Recently, the Israeli Securities Authority (the "ISA") has published an updated proposal (following receipt of the public's comments), regarding legislation that would enable the registration on the Tel Aviv Stock Exchange ("TASE"), of shares of foreign companies traded abroad, without the need to obtain their consent to do so (the "updated proposal").
The main changes made in the updated proposal are intended to tighten the criteria for the non-voluntary trading registration.
As described in our recent client update, which focused on the original proposal (the "original proposal") , as part of the joint efforts of the ISA and the TASE to improve liquidity and trading on the Tel-Aviv Stock Exchange, it has been proposed to adopt a mechanism that will allow the registration of shares of very large foreign companies which are traded abroad, without the need to obtain the consent of such companies and without imposing reporting obligations set forth under the Israeli Securities Law on such companies.
The proposal outlines a mechanism for non-voluntary registration, which will give rise to the possibility of certain foreign shares being traded on the TASE. Accordingly, under the proposal, the TASE may register shares of foreign corporations that are listed for trading on foreign exchanges, after the TASE has determined whether the shares meet the conditions prescribed for the purpose of their listing. Upon the opening of the trading of such shares, investors will be able to buy and sell these shares, as with any other shares listed on the TASE.
The main changes set out in the updated proposal are as follows:
- In the original proposal, it was suggested to limit the non-voluntary registration to companies' shares which are traded in one or more of the stock exchanges recognized for the purpose of the dual listing mechanism under Chapter E'3 of the Securities Law, 1968. However, in the updated proposal, it is suggested to reduce the number of stock exchanges that will be recognized for the non-voluntary registration, to the two largest stock exchanges in the U.S: (1) the New York Stock Exchange (NYSE); and (2) the National Association of Securities Dealers Automated Quotation (NASDAQ) – Global Select Market.
- The original proposal limited the registration of the shares to corporations that do not have an Israeli linkage. The updated proposal has strengthened the linkage criteria, and suggested the following criteria:
- The corporation was incorporated outside of Israel; and
- The corporation's business, excluding immaterial activities, are managed outside of Israel (as opposed to "most of the corporation's business being managed outside of Israel"); and
- At least two thirds of the board members or officers of the corporation are not residents or citizens of Israel (as opposed to "a majority of the board members or officers of the corporation not being residents or citizens of Israel"); and
- The corporation's assets, excluding immaterial assets, are located outside of Israel (as opposed to "more than - 50% of the corporation's assets being located outside of Israel").
- The original proposal suggested limiting the non-voluntary registry of shares to foreign companies having a market capitalization minimum of USD100 billion. In addition, it was suggested that this amount should be linked to one of the leading stock indices, adapting to changes which may occur in the market. For the sake of simplicity it is now suggested under the updated proposal, to cancel the linkage to any index.
- The original proposal suggested that non-voluntary registration will be permitted as long as the trading volume of the foreign stocks in the countries, whose stock exchanges are recognized for the purpose of the proposal, amount in aggregate to at least 55% of the total trading volume in these shares. According to the updated proposal, it has now been decided to increase the volume amounts to at least 80% of the total trading volume in these shares.
- The original proposal suggested that non-voluntary registered shares will only be removed from trading if their market value on foreign exchanges, at two consecutive points in time, was less than USD90 billion. According to the updated proposal, it has been decided that in order to reduce trading uncertainty, and to avoid their removal and registration during times of extreme volatility, the threshold should be reduced to less than USD60 billion.
For the full text please click here (available only in Hebrew).
As mentioned above, the updated proposal has received the public's comments and is expected to reach the Knesset's (Israeli parliament) Finance committee for final approval.