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Capital Markets in Israel (by Raveh, Ravid & Co.)

In Israel exists a highly developed system of capital markets, which relies on local activity through the Tel Aviv Stock Exchange, a well-developed venture capital industry and vast international activity of institutional and technological investors in the form of significant capital transactions between Israel and overseas countries. Despite low global growth and low interest rates, the Israeli venture capital industry is expected to generate very high returns in the next few years.

Israel’s innovative R&D is recognized as a leading global center, second only to Silicon Valley. Many Israeli companies, particularly in the technology and biomedical fields, have raised capital through overseas exchanges, particularly US exchanges: the number of Israeli companies whose shares are traded on US exchanges is one of the highest (second to China). Each year, foreign investors pump into Israel billions of dollars, acquiring the control of startup companies, high-tech companies and other key firms. A set of local and foreign venture capital funds and other types of investors, help with the financing of ventures, from seed stage to transformation into independent companies ready for mergers, acquisitions or for further independent development of their business.

In recent years, Israel has developed an extensive industry of hedge funds of various types and specialties.

Regulation

The activity of the capital market is regulated by the Securities Law as well as the banking laws and regulations promulgated thereunder. Certain aspects are regulated through the Control of Capital and Insurance Market Divisions of the Ministry of Finance.

Regulatory bodies

The Securities Authority, an independent governmental authority that operates under the Securities Law, is the one in charge of regulation and control of capital market activity in Israel.

Tel Aviv Stock exchange

In Israel there is a single stock exchange located in Tel Aviv, which is jointly owned by commercial banks in Israel and leading investment houses both in the country and overseas. The trade in this exchange is conducted by fully computerized systems; the trading and control tools that are used in this exchange are satisfactory and the reporting and control standards practiced by it are very high.

In late 2014, 473 corporations were traded on the Tel Aviv Stock Exchange, and the market value of all traded securities, including bonds and diversified financial instruments, reached NIS 1.9 trillion (approximately US$ 500 billion), including NIS 791 billion (approximately US$ 200 billion) market value of traded shares and securities convertible into shares. In 2014, the daily trade turnover reached NIS 1.2 billion on average (approximately US$ 300 million). Merely 5 new companies joined the list of traded companies, and the total number of companies has decreased (at the end of 2012, 540 companies were traded).

Out of all traded companies, there are 47 dual-listed entities, including Teva Ltd., the Israeli pharmaceutical giant traded in the USA: shortly before the end of 2014, the market value of Teva alone reached NIS 210 billion (approximately US$ 55 billion): more than a quarter of the total market value of the shares traded on it. However, the weight of Teva in the TA 25 index is just 10%, due to the limitation fixed by the regulations of the exchange.

Public companies in Israel must submit to the public and regulatory authorities a full, audited financial statement once a year, and a condensed quarterly report, reviewed by their CPA. The reports are drafted according to International Financial Reporting Standards (IFRS). However, Israeli companies that are traded in Israel alongside their trading on recognized exchanges overseas (primarily in the USA) need to submit financial statements prepared in accordance with the GAAP applicable in such foreign exchanges (usually US-GAAP).

The cost of maintenance of a medium-sized public Israeli company easily reaches several hundred thousand of shekels per year, and includes, alongside payments of registration fees that are not particularly burdensome, the following: the cost of legal counseling (NIS 100-250 thousand per year); independent auditing of annual financial statements and the review of quarterly condensed statements (NIS 80-250 thousand); employment of an internal auditor (NIS 25-100 thousand); employment of at least two external independent directors (starting at NIS 50 thousand per year per each); and applying appropriate procedures for control of financial reporting (SOX) (NIS 10-50 thousand). The scope of annual reporting is large and detailed, both due to the burdensome requirements of the IFRS and the requirements of local regulation. Thus, the annual financial statement of a medium-sized company easily reaches a volume of 100 pages, whereas a quarterly report reaches roughly a third of this size.

Private equity

There are several active investment funds and institutional bodies operating in Israel, which are financing resources for ventures and corporations that need non-bank or high-risk financing.