On February 10, 2010, the Toronto Stock Exchange and the Tel Aviv Stock Exchange ("TASE") announced the signing of a Memorandum of Understanding ("MoU")[i] to formalize cooperation between the TASE and both the Toronto Stock Exchange and the TSX Venture Exchange (collectively "TSX"). Under the MoU, the exchanges will work to deepen their relations by, among other things, developing channels of communication, advancing opportunities for cross listing, supporting the respective regulatory authorities to develop a mutual recognition agreement, exploring the development and listing of financial instruments tracking each other's market indices and initiating joint conferences. This MoU is the fifth signed by the TASE, following those with the London Stock Exchange, NASDAQ, NYSE-Euronext and the Shanghai Stock Exchange. The non-binding MoUs previously entered into with each of these exchanges were not necessarily related to dual-listing of the nature described below, but rather included general declarations of intent to cooperate in different areas (joint conferences, develop commercial relationships, adopt indexes that track other exchanges and engage in cooperation).
Established in September 1935, the TASE is Israel's sole stock exchange, offering a range of products to investors, including equities, corporate bonds, treasury bills and notes, index products and derivatives. The TASE features 622 companies listing equities, 372 index-tracking products, 38 series of government bonds, 594 series of corporate bonds and 1218 mutual funds. As of January 2010, the TASE's market capitalization in equities was over US$216 billion.
The MoU is meant to be the first step toward the eventual negotiation of a cross-listing agreement between the TASE and the TSX. For that to happen, the Israel Securities Authority (Israel's equivalent of the various Canadian securities commissions) ("ISA") and the relevant Canadian securities commissions must first negotiate a mutual recognition agreement, essentially acknowledging the acceptable standard for listing and for the filing of documents in each jurisdiction. It is expected that the negotiation of such a mutual recognition agreement will take many months to complete. While certain securities commissions will likely take the lead on negotiating this matter, it is expected that the final approval would be under the auspices of the Canadian Securities Administrators, so that mutual recognition becomes a national principle.
Israel's Dual-Listing Law
In October 2000, after a decade-long effort spearheaded by the TASE, Israel's dual-listing law took effect. This legislation enables Israeli companies listed on certain foreign markets to dual-list on the TASE with no additional public filing obligations and at no cost. The dual-listing law was enacted to enable Israeli companies to dual-list, but it empowers the ISA to allow foreign companies traded on recognized international markets to dual-list as well.
This regulatory regime has made it simple for companies to dual-list. As a result, the number of dual-listings has increased, and international investors are able to trade dual-listed Israeli shares in Tel Aviv at the TASE's low costs and extended trading hours (which include Sundays and generally days that are holidays in Canada, although the TASE is closed on Fridays, Saturdays and Israeli national holidays). Dual-listed companies get an additional trading arena for their shares, and a new investor base.
The dual-listing law exempts Israeli and other companies that are registered for trading on select large international stock exchanges, from reporting to the ISA other than pursuant to their international reporting requirements. If not for this amendment to Israeli securities law, the companies traded on the international stock exchanges would be required to submit a prospectus to the ISA, to acquire a publishing permit and to submit periodic and immediate reports in accordance with the Israeli law. In addition, the TASE has decided to exempt dual-listed companies from listing rules, maintenance regulations and listing fees.
In 2000, it was determined that the law would apply to companies traded in the United States on the NYSE, NASDAQ, and AMEX. In light of the success of dual-listing, the arrangement was expanded to apply to companies traded on the London Stock Exchange's Main Market. Not every exchange in a foreign jurisdiction is recognized for dual-listing exemptions; AIM, for example, is not recognized. There are currently approximately 50 companies traded on the TASE under the dual-listing law (most of which are Israeli companies which then listed elsewhere), as well as additional companies whose shares are traded on the TASE and abroad (but which do not report according to the dual-listing law).
Historically, the ISA did not require mutual recognition and was satisfied with its own recognition of the standards of the foreign market (essentially a "one-way" dual-listing mechanism). In recent years, however, it is more insistent upon mutual recognition as a condition of dual-listing. The first (and only) mutual recognition agreement was signed in January 2008 between the ISA and the French Autorité des marchés financiers (AMF) (the securities authority in France).[ii] Under that agreement,[iii] securities offered by a prospectus approved by the ISA can be listed on Euronext or other French approved stock exchange without further approval of the AMF, and securities offered by a prospectus approved by the AMF can be listed on the TASE without further approval of the ISA. To date, no companies have taken advantage of the agreement. Although the agreement was signed in January 2008, amendments to Israeli securities law are only now being adopted to implement the agreement with the AMF. According to the proposal, dual-listed securities approved by the AMF and listed on a stock exchange approved by the AMF will be subject to the same TASE listing and reporting requirements that have been applicable since 2000 to dual-listed companies that are traded in the US.
Shortly after the Israeli law was passed, a research study examined the influence of dual-listing on the price and liquidity of shares, based on a sampling of 30 companies that decided to register for trading on the TASE following the change in the law. The interest of this study arose from some unique factors, including the fact that, unlike capital markets of other countries, where companies first issue their shares on the local market, then move onto foreign markets, the Israeli companies had first issued their shares in the foreign market, then in Israel. The study suggested that there was an advantage arising from both increased trading volume and higher share prices as shares registered for dual trading had a 90% growth in their trading volume and, following dual registration, the price of the shares went up by about 8.5% on average in the US.
How WILL a Company Dual-List?
A company can apply to the ISA to dual-list at the same time as it submits a simple listing application to the TASE. No other approvals are required and companies are not required to pay TASE listing fees. As noted above, the TASE exempts dual-listed companies from listing rules, maintenance regulations and listing fees.
Once the mutual recognition arrangements are negotiated with the Canadian securities regulators, it is anticipated that the listing application will include both a technical document that includes basic information about the company and its shares, such as the company's name and address, contact details, types of securities, etc., as well as the delivery of the company's latest Annual Information Form and any prospectus issued in Canada in the year prior to the year of the AIF. In addition, the company would submit interim reports and press releases that it has disseminated since its AIF or most recent prospectus. Companies would not be required to translate any of these documents into Hebrew.
It is anticipated that a dual-listed Canadian company will file with the ISA the reports and releases that are disseminated in its home market, but that must be filed on a timely basis in accordance with Israeli regulations (which frequently poses a challenge if the press release has not yet been drafted prior to the opening of business in Israel). Companies will not need to translate reports and announcements into Hebrew. As is the case for compliance with TSX requirements, companies will need to notify TASE and obtain approval for changes in their share capital, including the allocation of shares and convertible securities although, as with TSX, in most cases approval is granted quickly.
If a dual-listed company is delisted (or even receives notice of future delisting) from the foreign qualified exchange, it will not be permitted to delist from TASE. In such circumstances, if the company is delisted from the foreign exchange, it will no longer qualify for the dual-listing leniencies and will be required to comply with all the reporting and listing obligations of both jurisdictions.
Another major benefit of dual-listing is access to Israeli capital markets. There is a provision of Israeli securities law that enables dual-listed companies to use a hybrid prospectus for such offerings, in which the offering process and offered securities are described in Hebrew pursuant to Israeli law and the disclosure about the company is described in English pursuant to the foreign law that would apply if the offering were made in the foreign jurisdiction.