TASE Approves Individual Security Circuit Breaker

Press Release

03/06/2012

At its 24.5.2012 meeting, the Tel Aviv Stock Exchange (TASE) Board of Directors approved the launch of a new mechanism to moderate fluctuations in the prices of individual TASE-listed securities. This mechanism, which functions as a circuit breaker for individual securities, is designed to mitigate price fluctuations resulting from errors or abnormal activity, and it is expected to provide an adequate monitoring primarily on derivative expiration and index product rebalancing days as well as trading days preceding index updates.

The new mechanism monitors anticipated price fluctuations for each security prior to execution of a transaction. If the anticipated fluctuation falls outside a "normal" range, the transaction will not be executed and instead, a five-minute trading halt will be imposed, during which orders causing the anticipated fluctuation can be rescinded, adjusted and new orders can be submitted. After five to six minutes (at a randomly selected moment within the one-minute window), a round of multilateral trading will take place, followed by the resumption of regular trading.

The mechanism is triggered when anticipated price fluctuations reach a critical level, which has been set for the various types of TASE-listed securities. The volatility moderator is activated when the anticipated price fluctuation exceeds either the "static" or the "dynamic" volatility value (see Annex below) set for the relevant security type. The volatility moderator will not be deployed for typically high-volatility securities, such as derivatives, rights, and shares listed on TASE's low-liquidity and maintenance lists.

Securities exchanges worldwide, which operate trading systems similar to TASE's, employ similar volatility moderator mechanisms. TASE's individual security circuit breaker is scheduled to be activated in a few months.

The existing market wide circuit breaker mechanism deployed to mitigate excessive fluctuations in the TA-25 index remains intact and unchanged.

Annex
An Illustration of How the Volatility Moderating Mechanism Works

Share A, a constituent of the TA-25 index, is being traded in the continuous trading phase of the TACT system. Its last transaction was executed at 100.

A buy order for Share A, submitted by mistake with an unusually high price, renders the share's anticipated price to be 104, i.e. 4% higher than the price set in the previous transaction. This anticipated fluctuation exceeds the dynamic parameter triggering the circuit breaker for individual TA-25 index constituent shares (currently 3%). As a result, the buy order will not be executed and the circuit breaker will be initiated instead– starting with a 5-6 minute trading halt, followed by a multilateral trading session. At the end of the multilateral session, continuous or closing trading (as relevant) in the share will resume.

If the buy order was indeed submitted by mistake, the submitter has the opportunity to cancel the order during the pre-multilateral trading. If the buy order is not canceled, investors are given the opportunity to submit counter orders, which will likely mitigate the anticipated "abnormal" price fluctuation, during multilateral trading.

The following table summarizes threshold price fluctuations triggering individual security circuit breakers:

Market	Type of Security	Static Volatility	Dynamic Volatility
Equity	TA-25	6%	3%
	TA-75	7%	3%
	MidCap – Index Universe	7%	4%
	Mid & SMALL Cap - non-Universe*	12%	10%
	Convertible Debt	7%	4%
	Equity ETNs (index products)	6%	3%
Debt	Government Bonds	2%	0.5%
	Corporate Bonds	4%	2%
	Bond ETNs (index products)	4%	2%
T-Bills (MAKAM)		0.5%	0.1%

* Not including shares listed on the Maintenance or Low Liquidity lists.

Static Volatility and Dynamic Volatility are defined as follows:

1. Static Volatility is the anticipated fluctuation resulting from a pending transaction relative to the price set for that security during the previous multilateral trading session held for it. If there were no transactions for that security during multilateral trade on a given day, Static Volatility will be checked against the security's Base Price on that day.

2. Dynamic Volatility refers to the anticipated fluctuation from a pending transaction relative to the price set for that security in the previous transaction (Dynamic Volatility is not relevant for the Opening Trading stage ). Dynamic Volatility is calculated for prices anticipated as a result of continuous trading as well as for the anticipated price in the Closing stage of trading.