Settlement process – Israel
Broker-to-broker settlement of exchange based trades takes place on T+1 (=SD) and cash on T+1 via the TASE-CH, generally through accounts operated by stock exchange members. Exchange members that do not maintain accounts directly at the TASE-CH ensure access via the account of another TASE-CH participant. The nominee concept is recognised in Israel and facilitates the use and operation of participant accounts at the TASE-CH by non-resident investors.
Securities are issued and registered in the books of the issuing company under the name of one of three “nominee companies” belonging to one of the local banks (Bank Hapoalim Ltd or Mizrahi-Tefahot Bank Ltd) or TASE:
- Bank Hapoalim Ltd – The Nominees Company of Bank Hapoalim Ltd;
- Mizrahi-Tefahot Bank Ltd – Mizrahi Tefahot Nominees Company Ltd;
- Tel Aviv Stock Exchange – The Tel Aviv Stock Exchange Nominee Company.
On-exchange trading and settlement is executed by means of book-entry transfers between TASE participants, with ownership recorded in the books and records of the participants.
Settlement of equities between exchange members is DVP. Foreign investors may arrange a T+2 settlement cycle with their brokers in order to complete the broker to custodian leg.
The TASE acts as a central counterparty to all (TASE) exchange trades.
Settlement cycles
Equities: | T+1. Foreign investors may arrange a T+2 settlement cycle with their broker. |
Government bonds, corporate bonds and Treasury bills: | Standard settlement cycle is T+1 (=SD) for instructions submitted by the depository to the CSD on T (=SD-1). |
The settlement cycle for corporate bonds is a T+1 basis. However, foreign investors may arrange a T+2 settlement basis with their brokers.
Securities settlement instructions received on a Friday will be matched and settled on the following Sunday. Settlement instructions matched on a Thursday will be settled in the market on Fridays. Cash instructions can be sent and processed on Friday and holiday eve until 12:00 noon local time.
Settlement flow
Equities and debt securities
| T+0: | Local brokers execute trades via TACT at the TASE. |
| T+1 (or 2) = SD: | Information about trade contracts is transmitted electronically to the TASE-CH by the TASE and securities positions are netted multilaterally between accounts maintained by exchange members at the TASE-CH. Cash related to transactions executed on T settles between accounts maintained by TASE members/TASE-CH participants via Zahav. Local custodians generally receive settlement instructions from their customers from T+1 onward and match on SD-1 with the counterparty (=TASE-CH participant). Matching occurs electronically between TASE-CH participants via TASE’s Extranet matching system. Once matched, the transaction is submitted for settlement on the TASE-CH books via a single batch that runs from 19:00 local time on SD-1. Once the transaction is matched via Extranet, it cannot be cancelled unilaterally but it is not technically “binding” and can still be cancelled bilaterally if a written request has been submitted to and approved by the TASE-CH. Settlement finality is reached following the overnight batch at the TASE-CH and the reporting of settled trades to the local participant/custodian. In turn, custodians confirm settlement to their clients and fulfil the open cash obligations of their clients. Once the settlement cycle for securities is completed on SD, the TASE-CH sends a “net accounting entries file” to the BoI. At 09:15 (SD+1 morning) local time, BoI debits/credits the relevant TASE-CH participant accounts held on its books (internal entries) and sends the new updated participant account balance via Zahav. |
Off-exchange trading and settlement
Off-exchange trading and settlement of equities and government bonds are possible free of or against payment. However, such trades, which result in a change of beneficial owner, are subject to specific reporting to the TASE-CH by local custodians, even if the trade is “internal” to one participant. The volumes of off-exchange transactions are published daily by the TASE-CH.
BoI reporting requirements
The BOI revised the FX reporting requirements with effect from 1 January 2017.
The reporting requirements apply to parties that reach an average daily volume of USD 15 million or more of subject transactions, that also include FX spot deals, over the preceding 12 months.
The report should be submitted one trading day after the trade was executed.
For complete details, please refer to the this Bank of Israel link:
http://www.boi.org.il/en/NewsAndPublications/LegislationAndRegulations/Pages/Derivatives.aspx
Registration
The nominee concept is recognised in Israel. Although it is possible to hold physical bearer certificates, it is not market practice to do so as all exchange traded securities must be dematerialised and reregistered in the name of the nominee company before a sale transaction on the TASE can be completed. This process takes about 21 working days, during which time the equities cannot be traded.
In order to facilitate the registration of securities listed on the TASE, the books of the issuing company indicate that the securities are held by a Nominee Company that is a wholly owned part of TASE or one of the following local banks (Bank Hapoalim Ltd or Mizrahi-Tefahot Bank Ltd):
- Tel Aviv Stock Exchange – The Tel Aviv Stock Exchange Nominee Company;
- Bank Hapoalim Ltd – The Nominees Company of Bank Hapoalim Ltd;
- Mizrahi-Tefahot Bank Ltd – Mizrahi Tefahot Nominees Company Ltd.
Note: In January 2018 TASE established its own Nominee Company – The Tel Aviv Stock Exchange Nominee Company.
The Nominee Company deposits the jumbo share certificate in the vault of a "Coordinating Bank", namely the bank that wholly owns the Nominee Company. The jumbo certificate is immobilised and there is no physical movement of securities as a result of trading.
In the books of the Nominee Company, the TASE-CH is registered as the entity on whose behalf the share certificates are held. In the books of the TASE-CH, its participants are registered as the holders of the security and the records of the TASE-CH participants show the names of their customers as holders.
Government bonds, Makams and treasury bills are also listed on the TASE. Government bonds with a maturity of more than 13 months are registered in the name of the Ministry of Finance (MoF), in the capacity of a nominee, and are fully dematerialised. Makams and treasury bills, both being government debt instruments with maturity of up to 13 months, are registered in the name of the BoI, in the capacity as a nominee, and are also fully dematerialised. Consequently, the beneficial owner holding such securities cannot request certificates of government bonds and treasury bills in physical form.
In the books of the MoF or BoI, in the capacity as a nominee, the TASE-CH is registered as the entity on whose behalf the certificates are held. In the books of the TASE-CH, its participants are registered as holders of the security and the records of the TASE-CH participants show the names of their customers as holders.
As of January 2010, the TASE-CH no longer permits securities issued and held in dematerialised form to be re-registered into physical form.
Stamp duty
Stamp duty is not applicable in the Israeli market.
Penalties (buy-ins etc.)
Short-selling
Naked short-selling is not allowed. In the event of a short-sale of a security, the seller must ensure that the corresponding nominal of securities is borrowed to cover the position. Short-selling guidelines are covered in the relevant chapter of the TASE Trading Guide, Rules under Part Three of the By-Laws.
Buy-Ins: On-exchange transactions in equities and debt securities
On-exchange transactions (including custodian on-exchange transactions) in equities that fail to settle on the designated settlement date (that is, during the overnight settlement cycle) due to insufficient securities in the TASE member’s securities account at the TASE-CH will be processed and covered by the TASE-CH acting as central counterparty (CCP).
At the end of the designated settlement date, the TASE-CH debits the defaulting TASE member’s General Clearing Member (GCM) cash account with the BoI for an amount that corresponds to the “missing quantity of securities” multiplied by the “opening price of the security” that is the subject of the transaction, plus a safety margin as defined in the TASE-CH by-laws. This amount is then credited to a transition account at the TASE-CH.
On every business day for which the transaction remains in fail status, the TASE-CH will mark-to-market the amount to be debited from the client’s GCM account at the BoI with that day’s opening price of the security, plus a safety margin as defined in the TASE-CH by-laws.
The failed transaction is submitted for clearing on each of the following clearing days until the balance of securities matches the quantity required for settling the original trade, at which point the TASE-CH clears the transaction and reimburses the defaulting TASE member’s GCM cash account at the BoI with cash funds held in a TASE-CH transition account that were debited against it in connection with that transaction.
If a failed transaction has not been cleared by the morning of the fourth business day after Trade Date (T+4), then the transaction shall be designated as a “final” failed transaction after the clearing cycle of that day.
When a transaction has become a final failed transaction, the TASE-CH begins the failed transaction clearing procedure (buy-in), in the framework of which the TASECH uses a purchasing agent to acquire the missing quantity of securities using the funds in the transition account and, if necessary, additional funds from the client’s GCM account with BoI.
In addition, a securities transaction on the TASE is not considered completed until its cash settlement. Therefore, registration of the securities settlement of a particular transaction is considered conditional until its respective cash settlement has occurred. The TASE-CH can reverse “conditional” securities transactions for which cash is missing.
Buy-Ins: Off-exchange transactions
There is no buy-in procedure applicable for off-exchange transactions. Such transactions that fail to settle due to shortfall of securities are cancelled by the TASE-CH at the end of Trade Date before the end of day settlement batch and must be resubmitted. Local brokers may pass buy-in costs on to over-the-counter clients in the event that delivery of cash and/or securities is delayed beyond the specified buy-in date.