TASE Indices Overview
Indices are a method for calculating the increase or decrease of a number of components together. TASE indices reflect the average price levels of selected groups of securities traded on TASE.
Changes in the indices reflect the return to investors in the securities, and measure the results for positive investment (gain) or negative investment (loss), both in real-time during the course of a trading day, and over different periods of time.
The rules for calculating, updating and managing indices are described in–depth in the Index methodology.
Types of TASE Indices
- Benchmark Indices - fairly simple indices that reflect a return of a specific market or industry. Having said that, the index methodology of benchmarking indices does not allow financial products such as ETFs, Tracking funds etc. to track the performance of an index. Most benchmark indices are based on End of Day calculation methodology and are calculated once a day, at the end of trading day according to the closing prices of the securities comprising the index.
- Tracking Indices - these types of indices require a sophisticated up to date methodology, which allows precise and accurate tracking of financial products such as ETFs, Tracking funds etc. The more the index "fit" for tracking financial products the better the quality of the index. Most tracking indices are calculated based on real-time methodology and are calculated every 15 seconds according to the real-time prices of securities traded on the exchange. Most TASE indices are real-time indices, and TASE has invested greatly in improving their quality over the years.
TASE Tracking Indices
TASE edits and calculates three family types of tracking indices:
The majority of indices TASE calculates and edits are real-time indices. TASE constantly works to adapt its rules based on market needs and the changing conditions in the marketplace. The improvements are reflected in periodic updates of the rules alongside major reforms that were implemented over the course of the past couple of decades, and which have driven TASE indices to the front line of the investment world.
a. The "Diversification Reform"
On February 2017, TASE launched a new index methodology to reduce concentration in TASE indices. The reform includes the following major improvements:
Reducing dependence on large stocks - TASE expanded the number of constituents in the different indices and reduced weight caps significantly.
Improving the tracking of performance index - new rules were established to enable tracking financial products such as ETFs,Tracking funds etc. precisely and accurately.
- growth indices, such as the TA-Growth, and TA-Biomed TA-GlobalBluetech, now include shares that meet certain, more lenient, criteria. The list of shares that meet these criteria is called Tamar Universe and includes over 300 shares.
- flagship indices, such as TA-35 and TA-125, include shares that meet more stringent criteria. These indices can be used as underlying assets for derivatives. The list of shares that meet the stringent criteria is called Rimon Universe and includes over 200 shares derived from the Tamar Universe.
– the list of shares included in the indices and universes is updated semi-annually, in February and August, as applicable.
b. Implementation of international standards
On July 2010, TASE implemented new methodology based on the principles of a methodology used by FTSE. The reform significantly improved day to day ongoing management of financial products such as ETFs, Tracking funds etc. and reduced their administration costs. The reform had a significant contribution to the market growth of equity indices products from about 5 billion NIS in 2008 to approximately 40 billion NIS in early 2017.
This change was due to two key factors:
c. The free float calculation reform
On February 2008, TASE began to calculate a share's weight in the indices using free float as a substitute for calculating weight by full market capitalization. In addition, free float value for the purpose of calculating the index has been changed from daily updates to periodical updates. The reform was implemented in a wake of changes implemented by top world index calculators.
Tel Bond Indices (based on corporate bond series)
The Tel-Bond indices family, which TASE edits and calculates, are real-time indices. On February 2007, TASE first introduced the Tel Bond-20 Index and has since significantly expanded the Tel-Bond family.
Bond market transparency in Israel is among the highest in the world. In the United States and Europe, most of the bonds are traded between brokers and banks (OTC - Over the Counter) and are not listed on the exchanges. As a result, most of the world's bond indices are end of day indices.
Most Israeli bonds are listed on TASE, the bonds are extremely liquid and their prices are transparent and quoted real time. This has enabled the TASE to develop a series of corporate bond indices, among the most advanced in the world. Despite the fact that Tel-Bond indices are relatively young, Tel Bond indices financial product market grew to approximately 35NIS billion (as of January 2017).
TASE constantly works to adapt indices rules to market needs. The improvements are reflected in periodic updates of index rules as well as some significant reforms:
a. Single issuer weight limit in an index
On August 2013, certain rules were added to the Tel-Bond indices in order to limit the maximum weight of a single issuer in the index. Adding these types of rules was necessary due to the fact that a significantly large number of companies issued several series of bonds. Thanks to these mechanisms, diversification of the Tel Bond indices grew dramatically and reduced the risk profile for corporate bond indices investors.
b. Implementation of international standards
On April 2012, TASE implemented new methodology based on the principles of a methodology used by FTSE, similar to the equity indices reforms in July 2010. The reform significantly improved the day to day ongoing management of financial products such as ETFs, Tracking funds etc. and reduced their administration costs.
Among other things, the reform included:
- Stabilization of TASE index compositions and a significant reduction in constituents' turnover.
- The inclusion of corporate bond series, which had partial redemption (not included until the implementation of the reform). The change was made possible due to a change in the mechanism for calculating the corporate bonds Ex-prices partial redemption. As a result, a significant number of additional bonds were added to Tel-Bond indices and to the Tel Bond Universe (the list of corporate bond series that meet threshold criteria of Tel-Bond Indices) was made possible and the Tel-Bond family expanded accordingly.
Government Bond Indices
Government bond indices were launched in the early 1980s and are calculated at the end of the trading day according to the closing prices of the bonds. The underlying asset consists of the bonds issued by the State of Israel and are characterized by large series and high liquidity. TASE government bond indices have been serving the financial tracking product market faithfully for years and are estimated at approximately 20 billion NIS (as of January 2017).
End of day equities and convertibles indices
End of day corporate bond indices
End of day government and general corporate bond indices
These type of indices were developed during the 1980s and 1990s and are mainly used by the mutual funds market.
TASE is the administrator of volatility Index VTA35.
The VTA35 index measures the market's expectation of 30-day volatility implied by at-the-money TA-35 Index options prices. The index was developed according to the unique characteristics of the Tel Aviv Stock Exchange Derivatives market. VTA35 is expected to serve as the volatility barometer of the stock market.
Unlike the traditional indices, index constituents are dynamic and may change during the trading day. In addition, unlike the traditional indices whose level is determined by transaction prices, the VTA35 is calculated based on mid prices of "at-the-money" options, i.e. options whose exercise price is close to the TA-35 index at the time of calculation.
VTA35 is a real-time index published every 15 seconds, starting from open phase of the stock market till end of trading session in the derivatives market.