What Ails The Tel-Aviv Stock Exchange?

The Tel-Aviv Stock Exchange is now more than a year into the tenure of Yossi Beinart and it’s no closer to solving the problems that led to the hiring of the new CEO in the first place. In fact, the situation has become worse, with the admission yesterday that a third of the companies trading in the bourse’s sparkling new facility are thinking about abandoning ship.

“The main problem in Israel’s capital market is the lack of regulatory certainly, doubling of regulation and/or differences in rules,” Israel’s top securities regulator said on Tuesday.

Yes, you read that correctly: Shmuel Hauser, the man ultimately responsible for the governance of the country’s capital markets, called himself out.

The market’s regulator found the source of the stock market’s problems by looking in the mirror.

There were seven percent fewer companies traded on the TASE last year than in 2013, according to Bloomberg News. With the exception of five ho-hum initial public offerings in 2014, none of the transactions that are rebranding Israel as the Exit Nation occurred anywhere near Ahad Ha’am Street.

Beinart replaced Ester Levanon, on whose watch trading volumes shrunk and who misdirected a campaign for an index change by MSCI Inc. that actually cost Tel Aviv an estimate $2 billion in share sales. The new CEO Beinart was said to have been regulator Hauser’s “guy”. It was the regulator who pushed for the departures of Levanon and her chairman, Saul Bronfeld.

If you missed the inherent conflict of interest here, let me point it out: In Israel, the regulator has a hand — not just oversight — in the operation of the country’s stock exchange. In this, we’re not much different than Thailand or Hungary.

We’re a developed country, where the regulator should regulate, not meddle.

Which brings us to the present, which is not unlike the not-so-distant past.

When Beinart assumed his new role, he was armed with an impressive set of recommendations developed by outside consultants to improve trading, boost liquidity and encourage smaller startups to raise money locally.  None of that has happened.

Meanwhile, new players are seizing opportunities to enter niches that the Tel Aviv exchange is still just contemplating. For example, startups, or at least their employees and early investors, have a way to cash out of their shares through the new secondary market platform Privatequity.biz. That company recently opened a fund that offers qualified smaller investors exposure to venture capital investments.

The recommendations also suggested that ownership of the stock exchange be converted from a mutual structure (of its members) to a private corporation. That also hasn’t happened. The TASE remains only one of a few of the world’s top 50 exchanges that is still not-for-profit, mutual structures.

Change in Israel’s capital markets has become a game of hurry-up and wait.

But what are they waiting for?