price, and in many instances he even sold the shares directly to Amitim’s accounts, in matched transactions. In doing so, Cohen fraudulently generated profits of approx. 7.7 million NIS, when some of those profits were made at the expense of the funds managed by “Amitim”. Moreover, in light of the characteristics of the actions he took, Cohen should have reported the profits as income from a profession, which he failed to duly do, thus evading full tax on those profits. Adv. Joseph Grachikov enabled Cohen to act from him account, and to withdraw the fraudulent profits, and even enjoyed some of those profits himself. The court held in the setting of sentencing, that the defendant’s actions grossly violated the public’s trust in entities managing pensions and savings’ funds, and constitute a gross violation of the basic principles underlying an efficient, developed, fair, and prosperous capital market. The court further held that from that point on, defendants in securities offences should be advised that they can expect to be indicted also for tax offences, because of the paramount importance of the public interest in equally sharing the tax burden, and the significance that payment of taxes holds to the State’s treasury. This was the first case in which a defendant was convicted for tax evasion as a result of actions with securities. The court sentenced Cohen to 36 months’ incarceration, 1,500,000 NIS in compensation to Amitim, a suspended sentence, and a fine of 50,000 NIS. Grachikov was sentenced to 6 months’ incarceration to be carried out in community service, a suspended sentence, and a fine of 700,000 NIS.

(13) Eliyahu Uzan – Criminal Case 4392-06

In December (Tevet 5776) the Tel Aviv Magistrate’s Court (HH Justice Y. Pradelsky) passed sentence on Eliyahu Uzan. In May 2014, Uzan was convicted upon his confession, in the course of a lengthy trial, to offences of theft by a manager under Section 392 of the Penal Law, aggravated obtaining by deceit under Section 415 of the Penal Law, offences of fraud and breach of trust in a corporation under Section 425 of the Penal Law, offences of entering false entries in a corporation’s books under Section 423 of the Penal Law, offences of failure to comply with the provisions of Section 36 of the Securities Law and the Controlling Shareholder Regulations under Section 53(a)(4) of the Securities Law, and offences of misleading reporting under Section 53(a)(4) of the Securities Law. Uzan was the controlling shareholder of a public company called Noga Electrotechnica, was the CEO of, and director in, a company called Noga, served as the chairman of the Board of Directors of Noga Technologies, the CEO of Noga Real Estate, and the joint CEO and chairman of the board in Noga Industries. Uzan was convicted on account of an affair of misappropriating the funds of the Noga Group, theft of millions of NIS from the company in the course of 2001-2002, making misrepresentations to the company’s finance personnel and accountants with regard to the monies he unlawfully withdrew, and including misleading details and false reports in the financial statements, with regard to those same withdraws. The court sentenced Uzan to 23 months’ incarceration, a suspended sentence, and a fine of 550,000 NIS or 20 months’ incarceration in lieu thereof. The court held that the defendant grossly violated the values which the offences were there to protect, since for a lengthy period of time he abused the trust placed in him as a chairman of a board and a CEO of a public company, and a controlling shareholder, when he committed the offences for which he was convicted. The court further held that as a result of his actions, significant damages occurred both to the Noga Group and to the investing public.

(14) Michael Barzel (T.R.D.) – Criminal Case 3933-08-10

In December (Tevet 5776) the Magistrate’s Court (HH Justice M. Barak-Nevo) convicted Michael Barzel (Defendant No. 3) on his confession – in the setting of a plea bargain struck in the midst of trial – for two offences: An offence of failing to file an immediate report with the intention of deceiving a reasonable investor under Section 53(a)(4) of the Securities Law, and an offence of including a misleading detail in a financial statement with the intention of deceiving a reasonable investor under Section 53(a)(4) of the Securities Law.

According to the amended indictment, Barzel served as an advisor for the company’s IPO, and in that role, together with Zvi Davidovitch and Israel Ramot (Defendants 1 & 2 on the indictment), the controlling shareholders in the company, participated in drafting the prospectus. After the IPO, Barzel was given 39 million NIS of the raised capital, to manage as the company’s investment portfolio. In the course of Q3 2006, the company’s investment portfolio lost a total of 6.4 million NIS. Barzel, together with Ramot and Davidovitch, ignored the legal advice of the company’s lawyer and decided not to report the loss in an immediate report. Additionally, after the balance date of Q3 2006 had passed, the company suffered a further loss of 14.4 million NIS. The loss was not mentioned amongst the post-balance-date event notes, in the of the Q3 financial statements, since the defendant, together with Ramot and Davidovitch, concealed the extent of the loss from the accountants.

The sentencing hearing has been set for February 2016. The case against Defendants 1 & 2 is still pending.

(15) Bolus – Criminal Case 40136/05

In December (Tevet 5776) the District Court (HH Justice A. Modrik) convicted Yaakov Bolus with theft of 10 million NIS, entering a false entry in a corporation’s books, and using a forged document designed to conceal the theft. In addition, the court convicted Yaakov Bolus and his son-in-law, Azmi Nashashibi, with misleading reporting, in that they concealed, for a period of 18 months, the developments occurring in the 10 million NIS arbitration suit running against the Bolus Group, and that they obtained the Stock Exchange’s approval to issue Bolus Tourism, by deception. The court acquitted the auditors of offences of misleading reporting. In January this year, the District Court passed sentence on Yaakov Bolus and imposed 21 months’ incarceration, a suspended sentence, and a fine of one million NIS or 18 months’ suspended for three years, in lieu thereof. Azmi Nashashibi received six months’ community service, a suspended sentence, and a fine of one million NIS. The court gave significant weight to the fact that the offences were committed in 2000-2001, and the fact that the principal defendant, Ibrahim Bolus, passed away in the course of the trial.

5. Criminal Appeal Judgements

(1) In the course of this year, one judgement was handed down in a criminal appeal by the District Court:

A. Alon Naor – Criminal Appeal 27730-08-14

In March (Adar 5775) Alon Naor’s appeal was heard by the District Court. Naor was convicted by the Magistrate’s Court for offences of securities manipulation, obtaining by fraud, and theft by an authorised person, on account of fraudulent activities he perpetrated with accounts belonging to investors who gave him permission to act on their behalf. Naor appealed the verdict and the sentence. At the recommendation of the District Court, Naor withdrew his appeal against the verdict. The court accepted the appeal from sentence, and reduced the 52 months’ incarceration imposed on him, to 34 months’ incarceration. In addition, a suspended sentence hanging over Naor’s head from a previous trial in which he was convicted, was activated. In total, Naor was ordered to serve 42 months’ incarceration (3.5 years). In addition, the District Court quashed the component of compensation imposed on Naor by the Magistrate’s Court.

(2) In the course of this year, four judgements were handed down in criminal appeals by the Supreme Court:

A. Ilan Ofir – Criminal Appeal 6799-14 In March (Adar 5775) Ilan Ofir’s appeal was heard by the Supreme Court. Ofir was convicted by the District Court in the course of his trial, upon his confession in the setting of a plea bargain, with the offences of obtaining by fraud, fraud and breach of trust in a corporation, and offences of reporting with intent to mislead. According to the indictment on which he was convicted, Ofir concealed his personal interest in transactions which were approved by two public companies in which he was a controlling shareholder and an officer. Inter alia, Ofir concealed the fact that his father served as the CFO in one of the companies with which the public company contracted. Ofir further concealed the fact that he had an interest in that company, by virtue of his holdings. Ofir further concealed material financial interests he had in both transactions put for the approval of the public companies. In the setting of the plea bargain, the parties agreed a punishment range of 3-9 months, and the District Court (HH Justice C. Kabub) imposed on him eight months’ incarceration and a fine of 100,000 NIS. Also convicted, was a company named World Group (in liquidation), and in the setting of a plea bargain it received a fine of 70,000 NIS. On appeal, it was claimed that the punishment meted out to Ofir was not proportional, that the court related to facts which were not included on the amended indictment, and that the punishment exceeded current policy. The court rejected the appeal, and left the punishments standing, holding, inter alia, that the court lawfully examined the suitable punitive range, since that was a necessary factor in examining the reasonableness of the plea bargain. It further held that the policy of punishing economic offences severely was not new, and was in effect also at the time in which the deeds were committed, and in any event, one must refer to punitive policy at the time of sentencing, and not at the time crimes are committed. The court further rejected the claim that the passage of time justified a more lenient sentence, inter alia, in light of the lengthy time involved in exposing complex economic offences, and owing to the defendant’s part in the proceedings dragging out.

B. Amnon Barzilai – Criminal Appeal 7159-13

In March (Adar 5775) Amnon Barzilai’s appeal was heard. The appellant was convicted by the District Court upon his confession, in the setting of a plea bargain struck in the course of the trial, with the following offences: Aggravated circumstances of obtaining by fraud under Section 415 of the Penal Law, breach of trust in a corporation under Section 425 of the Penal Law, and five counts of reporting offences under Section 53(a)(4) of the Securities Law. The appellant was sentenced to six months’ community service and a fine of 1.8 million NIS. The Supreme Court rejected the appellant’s appeal regarding the level of the fine, and left it standing, but reduced the length of incarceration time in lieu of payment, from two years to one. The court held that the fine reflected a suitable balance between the need to protect the capital market, to deprive the defendant of the fruits of his crime, as a deterrent, and the certain vagueness that existed regarding the sum of money obtained by the fraud, and thus, found no scope to interfere with it.

C. Zvi Rabin and Guy Penn – Criminal Appeal 3164-14; Criminal Appeal 4207-14 In June (Tamuz 5775) judgement was handed down by the Supreme Court in the appeal of Zvi Rabin and Guy Penn, from the judgement of the Economic Division of the District Court (HH Justice C. Kabub, Criminal Case 37235-12-11). Appeals were lodged against both the verdict and the sentence, the District Court having convicted Zvi Rabin, a public relations professional and the owner of Quan Communications, and his friend Adv. Guy Penn, with dozens of counts of extensive insider trading, and sentenced them to incarceration and fines. Zvi Rabin was convicted of insider trading under Section 52C of the Securities Law, in that he abused his position and in many instances made use of inside information which crossed his desk in the course of his work, when he purchased securities before the information was made public, and that he leaked the inside information in his possession to his friend Adv. Penn. Guy Penn was convicted with offences of insider trading under Section 52D of the Securities Law, in that he made significant purchases of securities, on a great many occasions, making use of the inside information leaked to him by Rabin. Penn was further convicted of passing on the inside information to his family, who also made use of it. Rabin and Penn pocketed huge profits from the commission of the offences. The Supreme Court (H. Meltzer, Y. Amit and N. Solbreg JJ.) rejected Rabin’s and Penn’s appeals from the verdict. The appeals relating to the sentence were partially accepted: The incarceration time imposed on Rabin was changed to 22 months, and the incarceration time imposed on Penn was changed to 12 months. Concurrently, the fines imposed – 600,000 NIS on Rabin and 1,500,000 NIS on Guy Penn, were left standing. The minority (HH Justice N. Solberg) opined, that in light of the severity and extent of the crimes, and in light of the necessity to severely punish economic crimes in the capital market in general, and insider trading offences in particular, that the punitive measure should not have been interfered with. The judgement of the Supreme Court is detailed, and contains several legal precedents on issues of principle, including adoption of the “Expectancy” test for the purposes of determining the point in time at which information crystallises into “inside information”, thus determining that the significance of the information has an impact upon the timing of the consolidation of inside information; a discussion and examination of the benefit accrued to a defendant from commission of inside information offences, analysis of the issue of theoretical profits, and the manner of calculating the profits gained by a defendant, analysing the distinction between an “Opinion” and “Inside Information” with reference to Section 52D of the Securities Law, conviction on the strength of circumstantial evidence, and more.

D. Peled-Givoni – Criminal Appeal 3566/13

In January 2016 (Shvat 5776) the Supreme Court rejected the appeals of Tal Jegerman, Arie Givoni, David Habby and Rafi Peled, and affirmed their convictions by the District Court. The first three were convicted of theft by a manager of tens of millions of NIS, fraud and breach of trust in a corporation, managers’ and employees’ offences, and offences of reporting with intent to mislead. Jegerman was also convicted of forgery and obtaining by fraud. Peled was convicted of managers’ and employees’ offences, fraud and breach of trust in a corporation, and offences of reporting with intent to mislead. The Supreme Court partially accepted the state’s appeal against the leniency of the punishment imposed on Jegerman, raising it from four years’ incarceration to six. Peled’s fine was doubled (together with community service). The remaining punishments (two years’ incarceration for Givoni and one year for Habby, together with fines) were not changed. The indictment, on the majority of the facts of which they were convicted, attributed to the defendants, or to some of them, various financial manoeuvres between companies, in a group that included eight public companies. The pinnacle of which, was withdrawing tens of millions of NIS from the accounts of the public companies Feuchtwanger Industries Group and Mashav, without lawful permission, to cover the personal debts that Givoni and Habby owed to the bank on account of credit they were given to purchase Mashav, and to support other business manoeuvres. The defendants were further convicted of acting to conceal their misdeeds, the disagreements they had with their accountants, and the dire straits of the public companies which were members of the group, by not publishing the financial statements for Q1 2002. The verdict contained various innovative legal determinations, such as abolishing the requirement of intent to permanently deny, to prove the offence of theft by an authorized person; a determination that even one who does not hold a formal position in a company could yet be deemed an officer, by virtue of his conduct and authorities in practice; and application of the “locating the controlling shareholder” test regarding identifying the controlling shareholder in a pyramid-structured group of companies.

Distribution of investigation files transferred to the District Attorney’s Office in 2015, per type of offence*

-Type of Offence Number of Cases Securities Fraud 8 Insider trading 2 Reporting 1 Penal Law Offences (Obtaining by Fraud 1 and Theft) Penal Law Offences (Bribery) 1 Total 13

* Per principal offence; at times, serious offences under the Penal Law are included in addition to securities’ offences.

Distribution of indictments in 2015, per type of offence

Offence Number of Cases Theft 1 Fraud 3 Total 4

18 files remain at the District Attorney’s Office. Eight of which are at a hearing stage, and in ten the District Attorney’s Office has yet to decide whether to indict or close the file.

Number of investigation files at the District Attorney’s Office at the end of 2015 in which no decision has yet been taken whether or not to indict, per year transferred

Year Number of Cases 2013 1 2014 7 2015 10 Total 18

Number of investigation files at the District Attorney’s Office at the end of 2014 in which no decision has yet been taken whether or not to indict, per type of offence*

Offence Number of Cases Securities Fraud 9 Reporting 3 Inside Information 4 Theft by an Authorised Person 1 Bribery 1 Total 18

* Or when a decision has been made, but no hearing has yet taken place.

7. The ISA’s Budget for 2015

Budgetary performance report for 2015 (Thousands of NIS) Item Line Item Approved 2015 Updated 2015 2015 Budget No. Budget Budget Implementation General: Total Expenditure 184,830 184,830 166,190 Salaries: Total 102,290 102,290 96,363 [228] [228] [228] 1001 ISA Employee Salaries 80,500 80500 77,429 Provision for pension and 1002 12140 12,140 10,553 severance funds 1003 Overtime 5,100 5,100 4,549 1004 Temporary Staff 400 400 176 [34] [34] [34] 1005 Legal interns & students 3,050 3,050 2,732 1006 Chairman’s salary 840 840 806 1008 Expenses paid to ISA staff 260 260 118 Ancillaries: Total 9,280 9,280 8,923 Training and continuing 2001 1,150 1,150 1,046 professional development 2002 Vehicle maintenance 2,150 1,860 1,742 2003 Vehicle rentals 80 80 23 Travelling & living expenses in 2004 5,800 6,090 6,086 Israel, moving expenses 2005 Loan fund 100 100 26 Maintenance: Total 23,160 23,160 20,677 3001 Organisational expenses 1,070 1,070 949 3002 Office supplies 700 700 438 Building maintenance and 3003 20,000 20,000 18,078 repairs 3004 Post and telephones 1,190 1,190 1,154 Equipment, machinery and 3005 200 200 58 furniture Professional Activities: Total 13,050 13,050 10,103 Licensing investment advisers 4002 2,200 2,200 1,858 and portfolio managers 4004 Legal expenses 1,070 1,070 623 4005 Professional library 460 470 470 4007 IFRS (shared) 1,100 1,100 974 4008 Audits and enforcement 2,850 2,850 2,305 4010 Investor education 400 400 146 4011 Advisory services to the ISA 900 900 637 4012 Seminars 300 300 144 4015 Academic research fund 320 310 171 4016 Foreign relations 580 580 419 4017 Internal auditing 320 320 277 4018 Preparing financial statements 600 600 438 District Attorney’s Office 4019 1,950 1,950 1,641 Expenses IT: Total 15,550 15,350 13,363 5003 Computer maintenance 13,600 13,400 12,228 5004 Purchase of digital information 1,950 1,950 1,135 Development Budget: Total 16,940 17,140 16,761 6001 IT (Hardware & Software) 15,940 16,140 16,130 6003 Building renovations 1,000 1,000 632 Reserves: Total 4,560 4,560 - 7005 Salary reserves 2,600 2,600 - 7006 Inflation reserves 830 830 - 7010 General reserves 1,130 1,130 - Revenues: Total (estimate)* (151,000) (151,000) (157,924) 9001 Prospectus fees (56,000) (56,000) (59,412) 9002 Annual fees (81,000) (81,000) (84,462) 9003 Net financial income (2,400) (2,400) (2,006) Investment advisor licensing 9004 (11,600) (11,600) (12,045) fees

* According to the decision of the Knesset Finance Committee, a sweeping temporary order has been enacted, determining that the fees paid by all the entities subject to the ISA’s supervision will be reduced for a period of five years, at the following rates: 40% in the first two years, 30% in the following two years and 20% in the fifth year.

In 2015, a reduction of 20% applied to reporting corporations (including dual listed companies), fund managers and the Stock Exchange, and a reduction of 30% to license holders, underwriters and information distributors.

8. The ISA Budget for 2016

Approved Budget for 2016 (Thousands of NIS) Item Line Item Approved 2016 Budget No. General: Total Expenditure 183,435 Salaries: Total 103,950 [228] 1001 ISA Employee Salaries 82,500 Provision for pension and 1002 12,050 severance funds 1003 Overtime 4,900 1004 Temporary Staff 400 [34] 1005 Legal interns & students 3,000 1006 Chairman’s salary 840 1008 Expenses paid to ISA staff 260 Ancillaries: Total 9,150 Training and continuing 2001 1,070 professional development 2002 Vehicle maintenance 1,720 2003 Vehicle rentals 60 Travelling & living expenses in 2004 6,200 Israel, moving expenses 2005 Loan fund 100 Maintenance: Total 22,400 3001 Organisational expenses 1,000 3002 Office supplies 640 3003 Building maintenance and repairs 19,500 3004 Post and telephones 1,060 Equipment, machinery and 3005 200 furniture Professional Activities: Total 12,185 Licensing investment advisers 4002 1,900 and portfolio managers 4004 Legal expenses 1,050 4005 Professional library 460 4007 IFRS (shared) 1,000 4008 Audits and enforcement 2,725 4010 Investor education 250 4011 Advisory services to the ISA 900 4012 Seminars 250 4015 Academic research fund 270 4016 Foreign relations 580 4017 Internal auditing 320 4018 Preparing financial statements 580 District Attorney’s Office 4019 1,900 Expenses IT: Total 15,450 5003 Computer maintenance 13,900 5004 Purchase of digital information 1,550 Development Budget: Total 16,300 6001 IT (Hardware & Software) 15,700 6003 Building renovations 600 Reserves: Total 4,000 7005 Salary reserves 2,300 7006 Inflation reserves 700 7010 General reserves 1,000 Revenues: Total (estimate)* (183,435) 9001 Prospectus fees (56,600) 9002 Annual fees (105,800) 9003 Net financial income (1,400) 9004 Investment advisor licensing fees (13,200) 9050 Financing from surpluses (6,435)

* According to the decision of the Knesset Finance Committee, a sweeping temporary order has been enacted, determining that the fees paid by all the entities subject to the ISA’s supervision will be reduced for a period of five years, at the following rates: 40% in the first two years, 30% in the following two years and 20% in the fifth year.

In 2016, a reduction of 20% will apply to license holders, underwriters and information distributors.

9. List of pamphlets and public information leaflets published by the ISA in the course of 2015

The following is a list of booklets and public information leaflets, published by the ISA in the course of 2015:

 A report on the ISA’s activities in 2014;

 A summarising report from the team for promotion of bond issuing in Israel;

 Launch of the electronic voting system – information about the system and its use.

10. Times and places in which the written administrative guidelines according to which the ISA operates, may be perused

As abovementioned, the information about the ISA’s activities is published and is available for public perusal on the ISA’s website at: http://www.isa.gov.il

11. The ISA’s databases, registered under the Privacy Protection Law, 5741-1981, on the Ministry of Justice’s Database Register

Database Title Database Description and Purposes 1 Activities of portfolio Information about clients of portfolio managers, managers and non-bank and non-bank members of the Stock Exchange, for members of the Stock the purposes of supervision and enforcement of Exchange the activities of portfolio managers and non-bank members of the Stock Exchange, in accordance with the ISA’s authority. 2 BI Data related to trading on the Stock Exchange for the purpose of ensuring fair and proper trading. 3 Intelligence – Documentation of investigations and intelligence Investigations Department entries, for the purpose of performing the ISA’s Database functions in investigating suspicions of law breaking. 4 Corporations and Licensed Details regarding senior officers appointed by the Electronic Signatories in reporting corporations to report in the MAGNA – the Reporting System for the purpose of the ongoing management of the (MAGNA) electronic reporting system and identifying reporters. 5 Licensing of investment Details for the purpose of licensing proceedings for advisors and portfolio candidates for a license and to supervise license managers holders. 6 Interested parties Data on individuals and companies defined as interested parties in companies, for the purpose of performing the ISA’s function of protecting the capital market investing public. 7 Supplier payments and Details of suppliers, for payment purposes. accounting database 8 Salaries / Manpower Details concerning ISA employees for human resource management purposes, and the ISA’s wages system. 9 Security cameras Cameras to secure the ISA’s offices.

12. Funds and Scholarships Financed by the ISA A. Research Scholarships

The Israel Securities Authority grants scholarships for research on subjects with implications for the capital market in Israel in general, and issues affiliated to the ISA’s purview and purposes in particular. Amongst these are: Development of the capital market and removing economic and regulatory barriers, investor protection, and increasing investor confidence and public awareness of issues in the capital market. The scholarships run from 5,000 NIS to 120,000 NIS.

Proposals are reviewed and approved by a committee on behalf of the ISA, inter alia, according to the following criteria:

 The importance of the subject, and the significance of its implications;

 The ability to derive regulatory applications from the research;

 Suitability of the researcher’s skills and education to conducting the research;

 The possibility that the research be completed within a time frame shorter than two years.

Over the course of 2015, 73,943 NIS were paid further to scholars meeting scholarship milestones, on the following subjects:

 High frequency trading – the implications for regulation in the market;

 Liquidity index in the market for corporate bonds;

 Learning from Trading — long term process / valuation and intraday — Learning Process;

 The market makers’ contribution to share liquidity in different market conditions: An Israeli testimony.

B. Student Scholarships

In the setting of the ISA’s activities for the benefit of investor education, the ISA operates the “Investing in the Future” program – a cooperative effort of the Israel Securities Authority and “Kanfei Kesef” – a student organisation to promote financial education in Israel. The program includes workshops designed to provide the public at large with basic tools for intelligent financial conduct, and a familiarisation with the economic world and the capital market. The workshops are offered to the public at large in municipal settings, in frameworks operating to promote underprivileged populations, and more.

Over the course of 2015, students participating in the scholarship program, received a total of 37,908 NIS.

13. Support the ISA Gave Public Authorities Over the Course of 2015, Details of Their Names, and the Extent of Support Each One Received

The Israel Accounting Standards Board

The ISA has established, jointly with the Institute of Certified Public Accountants in Israel, the Israel Accounting Standards Board (hereinafter: the “Board”) to deal with accounting standards. The Board is incorporated as a company with share capital of no par value, and reports to the tax authorities as a non-profit organisation. The Board operates under a balanced budget, and in light of its framework, its shareholders are not entitled to any surpluses, rights and/or the fruits of its net assets. The ISA and the Institute of Certified Public Accountants in Israel have equal rights of ownership and director appointment. The Board’s budget is funded mainly by the ISA and also by the Institute.

The rate of the ISA’s participation in the Board’s funding is 81% every year.

Pursuant to the Attorney-General’s instructions, the ISA transferred, in March 2003, its membership of the Board to be held on trust by the Accountant-General at the Ministry of Finance (hereinafter: the “Trustee”), and the Trustee received only those powers arising directly and expressly from membership in the company (general meeting). Aside from these powers and the founders’ agreement attached to them, the transfer did not affect the ISA’s rights and powers, including by virtue of the articles of association. A determination has been made that in the duration of the trust, the ISA will not be involved in exercising the authorities transferred to the Trustee, and the Trustee will not grant his consent to admitting new members into the company, or to any changes to its documents of incorporation. The trust will end once notice thereof is provided by the ISA to the Trustee, after same is approved by the Attorney-General, or once the Accounting Standards Board is regulated by legislation, all as the Attorney-General shall determine. No alternative framework has been formulated for the activities of the Board in the interim.

14. The Report of the ISA’s Freedom of Information Commissioner, Under Section 5(a) of the Freedom of Information Law

The following are details of how the ISA handled requests to receive information over the course of the reported year and the preceding year, under Section 5(a) of the Freedom of Information Law, 5758-1998, and Regulation 7 of the Freedom of Information Regulations, 5759-1999, “The Commissioner’s Report”:

2015 2014 Number of requests received by the ISA 52 37 Number of requests filed officially under the Freedom of 12 6 Information Law Number of requests responded to positively – the 20 13 requested information having been sent Number of requests partially answered 5 1 Number of requests abandoned by the person 9 4 requesting the information Information about rejects requests (even if only partially) Number of requests rejected since the information requested was not in the possession of the ISA (Section 19 11 8(3) of the Freedom of Information Law) Number of requests rejected since the ISA was asked to reveal information which must not lawfully be disclosed 2 1 (Section 9(a)(4) of the Freedom of Information Law and Sections 13 and 56E of the Securities Law) Number of requests rejected since the ISA was asked to reveal information which could disrupt its smooth running, or its ability to perform its functions (Section 1 1 9(b)(1) of the Freedom of Information Law), and could prejudice the continued receipt of information (Section 9(b)(7) of the Freedom of Information Law) Number of requests rejected since the ISA was asked to reveal information pertaining to internal discussions 1 0 (Section 9(b)(4) of the Freedom of Information Law)

Referring to the ratio of requests responded to at various times prescribed by Section 7 of the Freedom of Information Law (excluding abandoned requests):

Number Percentage of request Requests answered within 30 days 38 88 Requests answered after a 30-day extension (under 5 12 Section 7(b) of the Freedom of Information Law)

In May 2014, a petition was filed with the Economic Division of the District Court in Tel Aviv against the Commissioner’s decision in Administrative Petition 15892-05-14 - Bram Sluki & Co. v. The Israel Securities Authority. In brief, the petition concerned the petitioner’s request to receive audit reports performed by the ISA’s Supervision of Licensees Unit in 2009-2010 at banking corporations and investment houses, with regard to implementation of the Advice Law (hereinafter: the “Audit Reports”). The petitioner’s principal submissions were, that the ISA is required to reveal the Audit Reports in light of the public interest in exposing the information, and for the purpose of instigating private enforcement actions against violators. The ISA’s principal submissions in reply were, that the Audit Reports are subject to the confidentiality duty prescribed by Section 56E of the Securities Law, and thus they constitute information which is not to be lawfully revealed. In addition, and needlessly, the ISA explained that there were other limitations under the Freedom of Information Law, which also granted the ISA the right not to reveal the information requested, amongst which were: Section 9(b)(6) of the Freedom of Information Law, relating to commercial or professional matters concerning a person’s business affairs; Section 9(b)(1) of the Freedom of Information Law, relating to a disruption to the ISA’s proper workings and prejudicing its ability to carry out its duties; Section 9(b)(8) of the Freedom of Information Law, prescribing that a public authority is not required to reveal information about its working methods and procedures, when doing so could harm its activities. In addition, the ISA noted that in light of the information’s importance, and after it balanced all the considerations, the ISA published, of its own initiative, a circular containing extracts of the failings uncovered. In April 2015, the petition was dismissed, the court having accepted the ISA’s position.

In 2015, no petitions were filed against the decisions of the ISA’s Freedom of Information Commissioner.

It is noted that, at times, the ISA receives letters from the public, which also contain requests for information as defined in the Freedom of Information Law. The replies to these also involve providing such information, even though they are not sent according to the procedure prescribed in the Freedom of Information Law. Such letters are not necessarily included in the Commissioner’s Report. Additionally, the ISA is, at times, required to reveal or convey information as defined in the Freedom of Information Law also by force of a judicial order in the setting of various legal proceedings to which it is not party. These instances are also not necessarily included in the Commissioner’s Report, but rather are circumstance dependant in the required handling framework.