ETN market in Israel on pace for back-to-back 15% growth as more turn to foreign shares


Bloomberg reporters Yaacov Benmeleh and Boris Korby reported today on the growth of the exchange-traded note (ETN) market on the Tel Aviv Stock Exchange (TSE), where waning volumes have been plaguing the exchange for years now. They state in the article: “As stock trading in Israel plunges and public offerings dry up, the country’s flagship bourse may have found a savior: exchange-traded notes.”

Official TSE data shows that the volume of trading in ETNs, which are similar to exchange-traded funds (ETFs) but have stricter return rules, rose to an average $100 million a day last year and now make up 35% of all Tel Aviv Stock Exchange equity turnover. Two unnamed Israeli brokers serving the domestic market have reported that the 15% growth in the ETN market in 2014, is well on pace in 2015 to match that expansion.

Why has trading volume on regular shares dropped?

According to the piece, MSCI Inc. which upgraded the Tel Aviv Stock Exchange to developed-market status five years ago has consequently led to a 46% drop in trading volumes on regular shares as competing with other developed markets has proved difficult, and Israeli companies are preferring outside exchanges for IPOs.

Other notes:

– Israel is home to a total of 633 ETNs, roughly 10% of the 6,200 exchange-traded products worldwide.

– While an ETN tracks an index the same way an ETF does, companies offering them are obliged to return the exact yield of the tracked asset.

– Several types of index products are traded on the Tel Aviv Stock Exchange: index-linked notes, commodity certificates, reverse certificates, covered warrants and complex certificates. All these types of certificates may be issued by the same company.

– Israeli institutions including insurance companies and pension funds held $74 billion, or about 24% of their assets overseas at the end of last year, the highest proportion on record and the sixth consecutive annual increase, according to the latest data available from the Bank of Israel.

5 year chart of the TA-25 index
5 year chart of the TA-25 index. Courtesy: Google Finance

For the full detailed Bloomberg article, click here.

You can read more about the TSE ETN market by clicking here.

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ETN market in Israel on pace for back-to-back 15% growth as more turn to foreign shares

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