ר ש ו ת נ י י ר ו ת ע ר ך ISRAEL SECURITIES AUTHORITY Submitted to the Minister of Finance and the Knesset's Finance Committee Jerusalem, 2014 רשותניירותערך ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ISRAEL SECURITIES AUTHORITY ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ CHAIRMAN‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎29th of Adar II 4775‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ‎ ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎March 31 2014 ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎To:‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎To: ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎Mr. Yair Lapid, MK‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎Mr. Nissan Slomiansky, MK‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎Minister of Finance‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎Chairman of the Knesset Finance Committee ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎Ministry of Finance‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ The Knesset‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎Dear Minister of Finance,‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎Dear Member of the Knesset and Chairman, ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ Re:‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ Report on the Activities of the Israel Securities Authority ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ In‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ accordance with Section 14 of the Securities Law of 1968 (hereinafter – the Law), I respectfully submit to you this report on the activities of the Israel Securities Authority (ISA) for 2013. ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎The ISA currently regulates most of the capital market activity in Israel.‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ As of the end of 2013, the ISA supervised the Tel Aviv Stock Exchange, as well as 658 corporations, 1,257 mutual funds, 531 exchange traded notes, 158 licensed portfolio management companies, and 4,768 individual license holders who serve as investment advisors, investment marketers and porfolio managers. ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎As of the end of 2013, the capital maket value of the stocks traded on the Tel Aviv Stock Exchange stood at approx. NIS 702.4 billion, and the value of the bonds traded on the Exchange stood at approx. NIS 334 billion.‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎In 2013, there was an increase in equity and debt raising on the Stock Exchange, and the ISA also expects an increase in the number of IPOs in 2014, after a significant decrease in the past few years.‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ The volume of activity in mutual funds and exchange traded notes (ETNs) increased significantly in the reporting year. Assets under management in these activities as of the end of 2013, including portfolio management activities supervised by the ISA in these industries, exceeded half a trillion shekels. ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎In 2013, the ISA continued to promote its strategic Road Map Plan, which was published in October 2012.‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎The ISA's Road Map is an extensive and comprehensive plan, which outlines the ISA's strategy and goals for the coming years.‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ The document's underlying assumption is that informed regulation ensures the existence of a fair and efficient capital market, supports its stability over time and contributes to the confidence of the investing public as a whole and to attracting investors – both domestic and foreign – in particular. ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎The goals of the Road Map were developed according to the principles of balance, proportionality, transparency and deterrence, and are based on three elements: regulation, regulatory allowances and the development of the capital market.‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ The ISA has developed goals and work plans for each of these subject matters. ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎The ISA will continue to promote and implement the Road Map in 2014:‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ Tel.‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ 02-6556449‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ Fax‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ :‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ 02-6597449‎ ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ 22 Kanfe Nesharim St., Jerusalem 95464 Israel ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ רשותניירותערך ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ISRAEL SECURITIES AUTHORITY ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ CHAIRMAN‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎In 2014, the ISA will continue to strengthen the capital market and Stock Exchange as a national resource, so as to enable better use of capital sources – while developing the Stock Exchange, protecting investors and continuing its unrelenting enforcement.‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ The ISA will function to act in the following areas:‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎Regulation – There are currently a number of areas which are undergoing regulation, including: the transitioning of ETNs to a new supervisory framework; supervision over rating agencies; establishment of a‎ new supervisory body which will oversee CPAs; improvement and enhancement of companies' financial statements; regulating broker-dealer activities, etc.‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎‎‎‎Regulatory allowances – Despite the need for extensive regulation of the capital market, we should recognize that regulation needs to be proporational and balanced.‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎In this context, the ISA submitted an initial series of allowances to the Knesset for approval. The allowances include both primary and secondary legislative amendments in a number of areas.‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎‎‎‎These amendments include a series of regulation allowances for the supervised entities, which will not compromise the interests of the investing public, including revocation of the ISOX requirement for small-cap companies and extension of the effective period for shelf prospectus to three years.‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ In 2014, the ISA will promote the approval of said legislative amendments and submit a second series of proposed allowances for the Knesset's approval.‎‎‎‎‎‎‎‎‎‎‎‎‎‎ This series is set to include significant allowances in the manner in which public offerings are made as well as allowances regarding reporting requirements. ‎‎‎‎‎‎‎‎‎‎‎‎Market development – in 2014, the ISA will focus on market development,‎‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎‎including the development of the Stock Exchange, the online voting system – which is designed to increase the participation of the public in general meetings, the introduction of foreign funds into Israel in order to increase competition, and the introduction of Loans and Deposits Funds (LDFs).‎‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎‎The ISA's work plan includes removing barriers and developing models which will provide a capital market-based financing alternative to fields and industries which currently rely, in terms of funding, mainly on the banking system and on private loans from insitutionals.‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ Such projects require a complex and creative regulatory infrastructure, which includes – inter alia – tax incentives and government support.‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎ For this purpose, the ISA cooperates with the relevant government ministries, in an effort to formulate a comprehensive, financially-viable outline.‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎These projects include steps intended to facilitate the introduction of varied financial instruments, municipal bonds, funding of national infrastructure projects, funding of rental housing projects as well as funding of small and medium businesses. ‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎During the reporting year, as part of the plan to develop the capital market and Stock Exchange as a national resource, the Chairman of the Israel Securities Authority appointed two committees. ‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎The first one, the Committee for Promoting Investments in Public Companies Active in the Research and Development Fields, was established with the purpose of keeping Israeli technology companies within state boarders, by providing them with allowances in terms of access to capital resources on the Stock Exchange.‎‎‎‎‎‎‎‎‎‎ The Committee published its ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ Tel.‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ 02-6556449‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ Fax‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ :‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ 02-6597449‎ ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ 22 Kanfe Nesharim St., Jerusalem 95464 Israel ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ רשותניירותערך ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ISRAEL SECURITIES AUTHORITY ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ CHAIRMAN‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ ‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎‎ recommendations in November, including a long list of proposed legislative amendments, which will allow young Israeli companies to obtain funding through the capital market and continue their activity in Israel, in lieu of merging with, or being acquired by, larger international companies.‎‎‎‎‎‎‎‎‎‎The ISA deems the relocation of Israeli companies abroad and the "exit culture" a significant loss of income for Israel, both in the short- and long term.‎ ‎‎‎‎‎‎‎‎‎ According to assessments, Israel loses USD 3 for each USD 1 obtained in an exit. Leaving these companies in Israel is essential, due to their potential contribution to domestic employment and to the Israeli economy's growth. Thus, the ISA attributes great significance to implementing the Committee's recommendations as soon as possible, including expanding the allowances related to task breaks for these companies in order to increase the chances that they remain in Israel. ‎‎‎‎‎‎‎‎‎The Committee for Increasing Trading Competition and Liquidity on the Stock Exchange was established due to the lower trading cycles on the Stock Exchange in the past few years, which is hurting both the primary and secondary markets.‎‎‎‎‎‎‎‎‎‎The vital need for the economy's growth and the need for an efficient distribution of its resources, as well as the existence of financial instruments which enable high level risk management, make the Stock Exchange a highly significant center of the capital market, demanding its efficient activity, especially