Strengthening Trust in Israeli Financial Markets: The Case of the Demutualisation of the Tel Aviv Stock Exchange

Abstract

The Israeli stock market is in turmoil. In recent years, the Israel Securities Authority has initiated significant legislative changes intended to tighten the regulation applying to public companies in Israel. These legislative changes drew their inspiration from Anglo-American law. However, it became apparent that these changes significantly impeded the operations of public companies in Israel, leading to the deletion of such companies from trading and their registration in countries with more lenient regulation. The fall in the scope of trading on the Tel Aviv Stock Exchange led to mutual recriminations between the chairperson of the Israel Securities Authority and the chairperson of the Tel Aviv Stock Exchange concerning the reasons for the current situation. The steep decline in the scope of trading on the Tel Aviv Stock Exchange exposed a crisis of trust in Israeli financial markets. I shall argue that to encourage trust in Israeli financial market, we should adopt a general reform regarding the implementation of internal corporate governance mechanisms in the working process of the Israel Securities Authority and Tel Aviv Stock Exchange. In this framework, I will discuss the implication of several insights derived from the Organizational Management theory on special processes which could enhance cooperation between financial authorities and self-regulatory organizations in Israel. I believe that adopting such processes in Israel may contribute significantly to improving trust in the financial markets.