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Final recommendations on the establishment of a capital market for small and medium-sized enterprises submitted Memorandum of Law to be issued today


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ISA Chairwoman and Deputy Attorney General (Fiscal-Economic Matters) this morning submitted the final recommendations of the team appointed to study the establishment of a capital market for small and medium-sized enterprises. A bill that enables the establishment of the exchange will be referred to the Knesset before the end of the current session.

Minister of Finance Moshe Kachlon: “Implementing the team’s recommendations will pave the path to establishment of a platform that will help small and medium-sized firms, which are the economy’s growth engine. This step joins other actions that we have performed to support SMEs by reducing tax rates, regulation, and bureaucracy. These actions have a direct connection to increased growth and resilience of the economy.”

Minister of Justice Ayelet Shaked: “We are continuing to eliminate regulatory control and strengthen businesses. Establishing an exchange for SMEs is yet another action that benefits businesses in Israel. Establishing the exchange will allow such businesses to raise capital, in line with acceptable practice all over the world. In the past three years my goal has been to reduce regulatory control as much as possible and simplify procedures in the economy. I believe that it is extremely important to encourage SMEs and high-growth firms, which are a main drivers of growth in the economy and a source of income and employment for a large proportion of the public. A dedicated exchange will allow the public to participate in the success of these firms. Our efforts do not end with the publication of the report – today, we intend to disseminate a Memorandum of Law on this issue and hope that approval of the first reading will be concluded by the end of the summer session. I thank Meir Levin, Anat Guetta, and Prof. Shmuel Hauser for their professional work in preparing this report.”

ISA Chair Anat Guetta: “It is our duty to create a foundation and climate that supports growth of capital market activities, based on an appreciation of the capital market’s contribution to Israel’s economy. Raising capital on a secondary stock exchange will reduce these firms’ dependency on the banking system and facilitate the development and growth of these businesses, which are generators of economic growth. The recommendations that we have finalized place us on equal footing with the world’s developed countries that established similar exchanges. I expect the dedicated exchange to become an effective ‘launching pad’ for Israeli companies on their path to listing on the primary exchange or on major stock exchanges around the world.”

Deputy Attorney General (Economic Law) Attorney Meir Levin: “Establishing a dedicated exchange that will function as an attractive market in the long term is a professional and a legal challenge that necessitates a balance between the desire to create new financing opportunities for SMEs and our duty to protect investors. The team’s recommendations reflect a refreshing and courageous approach to creating such a balance through the disclosure and corporate governance rules that will apply to companies listed on the SME exchange, and ensure effective protection of investors and minimum compliance costs to these companies.”


ISA Chair Anat Guetta and Deputy Attorney General (Economic Law) Meir Levin today submitted to Minister of Finance Moshe Kachlon and Minister of Justice Ayelet Shaked the final report of the interministerial team for the study of the establishment of a dedicated stock exchange for small and medium-sized companies in Israel. A Memorandum of Law on the implementation of the team’s recommendations will be issued today with the goal of having the first reading approved by the Knesset before the end of the current session in mid-July 2018.

The team’s recommendations were based on a comprehensive review of the experience of similar exchanges worldwide, an analysis of their structural features and success factors, and the lessons learned from secondary stock exchanges around the world. The team also conducted meetings with many market players, and identified the needs of SMEs in Israel.

The main recommendations in the report include the establishment of a dedicated SME stock exchange to be supervised by the ISA, and the appointment of a new entity (a sponsor) for the IPO stage only, whose main responsibility will be to oversee the regulatory and business aspects of the companies’ IPO.

According to the recommendations, companies valued at up to NIS 300 million (after the money) on the date of their IPO are eligible to raise capital on the SME exchange. A company whose value increases during its listing period and exceeds NIS 600 million will be required to meet the same disclosure and corporate governance rules that apply to the primary exchange, but may continue to trade on the dedicated SME exchange.

Companies may raise debt in amounts between NIS 6 million and NIS 36 million on the SME exchange, provided that the total amount of issued debt does not exceed the total amount of issued capital on the SME exchange.

The report includes a series of recommendations designed to adjust disclosure, reporting, and corporate governance rules to the companies that will be listed on the dedicated exchange. The report also recommends various incentives to companies and investors of the SME exchange.

The team focused on developing a plan that balances between companies’ needs and investors’ protection, to ensure that the SME exchange will be a genuine investment option. The team believes that establishing an SME exchange based on such an outline will contribute to the further development of the local capital market, and specifically create access to new financing opportunities for growth firms in Israel, which constitute the main growth engine of the entire economy.

The interministerial team included representatives of the Ministry of Finance (including the Director General  of the Tax Authority Mr. Eran Yaakov; Advisor to the General Director Ms. Nirit Ibby; and Deputy Head of Budgets Mr. Yogev Gardos) the ISA (Director of Disclosure and Reporting, Corporate Finance Department Mr. Ilan Zioni) and the Ministry of Justice (Head of Corporate Law , Department of Consultation and Legislation (Economic Law) Ms. Ronny Talmor).

The main differences between the final report and the interim report (published in November 2017), which were based on public comments and the team’s additional meetings with market players, are:

  • Appointment of a sponsor (accompanying underwriter) – is required only for the IPO and not for subsequent capital raising rounds.
  • Disclosure on remuneration of executive officers – An aggregate disclosure of the total remuneration of a company’s top five executives is recommended, in lieu of a detailed disclosure of the remuneration of the top three executives.
  • Dual listing – The final report includes a proposal to permit dual listing subject to a specific examination of the foreign exchanges involved, similar to the model used in the primary market.
  • Tax incentives for investors in R&D companies  – The final report includes a recommendation to recognize investments of up to NIS 5 million as a capital loss for tax purposes in the tax year in which the investment was made or subsequent tax years (in lieu of recognition of the investment only upon sale of the shares).
  • Accounting standards – Financial statements may be drafted only according to IFRS or US GAAP and not according to Israeli accounting standards.
  • Reporting language – The financial report includes a recommendation to permit all high-tech companies listed on the SME exchange to report in the English language, and permit them to continue to do so even if they transfer to the primary exchange.
  • Appointment of an internal auditor – All companies listed on the SME exchange will be required to appoint an internal auditor.
  • Enforcement model – Enforcement in the SME exchange will be based on the model in place in the primary market, including adjustments for firm size. That is to say, enforcement will take place on the three levels that currently exist (monetary penalties, administrative enforcement, and criminal enforcement), but the maximum penalties will be adjusted, and a more lenient enforcement policy will be established that takes firm size, financial position, operating history, and potential damage into consideration.
  • Organizational structure – The final reports suggests to consider adjustments to the licensing and corporate governance requirements in place in the primary market, including the requirements that apply to holders of a stock exchange operating license.

    For the Final Report (in Hebrew), please click here.

For a short version of the full report, translated to English, please click here.

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