Technology and innovation in the start-up nation's capital market

Published by: The WFE Focus Team Jun 2020

As Israel's national securities regulator, the Israel Securities Authority (ISA) places the utmost importance on both oversight and development of our capital market, in ways that will promote and protect the interests of the public of investors.

This approach has led us to study technological trends and developments continuously with the aim of creating a supportive regulatory environment for technology in the Israeli capital market, and implementing technological regulatory tools by the ISA.

The past few years have seen technological innovation becoming a key component of the ISA's work, with several notable examples illustrating the success of the ISA's approach.

The Internet Voting System 

One example that becomes increasingly relevant due to the Covid-19 crisis and the ensuing measures for its containment, such as social distancing, is ISA's remote voting system. This allows shareholders to vote online from the comfort – and safety – of their home. Initially, the system aimed to encourage shareholders, bondholders, owners of option warrants and participation units to exercise their voting rights in meetings and increase their involvement in the companies’ decision-making process. That participation has had a positive impact on both companies' corporate governance and investors' safety.

The Internet Voting System is a convenient, easily accessible, user-friendly channel that can be used 24/7. The system functions as a service to capital market investors, expanding voting methods that are presently in use and providing an additional measure for protecting investors’ interests.

Since its launch in 2015, the Internet Voting System has been used for online voting in more than 7,000 company meetings, and more than 400,000 accounts of securities holders have voted in these meetings using the system.

One of the main advantages of this channel is that securities owners are not required to obtain or submit any proof of ownership issued by Tel Aviv Stock Exchange (TASE) members because the system confirms ownership automatically. A Blockchain technology that was assimilated into the system later has added another layer of security and verification to the process.

How does it work?

  • The company enters the meeting details into the MAGNA reporting system.
  • TASE members view the information on the scheduled company meeting, and send information on the scheduled meeting to the securities holders.
  • When due date arrives, The Internet Voting System creates a unique internet page for the scheduled company meeting and a voting page.
  • Each TASE member submits details of the securities owners eligible to vote. 
  • Voting starts and remains open until six hours prior to the scheduled meeting date and time. In this period, eligible securities owners may access the system and, after an identification process, may vote, modify their previous vote, submit proof of ownership, and perform other additional actions.
  • At the conclusion of the Online Voting Period, the results of the online vote are transmitted to the company.
  • All online voting results are retained in the system.

Digital markets and financial technology

  • As another part of ISA's agenda to promote innovative technologies in the Israeli capital market, in July 2019 I appointed an interdepartmental committee to promote and institutionalize digital markets in Israel. The Committee focused on platforms for issuing, trading, clearing and settlement based on distributed ledger technology (DLT). Click here to access the Committee’s full report.
  • Based on the Committee’s extensive review and meetings, I believe that DLT has the potential to promote the Israeli capital market. Adopting this technology may reduce trading costs to end clients and systemic risks to the economy, and also may create a technological environment that encourages financial innovation and increases access to the capital market for classes of companies (such as small- and medium-sized enterprises or SMEs) that have refrained from using the public capital market for financing purposes so far.
  • Continuing the initiative that underpins the establishment of the committee, we invite business entrepreneurs and technology providers to contact us if they wish to present or demonstrate a proof of concept (POC) of specific features of DLT relevant to the development of the digital platforms/exchanges. The POC will be conducted through the “Pilot Program”, an innovative joint venture of ISA and IIA (Israel Innovation Authority) aimed at Israeli fintech companies that are interested in conducting a pilot with ISA or one of its supervised entities and can comply with IIA's track procedures.  [1]    

During the pilot run the companies will benefit from the ability to test their products and have access to unique data bases – a historical database of public MAGNA reports with Meta data and stock exchange's historical trading data in an API interface - subject to coordination with the stock exchange.

Fintech companies admitted to the program will benefit from assistance and guidance of ISA's staff to adapt the product to similar clients, as well as financial support for product and technology customization and demonstration of their implementation of 20% to 50% of the companies’ approved expenses. A new call for proposals is scheduled to be published this June.

These initiatives are merely a glimpse into ISA's work on innovation and technology, and we intend to keep investing resources into such projects in the years ahead. The public of investors is continuously changing its consumption patterns of financial services, as a new, younger cohort of investors enters the market. The new technologies challenge existing regulation designed several decades ago, and structural and operating adjustments are critical in order to maintain its relevance to the markets and to the world.

 [1] https://innovationisrael.org.il/en/opencall/pilot-program-israel-securities-authority-call-proposa