ISA Will Identify Securities Transactions, Made by Institutional Entities, through Special Tags

 

The ISA will be able to identify transactions made by fund managing public institutions on the stock exchange. This is done in order to improve the supervision over the aforesaid entities, and those active in them, and to shorten the time required for identifying and dealing with the contravention of the law. The decision was made by the plenum of the ISA on 17.08.08.

 

The need to increase supervision over the activities of investment managers and different institutional players arose following the Bachar reform, under which the control over large financial entities was transferred from the banks to various companies, thus necessitating reorganization of existing supervisory practices, both conceptually and technologically, in order to ensure the interests of those whose money is managed by the aforesaid entities.

 

In light of the aforesaid, it was decided to improve supervisory efficiency by means of increased cooperation between the regulators of institutional entities. Under the new arrangement fund managers will supply the ISA with information regarding securities transactions made by mutual funds for themselves as well as on the “nostro” account of the fund management company. The ISA will also be able to receive information regarding activities on “nostro” and “split” accounts of portfolio management companies.

 

In addition to expected improvement in the ISA’s supervision over fund and portfolio managers, the aforesaid information will also allow to supervise the trade on the TASE. Information pertaining to activities of institutional entities, supervised by the Capital Market Division at the Finance Ministry (pension funds, provident funds, and professional study funds), will also be made available to the ISA. Supervisor of the capital market at the Finance Ministry has expressed his support this action.

 

The aforesaid activity is similar to activities performed by other regulators around the world. The legal framework, regulating supervision activities in Europe, is part of the European Directive coordinating the functioning of European financial markets as regards financial instruments (MiFID). The Markets in Financial Instruments Directive (MiFID) is a European Union law which provides a harmonized regulatory regime for investment services across the 30 member states of the European Economic Area. MiFID has requirements relating to the information that needs to be captured when accepting client orders, ensuring that a firm is acting in a client’s best interests and as to how orders from different clients may be aggregated. MiFID also requires firms to publish the price, volume and time of all trades in listed shares, even if executed outside of a regulated market, unless certain requirements are met to allow for deferred publication. As part of the reporting requirements, the financial services firms are required to identify their clients.

 

The proposed tagging system is anticipated to increase supervisory efficiency. The identification of those active on the capital market will improve the focusing of supervisory entities. Improved focus will, in turn, shorten the time required for identifying and dealing with irregular transactions in securities. Deterrence, brought about by transparency in trading activities, is also expected to prevent further circumvention the law.