To view this press release as a Word document

Joint position paper regarding ETN managers’ bank share holdings

The Bank of Israel’s Banking Supervision Department and the Israel Securities Authority today published a joint position paper regarding a possible work outline related to the issuing, by ETN issuing companies, of exchange traded notes which track the bank shares index. The proposed course of action is in line with the provisions of the relevant laws and allows those companies to hold banks’ shares as an underlying asset of the ETN.


The Bank of Israel’s Banking Supervision Department and the Israel Securities Authority today published a position paper which details a work outline relating to the issuance of ETNs which track the TA Banks Index, and which allows the transfer of ownership of the means of control in the bank from the ETN issuing company to the final holder of the ETN. The goal is to allow investment houses to continue to offer their customers a range of asset management activities, while at the same time avoiding a situation in which a party holds, without a permit, more than 5 percent of the means of control in a banking corporation.

ETN issuers offer, among other things, exchange traded notes that track the TA Banks Index. These notes have raised billions of shekels in recent years. The increase of issuance volume in ETNs tracking the TA Banks Index, as well as mergers of companies that issue ETNs, have led to a marked increase in the size of the bank share holdings of investment houses managing ETNs that track indices which include bank shares (the TA Banks Index, the Tel Aviv 25 Index, and the Tel Aviv 100 Index). In accordance with the Banking (Licensing) Law, an investment house’s holdings of bank shares through managing an ETN are counted in the investment house’s total holdings, with regard to the limitation set in the Banking Law of  holding not more than 5 percent of each type of means of control in a bank without needing a holding permit.

Within the framework of the position paper, it was established that an ETN issuer may issue and manage, should it choose to do so, and subject to the provisions of all legislation, two types of notes: a “transparent” ETN, in which all 4 types of means of control in the note’s assets (bank shares)—as defined in the Banking Law under “means of control”—will be owned by the investors, as well as a “sealed” ETN which operates under the current model, according to which the bank share holdings are assigned to the ETN issuer. Every ETN issuer will be permitted to decide whether to issue and manage one type of ETN or the other, or both types in parallel. This course of action will allow ETN managers to continue to manage ETNs that track the bank shares index without the bank share holdings, which are held to cover those ETNs, being attributed to the ETN manager.
Israel Securities Authority Chairman Prof. Shmuel Hauser said, “This outline will provide a response to changing market needs and is in line with the Authority’s road map which encourages measured and balanced regulation together with the maintaining of core principles of capital market regulation. I am confident that this will allow a solution to a real problem that has arisen at investment houses, and at the same time will provide ETN investors with the voting right of the underlying asset, a right that they did not have in the past.”

Supervisor of Banks David Zaken noted, “This course of action emphasizes the importance attached by the Bank of Israel to the continued development and increased sophistication of the financial markets, at the same time as ensuring efficient and effective supervision of holders of means of control in the banking corporations, with the goal of ensuring the banks’ proper conduct.”