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| The Exchange-traded notes (ETN) market has developed rapidly in Israel over the past few years, as has the market for exchange-traded funds abroad. As of the middle of 2012 more than 300 ETN series tracking bonds and share price indices trade on the Tel Aviv Stock Exchange (TASE). The value of the public float in these instruments exceeds US $ 12.5 billion.
At its 28/6/2012 meeting, the TASE Board of Directors approved additional regulations, designed to better address investor needs, while maintaining fair and orderly trade.
Key additions to the Regulations:
1. Criteria for indices eligible to serve as ETN underlying assets:
– The value of the public float of a local share index serving as the underlying asset for an ETN shall not be less than NIS 7 billion and of a bond index shall not be less than NIS 3 billion.
– A local share index shall solely include shares included in the index universe or shares for which the public float is at least NIS 75 million and constitutes at least 10% of shareholders equity. For local bond indices, all bond series represented in the index must have a market value of at least NIS 200 million.
– The weight of a single security in a local index shall not exceed 20%.
– Requirements shall be placed on local and foreign index vendors regarding their experience in creating and calculating indices and on the seniority of the index and its publication.
2. Traded Depository Notes
From this day forward the listing rules governing ETNs will apply to exchange-traded depository notes as well. Until now these instruments were listed under the listing rules set for corporate bonds.
Leveraged without rebalancing ETNs
At the same board meeting, the Board of Directors set restrictions on the maximum leverage used in leveraged “without rebalancing” ETNs, as follows:
– On the TA-25 and foreign indices (which include TASE-traded shares): long ETNs – 3 times the underlying index; short (inverse) ETNs – 2 times the underlying index.
– For all other local indices – 2 times the underlying index.
– For foreign indices which do not include TASE-traded shares: 3 times the index for both long and short ETNs.
Within the framework of the revised regulations, the TASE Board will be authorized to suspend trading or delist ETNs, should orderly trade in either an ETN or an underlying index be disrupted. In such cases the ETN issuer will be required to exercise early redemption of the ETN within 30 days.
Leveraged Rebalanced ETNs
It is anticipated that proposals enabling monthly rebalancing of leveraged ETNs on the TA-25 index and setting rules for the approval of daily rebalanced leveraged ETNs on foreign indices will be brought before the Board in the near future.
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