Tel Aviv Stock Exchange: Making The Capital Market Accessible To The Public

TASE posts today (31.05.23) for public comments a proposal for the reduction of the minimum order size in bonds and T-bills, this as part of TASE’s strategy of making the capital market accessible to the public and removing barriers for the benefit of retail investors and the general public. The minimum order size determines the minimum quantity that can be included in an order submitted to TASE during the continuous trading phase. As previously published, a year ago the minimum order size in the equity market was reduced from NIS 2,000 to NIS 500 and for shares included in the TA-35 Index from NIS 5,000 to NIS 500. This move has significantly increased the number of transactions and the trading volumes deriving from “small” orders, particularly by the public (more on that below).

Another move that TASE is promoting to eliminate trading barriers for bonds and T-bills, aiming to facilitate portfolio diversification, especially considering the current high demand for low risk assets, which are taking center stage in today's high-interest environment

 One of the existing trading barriers for the purchase of those securities is the high minimum order size. For example, a retail investor, with a portfolio of NIS 50,000 is unable to effectively diversify risks - if he chooses to invest exclusively in government bonds, he is limited to a single bond (during the continuous trading phase), since the minimum order size is a NIS 30,000. If he chooses to invest in corporate bonds, the retail investor will be able to purchase only 5 bonds due to the NIS 10,000 minimal order size (it should be noted that the investor is able to purchase bonds in any amount during the auctions).

Accordingly, TASE proposes to set the minimum order size at one-third to half of the existing amounts:

• For government bonds - NIS 10,000 instead of NIS 30,000.
• For corporate bonds - NIS 5,000 instead of NIS 10,000.
• For T-bills - 10,000 par value instead of 30,000 par value.

It should be emphasized that TASE is one of a few exchanges that maintains a transparent and accessible electronic bonds market at affordable costs, which now, with the reduced minimum order size, facilitates participation with even smaller amounts.

Yaniv Pagot, EVP, Head of Trading at TASE: “Enhanced liquidity in the bonds market will be highly conducive to reducing the financing costs of the Israeli Government and the public companies, especially as the financing burden becomes heavier than ever, increasing the companies’ dependence on the banking system. In addition, the reduction of the minimum order size in the Israeli bonds market will improve the trackability of the bond indices and reduce tracking errors, to the benefit of the investors. The market of ETF’s tracking Israeli bond indices manages close to NIS 53 billion and offers multiple investment solutions in this area.”

The reduction of the minimum l order size generated a triple-digit growth in the trading volumes and the number of transactions deriving from “small” orders

The reduction of the minimal order size in the equity market was implemented on 1.3.22 in the form of a pilot, among others, as a means to examining its impact on increasing retail involvement in the trading on TASE and enhancing the liquidity.

After a little over a year, TASE’s data show a significant increase in the orders/transactions activity following the reduction of order size in the equity market¹ (the data for an “Israeli investor” type customer appear in parentheses):

Shares included in the TA-35 Index

Other securities in the equity market

The data show that in the leading shares, the retail investor drastically increased its activity, similarly to the increase in the activity of larger customers in the same shares, among others, with 6 times more orders than prior to the change. Activity increased also in relation to shares that are not included in the TA-35 Index, but to a lesser extent.

1. A comparison was performed of two periods: before the change - September 2021 to February 2022, and after the change - March 2022 to May 2023. For both periods, the examination covered all orders submitted to TASE in an amount of NIS 500 to NIS 2,000 (for shares included in the TA-35 Index, NIS 500 to NIS 5,000), the number of transactions that derived from those orders and the trading volume that derived from those transactions, in shekel terms. The data also include orders/transactions/volume of orders that are residual to larger orders, since it was impracticable to isolate them.