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Following Hauser Committee Recommendations on Stock Market Manipulation: Israel Securities Authority Approves Changes in TASE Trading


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Companies publishing a commitment in their prospectus to appoint a market maker for at least one year will now need only 35 rather than 100 shareholders as currently stipulated in the Tel Aviv Stock Exchange (TASE) bylaws. This amendment, which is designed to encourage public companies to employ market maker mechanisms by substituting minimal requirements for dispersion of shareholdings as a means to reduce the potential for securities price manipulation, was approved this week by the Israel Securities Authority (ISA). Approval was given in response to a request by the TASE.
The easing of this requirement stems from the recommendations of the Hauser Committee, that was appointed by the ISA Chairman, Moshe Tery, with a view to recommending measures to prevent market manipulation. The committee’s findings were submitted to Tery in September 2005, include the recommendation to lower the threshold for shareholder dispersion for IPOs in which the issuer commits to appoint a market maker for the issued securities. The assumption behind this recommendation is that deployment of a market maker will increase the liquidity of the securities affiliated with it. The amendment ratified by the ISA, at the TASE’s request, anchors this recommendation in TASE directives and is effective immediately. 
In addition, the ISA approved shortening the time in which orders can be cancelled during pre-opening trading by ten minutes. The previous rule stipulated that a person submitting orders to set the theoretical opening price could cancel an order only within a 15-20 timeframe after submitting the order. The TASE claims that this is time frame is the longest allotted among leading world exchanges. The length of the interval can create problems for investors who submitted orders during the pre-opening stage, and, due to sudden changes in market conditions decided to cancel then prior to opening. The Hauser Committee, which examined the experience accrued in the TASE and other exchanges, recommended to shorten the period in which orders can be cancelled by 10 minutes. According to the new rule, orders for shares included in the TA-100 index can be cancelled starting at 09:40, rather than 09:30 (until now). For the rest of the shares, the deadline for canceling orders will be 5 minutes prior to opening rather than 15 minutes.
Another change approved by the ISA, which stems from the Hauser Committee recommendations is the extension of the trading day by thirty minutes. The Hauser Committee recommended extending trade of securities and derivatives to 17:30, in order to increase the overlap of time in which shares dually listed on American exchanges are traded simultaneously. The underlying assumption of this change is that extended simultaneous trade will reduce price differentials and incentives to engage in manipulative activity. 
The ISA approved the TASE’s proposal to amend its bylaws and directives such that at the end of the continuous trade stage, a closing multi-lateral auction will be conducted and that closing prices will be based on the results of this auction.
In addition, the ISA approved the TASE’S proposal to significantly amend the listing requirements of R&D companies. The aim of this amendment is to encourage companies engaging in R&D to go public and to develop a primary and secondary market for quality hi-tech industries, a sector which is under-represented relative to their representation in foreign stock exchanges. For this purpose, R&D companies were defined as companies that have invested at least NIS 3 million (in addition to public sector contributions by the Chief Scientist’s Office) in R&D in the three years preceding the offering. This definition was revised so that today Chief Scientist contributions are included in the NIS 3 million threshold.
In addition, the ISA approved reducing the minimal public float required for R&D offerings ranging between NIS 16 and 32 million from 20% to 10% (for offerings of NIS 16-24 million) and 13% (for offerings of NIS 24-32 million). The key factor behind this revision is the fact that R&D companies ten to undergo several rounds of capital raising, meaning that relatively low dilution thresholds will not have a negative impact on liquidity. Another change that was initiated with the aim of encouraging R&D IPOs is the reduction in threshold requirements for shareholding dispersion, similar to than approved for companies employing market makers for their securities. In other words, rather than securing a minimum of 100 shareholders, issuing R&D companies will be required to enlist as few as 35 shareholders.

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