The Stock Exchange has been recently promoting a program to change the structure of the Exchange, with the aim of making it more competitive and attractive to companies traded on it.  Currently, the Tel-Aviv Stock Exchange is a company limited by guarantee without share capital and is incorporated as a not for profit entity.  The members of the Exchange have no equity rights in this company and they are not entitled to receive profit distributions.  Only those members of the Exchange who actually own the Exchange are the ones having access to trade within its framework, and apparently the number of entities which enjoy access to trade on the Exchange in Tel-Aviv is substantially lower than the number of such entities in parallel exchanges throughout the world.

Under this factual background, a change in the structure of the Exchange is proposed within a new legislative proposal issued by the Stock Exchange Authority. The aim is to turn the Exchange into a more competitive and efficient body, capable of posing significant competition to exchanges in international markets and alternative trading platforms in Israel and overseas.  Likewise, the change is intended to enable a solid infrastructure necessary for future strategic cooperation with foreign exchanges and with strategic investors as well as for the activities of other stock exchanges in Israel and also for enabling the raising of capital by the Exchange itself.   The change in the ownership structure of the Exchange will bring about the cancellation of the historical control the banks have had over the Exchange.

The main change proposed is to turn the Exchange into a profit making company, with a structure in which the holders of the issued capital will be separated from access to trade.  Access to trade will no longer be conditioned upon ownership in the Exchange but will be carried out via contractual arrangements between the Exchange and the potential members, thereby making the Exchange market oriented, simple and efficient.  In order to diversify the range of shareholders in the Exchange and to provide incentives to the existing members of the Exchange to sell their holdings in the Exchange, it is provided that their holdings in excess of 5% will become dormant and will not confer rights.  It is further provided that when the existing shareholders in the Exchange will sell their holdings they will be subject to capital gains tax of 100% for the full capital gain realized commencing from the date of change in the structure of the Exchange.  

Currently, the voting rights in the Exchange are divided equally between each of the members of the Exchange. With the proposed change of structure, as noted above, each shareholder in the Exchange will hold voting rights and capital rights, according to a division as decided by them.

As part of the proposed change, it is suggested to strengthen the regulatory supervisory mechanisms over the Exchange, to put in place corporate governance arrangements with respect to the activities of the Exchange, to enable the Minister of Finance to issue licenses for opening exchanges, etc.

Reference: Memorandum for Securities Law (Changes to the Structure of the Exchange), 5776-2016