TASE Continues to Develop the Capital Market in Alignment with International Standards - An innovative market-making reform kicked off, focusing on shares included in the TA-90 index. TASE will manage the market making program, to which it will dedicate NIS 6 million; the market-making parameters will be determined competitively
Tel Aviv, Monday, August 19, 2024 - The Tel-Aviv Stock Exchange (TASE: TASE) announces today the launch of a market-making reform across all securities, with emphasis on shares included in the TA-90 index, which will reward market makers for liquidity, large quantities and tighter spreads.
The reform is another step in TASE’s strategic plan, which prioritizes the enhancement of liquidity at TASE, and follows other important moves, such as the indices reform, the introduction of new weekly expirations for TA-35, the launch of futures on equity indices accompanied by a market maker (commencing on September 1, 2024) and the launch of a block trading system that will air later this year.
The new market-makers reform is based on three fundamental principles:
- The market-making program will be managed by TASE (which will engage with both the market makers and the public companies).
- TASE will participate in the payment to the market makers - the total cost of the program will be NIS 6 million a year.
- The market-making parameters (quantity and spread) will be determined competitively by the market makers.
At present, each company engages in a separate agreement with a market maker. Under the new program, TASE will enter into an agreement with all of the market makers, assume the management of the program and reward the market makers, as is common practice in other global exchanges. There are currently 3 market makers transacting in close to 300 securities (mostly shares). A review conducted by the TASE Staff indicates that, while the market makers fully meet their obligations, their contribution to liquidity is limited.
Stages of the reform
Initially, TASE will identify entities with market-making potential, in order to increase the number of participants in this market. In 2022, the TASE Rules were amended, to the effect that a market maker (in shares and bonds) is no longer required to be a TASE member or a subsidiary of a TASE member. While this move created new opportunities for competition in market making, in practice, no new entities joined the existing market-making program.
As part of this initial stage, TASE published a call for potential market makers, containing details of the proposed program, including the available compensation. (https://maya.tase.co.il/en/reports/details/1611965). TASE will screen the candidates that will sign up and select those qualified to serve as market makers. At the same time, TASE will take steps to encourage the companies to join the new program.
In the second stage, the list of the companies looking to join the program will be delivered to each of the selected market makers. The market makers will compete among themselves for every security in which they are interested in acting as a market maker. They will deliver to TASE the market-making parameters, the minimum quantity and the maximum spread for each security, and TASE will rank each market maker based on its proposed parameters for the security. The top-ranking market maker will be awarded market making in the security and the market-making parameters will be those of the winning market maker. To avoid “overly lenient” parameters, TASE will set minimum parameters for a quote, effectively setting a bottom threshold. TASE will also set a minimum quantity and a maximum quantity of securities per market maker.
The market makers shall be entitled to the following financial compensation:
Shares included in the TA-90 index
The TASE Staff believes that the chances of success of such a reform in the shares included in the TA-90 index are high and that there is a strong potential for a significant enhancement of liquidity, this being due both to the substantial market cap of those shares and to the index-tracking products’ notable interest in this index. It should be noted that, on September 1, 2024, TASE will relaunch futures, including the futures on the TA-90 index, accompanied by the institution of market making in the futures market, this in order to further enhance liquidity.
- A fixed monthly amount of NIS 6,500 will be set. (NIS 4,000 will be paid from TASE’s own resources and the company will contribute NIS 2,500).
- The reimbursement of maker fees to a market maker whose share of the trading volume of the TA-90 share for which it acts as a market maker shall not be less than 3% (up to a ceiling of 10% of the trading volume).
Shares included in the TA-35 index
- A fixed monthly amount of NIS 6,500 will be paid by the company.
Other shares
- A fixed monthly amount of NIS 2,500 will be paid by the company.
- The reimbursement of maker fees to a market maker whose share of the trading volume of the share for which it acts as a market maker shall not be less than 3% (no ceiling).
Bonds, commercial papers and convertible bonds
- A fixed monthly amount of NIS 2,500 will be paid by the company.
To encourage the companies to take part in the market-making program, TASE will allow companies that sign up for the program to connect to TASE’s data system and gain access to comprehensive information on the share, developments in its trading and information on institutional customers and interested parties, at no cost.
Yaniv Pagot, EVP, Head of Trading at TASE: “The market-making program is designed to improve the ecosystem of the local equity market, with emphasis on the enhancement of liquidity, benefiting all participants. A public company that joins the program will enjoy market-making in its shares at a competitive price, under the management of TASE, which would enhance the liquidity of its securities and better serve the shareholders and the investors. This move holds multiple advantages, as it, inter alia, enables private investors to easily enter and exit a position, moderates strong fluctuations in the price of the security, attracts international investors, establishes a more accurate valuation that is based on the price of a liquid security, better reflecting the valuation of the company and increasing its attractivity, due to the liquidity premium that investors assign to securities with better liquidity. In addition, these could help increase the weight of the share in the TASE indices, which is based on the degree of the share’s liquidity in the indices, this in accordance with the indices’ reform from 2023, thereby creating additional potential for increasing investments in the company’s shares. The program is expected to boost the business potential of the market makers and upgrade this sector.”
The program may be voluntarily joined by the companies. The new model will replace the existing program. Companies participating in the existing program may choose whether to join the new program.
The program is subject to approval by TASE’s Board of Directors.
