Israel: Securities Regulation

Date01 February 1995
Published date01 February 1995
AuthorAhal Besorai
Subject MatterAccounting & finance
Journal of Financial Crime
3 No.
Securities Regulation
Ahal Besorai
The first tangible securities regulation legislation in
Israel dates back to 1968. In that year, the Securi-
ties Act 1968 was passed as a result of the Yadin
Committee Report, which examined the admin-
istrative and legal aspects of the Israeli stock
market and recommended ways in which the mar-
ket should be regulated.
The 1968 Act came into force in July 1969 and
its approach to securities regulation is based on the
following principles:
(1) listed companies have to disclose reliable
information on their financial situation;
(2) the regulatory authority has to ensure honesty
in securities dealing;
(3) the regulatory authority has to expose and
punish those responsible for harming the
investing public.
The underlying aim was to provide investors with
appropriate protection while maintaining the effi-
ciency of the market. It was said that the
availability of full and reliable information would
enable investors to reach well-informed investing
decisions. The emphasis was placed upon the qual-
ity of the information, its prompt assimilation into
the market and the integrity of the institution and
individuals operating in the primary and secondary
The 1968 Act marks an apparent departure from
the previous stand, which sanctioned massive gov-
ernmental involvement. However, in effect the Act
was no more than a somewhat artificial imposition
of new thinking upon a market in which the gov-
ernment was still highly involved. For instance, s.
8 of the previous Regulations, which requires gov-
ernmental authority before flotation, remained
intact and the system whereby the Government
controls the capital supply and demand was also
left unchanged.
There is a potential conflict in a securities reg-
ulation policy which on the one hand promulgates
market efficiency in line with western concepts of
a free market while on the other hand maintains a
paternalist and perhaps socialist approach which
sanctions central planning as a value in
In an
attempt to avoid such a conflict, the 1968 Act
introduced the Securities Authority (a body gen-
erally modelled on the US SEC). This authority
was set up as a separate statutory body to function
as a counterbalance to the Treasury which had its
own agenda when carrying out the Government's
monetary policy.
The Securities Authority was given extensive
statutory powers to enable it to protect the invest-
ing public. However, 15 years after its
establishment, the Ombudsman criticised it for a
failure to fulfil the true purpose for which it had
been set up investor protection. Furthermore,
the Baisky Committee, which was instituted to
investigate the banks' shares collapse in 1983,
wrote in its report:
'The Authority which had been instituted to
protect the investing public revealed incompe-
tence and was greatly influenced by both
internal and external self-interested elements,
yielding to any sign of opposition. This in turn
left the investor exposed, with no real shield.'
Many formal Reform Committees were instituted
over time in order to put forward proposals for
reforming the securities regulatory system to try to
restore public confidence in the stock market
despite its high volatility. The most sweeping
reform, Amendment No. 9 to the Securities Act
took place in 1988 in the wake of the banks'
share collapse and the ensuing crisis in the Israeli
financial markets.
The amendment strengthened the standing of
the Securities Authority and its position vis à vis
the stock exchange, the listed companies and the
professionals involved in flotation and disclosure
on behalf of these listed companies. It has exten-
ded the legal liability owed by listed companies
and their directors to the investing public and
increased the level of legal responsibility that pro-
fessionals such as lawyers and merchant bankers
bear when preparing the prospectus and annual
and periodic reports. Furthermore, to enable those
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