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Another step in increasing transparency of ILN’s and indexed products: companies specializing in ILN’s and other indexed products are to publish full financial characteristics


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The ISA approved draft regulations intended for companies offering indexed products to the public. The regulations require companies to publish full disclosures pertaining to financial and other data concerning ILN’s, commodities certificates, deposit certificates and cover options, issued by them. The requirements listed under these regulations have been formulated on the basis of experience accumulated as a result of examining prospectuses and periodic reports published by the issuers of the aforesaid financial instruments.
This is another step in increasing supervision over ILN’s and other indexed products. At the beginning of the year, the ISA had published binding regulations, for companies issuing ILN’s, to submit immediate reports with valuation details of the ILN’s and other products issued by the. In July, the ISA had published another binding regulation requiring companies managing tradable ILN’s to disclose the effective cost to investor, investing in ILN’s, as oppose to direct investment in the relevant index, meaning – to reveal all additional costs imposed on the investor, who doesn’t own the base asset directly. Furthermore, the ISA approved the amendment to the Investment Advice Law prohibiting any affiliation between investment advisers and the ILN’s. The amendment requires all banks, owning ILN’ issuing companies, to sell them and by doing so to eliminate all potential conflicts of interest in this field.
In July 2008, more then 300 different ILN’s were traded on the TASE, with accumulated public holdings of more then 37 billion NIS. 11 new financial products have been issued in June alone. In light of the growing multiplicity of products, the aforementioned regulation standardizes disclosure requirements, so that all the published details will be presented in a uniform, easily comparable, format. The proposed format allows investors to obtain information regarding the scope of public holdings in ILN’s in order to estimate potential tradability of a particular product, and to compare it to other ILN’s. The regulation also requires presenting the conversion formula, allowing investors to examine all the parameters comprising it and to compare them to parameters embedded in other ILN’s.
This regulation falls in line with disclosure requirements existing in other Western countries, such as the UK and the US. In Britain, according to the FSA regulation, there is a requirement to submit a summary describing a financial product, in addition to any other document, report or prospectus related to the aforesaid financial product. The reason for this requirement is rooted in the complexity of the offered products, and the need to bridge over the information gap existing between the issuers, who are mainly qualified entities with long term experience on the capital market, and the public.      
The disclosure required, under the regulation published by the ISA, relates to each individual series of the issued ILN’s and is designed to help investors make an informed and rational investment decision, by comparing between various ILN’s on the bases of a uniformly presented data. The aforesaid disclosure is submitted separately and comes as an addition to other disclosure requirements pertaining to the companies’ activities, including companies’ obligations under the Law and accompanying regulations.
The regulation is divided into two parts. Part one deals with the summary of terms pertaining to the ILN; in it the company is required to provide a table of data that includes both general information (number of series, name of the ILN, etc.), and such details as terms of the ILN, conversion conditions, company’s liabilities and equity capital, company’s investment policy and back up assets, loans, market making, taxation, graphic analysis of sensitivity, non-tradable assets, rating and ILN’s trustee.
Part two, of the regulation, deals with additional quantitative information pertaining to the ILN and has to be presented in a table. The information includes – nominal value, cash value, net accumulation, average monthly trade cycle, etc.
The proposed regulation is published in the ISA website, for public comments. Comments are accepted until August 21, 2008.
For further details contact
Ori Katzir – Spokesman for the ISA 050-57772525
Vivian Salliness – Assistant Spokesman 050-6215287

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